Diadem adds a new diamond play
2004-01-21 11:53 ET
by Will Purcell
Paul Carroll's Diadem Resources added a new diamond project to its plans late last year, when the company signed an agreement with Leon La Prairie's Darnley Bay Resources that will allow Diadem to explore Darnley Bay's large project, to the south of Paulatuk in Nunavut. The Paulatuk play was big news a few years ago, when several diamondiferous kimberlites were discovered, but the promotion subsequently ran out of gas when Darnley Bay ran out of cash. Things could change with the arrival of Diadem, as Mr. Carroll has big plans in the region this year.
Diadem's deal with Darnley Bay had its beginnings last summer, when Mr. Carroll's Carnarvon Capital acquired an option on the project. That arrangement required Carnarvon to spend $5-million on exploration over a three-year period, in exchange for a 50-per-cent share in about one million hectares of the property.
It seemed an unusual venture for Carnarvon. Carnarvon does have a resource sector specialty, but it seemed unlikely that Mr. Carroll's Toronto-based consulting and management company was going to take up diamond exploration north of the Arctic Circle.
As a result, it was no real surprise when Carnarvon flipped its interest in the project to Diadem late last year, although there had been some reason to speculate that Mr. Carroll might have used the northern diamond project to revive another struggling shell, a commodity that Mr. Carroll has in ample supply.
The play proved promotable in the past. Darnley Bay had good luck with its drill program in 2000, testing a dozen targets and coming up with 10 kimberlite pipes. Of those, six proved to be diamondiferous, and a few yielded a toutable array of micro-sized stones, although macrodiamonds were generally few and far between. All of those finds were made on Parry Peninsula, just west of Darnley Bay.
The best result was obtained at kimberlite No. 101. Material weighing 80 kilograms yielded 131 diamonds, although just three of the stones were macrodiamonds. The biggest diamond haul came from No. 102, where 132 diamonds were recovered, but it took just over 650 kilograms of kimberlite to top the count from No. 101. Once again, nearly all of the diamonds were tiny, and just two of the stones were classified as macros.
In all, about 1.37 tonnes of kimberlite from the nine tested kimberlites had produced 330 micros and six macrodiamonds. That haul did not provide much promotional help to Mr. La Prairie and Darnley Bay, and a rally that had carried Darnley Bay's shares to a $2.98 crest early in 2000 gradually fizzled.
Nevertheless, there has been enough promise from the region that De Beers was willing to spend some cash on the project a few years ago, and the diamond major played a key role in the kimberlite discoveries. Over $20-million has been spent in the area, although less than half that amount was for diamond exploration.
Mr. Carroll said that the deal with Darnley Bay covered ground on which Mr. La Prairie's company had already spent about $5-million on diamonds, in addition to running a base metals hunt prior to that brought its total to more than $12-million. Because of that outlay, the option deal requires Diadem to bring its spending up to a comparable level for it to become an equal partner in the play.
Nevertheless, it appears that Darnley Bay will still be on the hook for a significant amount of cash if it is to remain an equal partner on the other parts of the proposed project. The existing Darnley Bay project is north of 68 degrees latitude, and includes ground on which the mineral rights are owned by the local aboriginals. Darnley Bay signed an agreement with the Inuvialuit that gave the company the right to explore in the area, although the terms of that deal are believed to be in the process of being renegotiated.
In addition to that northern region, Diadem has plans to take its gem hunt south of the 68th parallel, and Darnley Bay will have to pay its own way on that part of the project. Mr. Carroll said that that more southerly ground would be a totally separate project, but Darnley Bay would be an equal partner on any properties in the new area, as long as it paid its equal share of the expenses.
The retired Toronto corporate lawyer turned Arctic diamond explorer added that a significant part of the planned budget for this year would go to ground outside the initial Darnley Bay deal.
Mr. Carroll said that Diadem had come up with a budget of about $2-million for this year alone, and he added that "a good chunk of it is for south of 68." Mr. Carroll stated that the current plan called for Darnley Bay to contribute about $700,000 of the preliminary budget, and that would imply that close to two-thirds of the work will take place on the new regions to the south. If so, Diadem's share of the 2004 plan would run to about $1.3-million, although Mr. Carroll said that about $300,000 had already been invested on exploration so far.
At this stage, coming up with the cash for a busy exploration season seems a formidable task for both of the partners, although Mr. Carroll has proven effective at drumming up exploration cash in the past. Now in his early 60s, Mr. Carroll has been active as a director of Dundee Bancorp, an investments management company that is active in the resource sector, in addition to his role with Carnarvon Capital.
Mr. Carroll and Diadem recently closed a private placement of nearly eight million units, and at a price of 10 cents each, that brought in nearly $800,000 in new cash. The company will need significantly more than that to achieve its goals on the Paulatuk play this year, and a further $1-million of work is planned for the Otish Mountains play. As a result, it seems likely that new placements will be worked out in the coming months.
Diadem had a working capital deficiency of just over $1-million at the end of August, but the company was subsequently able to improve things significantly by selling another batch of 10-cent shares, as well as the sale of an investment in Waseco Resources, and Mr. Carroll said the company currently had about $700,000 in cash available to it.
In any case, Diadem's financial situation seems favourable when compared with the state of Darnley Bay's treasury. At the end of September, Mr. La Prairie's company had less than $30,000 in current assets, with its accounts payable and accrued liabilities pegged at in excess of $1.3-million. Since then, Darnley Bay has not managed much in the way of coming up with new cash. As a result of Darnley Bay's financial woes, there had not been much activity on the Paulatuk play of late, and the arrival of Mr. Carroll and Diadem could give the project a big boost.
It might seem a long path from a career as a corporate lawyer to becoming a successful diamond miner, but Mr. Carroll had his first real taste of gems several years ago, when Howard Miller asked him to help gain control over Lytton Minerals in 1998. Mr. Miller was a big shareholder of Lytton, now known as Tahera Corporation, and the two were successful at wresting the company away from a group led by Harry Dobson. Tahera's continual need for cash led to Joseph Gutnick snatching the company from Mr. Miller and Mr. Carroll just three years later, but the stint as a Tahera director gave Mr. Carroll some experience with diamond exploration.
Mr. Carroll acknowledged that it was harder to come up with a good diamond play than it was to develop a gold project, but he believes that the returns are far better with diamonds. He received an inkling of just how big a return diamonds could provide during a stint as a director of Repadre Capital, which came close to being a big name in diamonds more than a decade ago.
Mr. Carroll was a director of Corona Corporation when the company was grooming Repadre to become Corona's diamond affiliate during the late 1980s. Repadre tried its hand at coming up with gems in Botswana, but it failed to come up with any kimberlites, much less diamonds.
The company had also given its vice-president of exploration, Chris Jennings, enough cash to launch a hunt in Canada's North, but when the Botswana play proved to be less than a resounding success, Corona had second thoughts about taking up diamond exploration. The resulting staff cutbacks included Dr. Jennings, who received the claims in the Northwest Territories as part of his settlement, with Repadre retaining a nominal royalty on future revenues.
Dr. Jennings subsequently sold the diamond claims to Aber Resources, which went on to find the four rich pipes that are now part of the Diavik mine. Although Repadre had effectively given away the rights to the future Diavik find, the company will still be receiving a healthy royalty from the operation, about $8-million annually. That near miss may have been Mr. Carroll's first indication of the potential prize awaiting a successful diamond explorer.
Another diamond hunter with a Corona past and a subsequent connection with Aber also played a role in Mr. Carroll's turn to diamonds. Lee Barker worked for Corona for a time and was briefly a director with Aber, but his primary diamond role came with Chris Jennings's SouthernEra Resources through most of the 1990s. Mr. Carroll stayed in contact with Mr. Barker, who played a key role in Diadem's acquiring its Otish and Paulatuk diamond projects.
Diadem's shareholders undoubtedly hope that the Paulatuk play will provide Mr. Carroll and their company with a Diavik-sized return, although even a Repadre-sized royalty would give their company's lowly shares a good boost.
Diadem slipped one-half cent Tuesday, closing at 11 cents, while Darnley Bay dipped a full cent, closing at 14 cents.
News 
Market Data 
Discover 
