Stornoway Diamond Corporation (SWY)

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Stornoway Ventures Ltd (C-SWV) - Street Wire
Stornoway and Northern Empire's Aviat play wakes up
Stornoway Ventures Ltd SWV
Shares issued 16,307,404 Feb 3 2003 close $ 1.06
Monday February 3 2003 Street Wire
Also Northern Empire Minerals Ltd (C-NEM) Street Wire



by Will Purcell
John Robins's Northern Empire Minerals Ltd. and Eira Thomas, Catherine McLeod-Seltzer and Bruce McLeod's Stornoway Ventures Ltd. have come up with two diamondiferous samples from their large Aviat diamond play on the Melville Peninsula in Nunavut, and speculators were quick to hop aboard the bandwagon, as one of the samples combined a significant microdiamond count with a healthy diamond size distribution curve. That was enough to spark buying, and the promising find in a new area likely sent many scurrying to find the new play on their maps. Although the Aviat diamonds are believed to be the first recovered from Melville Peninsula, the Aviat property is located just to the south of a slowly developing play on Baffin Island, not far from a large land position held by De Beers on Baffin Island, and to the north of another large land position acquired by BHP Billiton on the southern portion of Melville Peninsula. Nevertheless, the news seemed to catch the market off guard, as the results had many investors willing to pay more than double what a share had gone for on Friday, as Stornoway hit a high of $1.08 in intraday trading, with Northern Empire managing to better that mark, peaking at $1.10. The first batch of results from Aviat does seem encouraging, helped along by some promising geochemistry, although it will likely take bigger samples and larger diamonds to sustain the story in the months ahead.
Nevertheless, the Aviat project has come a long way since the two companies struck a deal with Mr. Robins and Lawrence Barry's Hunter Exploration Group to acquire the Aviat North and Aviat South properties just a year ago. At the time, it was the Coronation district that was big news with speculators, and there was not much interest in a grassroots diamond project on Melville Peninsula, just southwest of Baffin Island and to the west of Foxe Basin, at the northern end of Hudson Bay. The Aviat project began early last year, with an agreement that gave Stornoway and Northern Empire 35-per-cent stakes in the play, with Hunter retaining a 30-per-cent share. To earn their shares, Stornoway and Northern Empire are required to spend $2-million by the fall of 2005. Since then, the three partners have expanded the scope of the project in a big way, adding an additional 2.25 million hectares of land to the 500,000 hectares that initially comprised the Aviat project.
Hunter had apparently conducted a regional till sampling program over Melville in 2001, and that provided enough hope that the private company picked up a land position and went looking for some public partners. Mr. Robins did not have to do much shopping, as two of the Northair group of companies took up the challenge. That was no great surprise, as Mr. Robins is head of Northern Empire, and he is a director of International Northair as well. Meanwhile, Mr. McLeod, who graduated as a mining engineer from Montana College of Minerals and Technology in 1987, had been prodding Stornoway toward diamonds, first adding Ms. Thomas as a director, and then making her chief executive officer. Ms. Thomas was a geologist just a few years out of the University of Toronto, running an exploration program for her father's Aber Resources Ltd. in 1994, when the company found the four pipes that are now part of the Diavik diamond mine. She is also the president of another diamond hunter, Navigator Exploration Corp., but so far, it is the Stornoway play that has generated the most interest.
Much of the optimism surrounds the diamond counts just obtained from a kimberlite sample taken from a rock outcrop now dubbed AV-1, on the northern part of the property. The partners removed about 186 kilograms of rock for caustic fusion analysis, and the sample yielded 228 diamonds, or about 1,250 stones per tonne, using a 0.106-millimetre-square cutoff. That is a promising number, but it was the presence of some larger macrodiamonds that triggered much of the market's early optimism. Two of the diamonds were longer than two millimetres, and seven of the stones were large enough to remain on a 0.85-millimetre mesh. Stones having that dimension would typically be recovered in a mini-bulk test. In all, 52 of the diamonds remained on a 0.3-millimetre screen, or about 280 stones per tonne, and that was about 23 per cent of the total parcel. The recoveries were promising with the larger stone sizes as well. There were 27 diamonds large enough to be recovered on a 0.425-millimetre screen, or about 145 diamonds per tonne, and that amounted to about 12 per cent of the entire parcel of diamonds recovered. The seven stones larger than the 0.85-millimetre screen worked out to nearly 40 such stones per tonne, and they accounted for 3 per cent of the AV-1 diamond parcel.
All of that compares favourably with a number of other finds that have brought hope to the market, triggering a surge of speculative interest. For example, Diamonds North Resources Ltd. has successfully revived the Victoria Island diamond play with a series of promotable diamond counts from some of its kimberlites. A tiny sample from Sand Piper started the renewed interest in the play, and so far, 83 kilograms of kimberlite have been processed, yielding 148 diamonds, or about 1,750 stones per tonne. Of those, 35 diamonds were large enough to remain on a 0.3-millimetre screen, or about 420 stones per tonne, and that represented about 24 per cent of the parcel. There were 17 stones that clung to a 0.425-millimetre mesh, or about 200 per tonne, and that was a bit better than 11 per cent of the diamonds recovered. With five diamonds larger than a 0.85-millimetre cutoff, or about 60 per tonne, the haul represented a bit over 3 per cent of the diamonds. All of that was quite similar to the size distribution of the diamonds at AV-1. One of the best results from Victoria Island was obtained from the Sculptor kimberlite, where 209 kilograms of kimberlite yielded 254 diamonds, or approximately 1,220 stones per tonne. There were 67 diamonds larger than a 0.3-millimetre screen, or about 320 stones per tonne, and that was about 26 per cent of the parcel. Using a 0.425-millimetre screen, the number dwindled to 34 stones, or about 160 per tonne, accounting for about 13 per cent of the diamond parcel. There were four stones larger than the 0.85-millimetre screen in the Sculptor sample, or about 20 stones per tonne, which was less than 2 per cent of the parcel. One of the Sculptor diamonds was two millimetres long. The Victoria Island results carried Diamonds North's stock to a 94-cent peak early this year, up from the 30-cent mark, where it hovered late last summer.
Although the numbers of diamonds are no match, the diamond size distribution of the AV-1 sample compares well with the results obtained by Diamondex Resources from a northern extension of the main Snap Lake dike, a deposit that is now being developed by De Beers. Diamondex processed just 56.5 kilograms of rock, but it recovered 346 diamonds, or about 6,000 stones per tonne. Of those, 65 were large enough to remain on a 0.3-millimetre screen, which worked out to about 1,150 stones per tonne, representing about 19 per cent of the parcel. That proportion dropped to about 9 per cent using a 0.425-millimetre screen, and to 2 per cent using a 0.85-millimetre cutoff. Based on those recoveries, the AV-1 sample had a more favourable diamond size distribution than the Snap Lake sample obtained by Diamondex, which seemed representative of the dike as a whole. That is clearly encouraging, but Snap Lake had much higher numbers of diamonds than AV-1. The Snap Lake sample contained about 120 stones per tonne larger than the 0.85-millimetre mesh, which was triple what the AV-1 batch produced. All of the samples are too small to provide more than some early clues about the diamond content of AV-1, but still, the initial numbers appear encouraging.
Meanwhile, the partners came up with a second batch of diamonds from a boulder found about two kilometres from AV-1. It is not known if the boulder originated from the AV-1 deposit, and although there does not appear to be a striking similarity in the diamond counts at this stage, that could well be due to the normal statistical variation expected in such tiny samples. The partners tested a 43.2-kilogram batch of rock, recovering 92 diamonds, or about 2,100 stones per tonne. Of those, 11 diamonds were large enough to remain on a 0.3-millimetre screen, or about 12 per cent, and six, or about 7 per cent, clung to a 0.425-millimetre screen. That was the extent of the larger diamonds, but included in the sample were two stones that were at least one millimetre long, and a third stone narrowly missed the mark.
There has been little in the way of hard news from De Beers or BHP concerning their projects, but they were likely attracted to the area by some promising indicator mineral work of their own. De Beers holds more than three million hectares in its Baffin play, which adjoins the expanded Aviat play. De Beers is not new to the Far North however, as it was exploring the area surrounding Somerset Island, about 500 kilometres northwest of the Aviat property. A cluster of kimberlites were found on Somerset Island during the 1960s and 1970s. Although the best of the finds were just marginally diamondiferous, the hunt continued for quite some time, ultimately expanding eastward onto Baffin Island, where Twin Mining Corp. has built a bit of a promotion out of its Freightrain kimberlite on Brodeur Peninsula. A series of mini-bulk tests of Freightrain have produced some grades in excess of 0.20 carat per tonne, and the diamond content has been modelled as high as 0.50 carat per tonne, although that remains an optimistic value at this stage.
The AV-1 outcrop was apparently discovered last summer, when a geologist was going back to one of the sites that had been till sampled in 2001, producing an anomalous result. The greenish outcrop was subsequently determined to be an outcrop of hypabyssal kimberlite on the shore of a lake. The outcrop measures about 40 metres in length and about eight metres wide, but it open in all dimensions, and it will take a drill program to get a notion of the actual geometry of the body, which may be a dike or a pipe. A drill program could well be in the works in the coming months, perhaps as early as this spring. In the meantime, the partners plan to start a ground geophysical survey over AV-1 in the coming weeks, followed by an additional round of till sampling and airborne geophysics over the Aviat property.
The partners spent about $500,000 on the preliminary exploration program last year, and the exploration now in the works will bring Stornoway and Northern Empire closer to fulfilling their $2-million spending requirement. Work does not come cheaply in the Far North, and after Stornoway and Northern Empire spend the required amount, Hunter would have to help out by paying 20 per cent of the costs, although the remaining 10 per cent of its share is carried to production.
After largely ignoring the play, speculators now seem to be expecting great things from Aviat. Stornoway added 64 cents on Monday, closing at $1.06, as nearly four million shares were traded, while Northern Empire gained 60 cents, closing at $1.10, on a volume of nearly five million shares.

(c) Copyright 2003 Canjex Publishing Ltd. http://www.stockwatch.com

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