Shore Gold Inc
Symbol SGF
Shares Issued 38,056,664
Close 2004-07-30 C$ 1.98
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Shore's Star shines brighter
2004-08-03 12:30 ET - Street Wire
by Will Purcell
Ken MacNeill's Shore Gold Inc. now has its third batch of diamonds from a large bulk test of its Star kimberlite, and the latest numbers have lived up to the company's hopes. If subsequent samples of rock produce results that are comparable with the average for the higher-grade phase of kimberlite, Shore will be able to reach its 3,000-carat target for the 25,000-tonne test and the company will have a sufficiently large parcel to provide a meaningful diamond value. The chances of the Star diamond parcel achieving a value in excess of $100 (U.S.) per carat took another jump with the latest results, and that is good news for Shore and its project.
Shore's latest kimberlite batches weighed 1,573 tonnes and the rock yielded 230.63 carats of diamonds, good enough for a grade of nearly 0.15 carat per tonne. In all, the company now has recovered diamonds from 8,090 tonnes of rock, and the 687 carats indicates a grade of about 0.085 carat per tonne.
For Shore to meet its goal of 3,000 carats from 25,000 tonnes, it will need an additional 2,313 carats from 16,910 tonnes of kimberlite, and that will require a grade of about 0.13 carat per tonne. Based on the healthy diamond content of the latest samples, there would appear to be a good chance that Shore will come up with at least 3,000 carats from its bulk sample program. The company could handily top that mark if the latest samples are representative.
There is a significant difference in the grade of the two main phases of kimberlite within the massive Star pipe. The late Joli Fou phase resides in the upper portion of the pipe, and about 4,554 tonnes of the material has been processed so far, producing a diamond grade of just over 0.04 carat per tonne.
Meanwhile, about 3,536 tonnes of the kimberlite within the higher-grade, early Joli Fou phase in the lower portion of the pipe has produced an average grade of about 0.14 carat per tonne. That figure is no great surprise, as the results of the only other mini-bulk sample of Star suggested that the body had a grade of at least 0.12 carat per tonne in the deeper parts of the pipe, with a diamond content of about 0.14 carat per tonne between 180 metres and 275 metres.
The confirmation of a higher-grade zone within the pipe is encouraging, as it allows Shore to outline a portion of the body that has a healthier rock value than the body as a whole, and that could make coming up with a mine an easier task.
The latest numbers were particularly encouraging, as all four lots of kimberlite from the southeastern drive on the 235-metre level managed to produce a grade with added promotional appeal. About 1,110 tonnes of kimberlite from that portion of Star yielded nearly 223 carats, and that is good enough for a grade of 0.20 carat per tonne.
Furthermore, the size distribution of the diamonds within that portion of Star delivered added promise as well. There were some larger diamonds within the initial batches of rock from the higher-grade zone, but the latest samples topped those recoveries in a big way.
Speculators were particularly enthused by the recovery of a diamond that weighed nearly 20 carats. That stone was perhaps a bit of a fluke for a sample of the current size, but there were two other stones that weighed in excess of five carats, along with a third that came close to that mark, and the size distribution of the latest sample was more promising, even if the one large diamond was entirely discounted.
The average diamond in the 1,110-tonne batch of rock in the southeastern drift at the 235-metre level weighed about 0.15 carat. That was well above the average of about 0.10 carat for the entire Star sample, and eliminating the one large diamond would not materially affect the average diamond size.
That would suggest that there are zones within the higher-grade section of Star that have still higher diamond grades, and there appears to be a good chance that the diamond size distribution within those zones will be superior as well.
Shore's vice-president in charge of corporate development since last spring, George Sanders, said things were going very well, although he added that the latest results reflected the grades that they had always expected to find, somewhere between 15 and 25 carats per hundred tonnes, "with lots of spikes above 25." Mr. Sanders added that Shore had hoped that larger diamonds would show up in some abundance, based upon the data that the company had previously collected.
The larger diamonds and healthy size distribution data increase the chances of Star's diamonds producing an appraisal in excess of $100 (U.S.) per carat, and perhaps by a significant margin.
Shore has not revealed a great amount of detail about its larger diamonds, but there have been 78 stones larger than one carat found in the 8,090 tonnes of kimberlite, and that amounts to about one-quarter of the entire weight of the diamond parcel. That is a healthy proportion, and it could translate into a significant value, based upon the high proportion of white diamonds in the Star samples to date.
For the Star diamonds to reach a value of $150 (U.S.) per carat, the current parcel would have to be worth about $100,000 (U.S.), but the bulk of that value could come from a relatively small fraction of the parcel. For instance, just 35 carats valued at $2,000 (U.S.) per carat would account for about 70 per cent of the required amount, and the remaining 650 carats would then need a value of just $50 (U.S.) per carat to support an average value of $150 (U.S.) per carat.
Still, there is no certainty that Star's diamonds will come close to that mark however, as appraisals of diamonds from the nearby No. 140/141 pipe by De Beers Canada Corp. have not yielded a particularly high value. Over the past few years, about 155 carats of diamonds were priced at about $6,900 (U.S.), or about $45 (U.S.) per carat.
Small parcels typically yield lower appraised values however, and De Beers has modelled the value of its No. 140/141 diamonds at close to $100 (U.S.) per carat. With its haul of larger diamonds, there is increasing confidence that the Star gems will produce a promotable valuation when the bulk sampling program is complete later this year.
Just what rock value will be required to make a mine is a key question that will ultimately have to be answered. Mr. Sanders said that the company has not yet commissioned a scoping study or commenced any feasibility work, but he added that Shore had taken some preliminary looks at other open pit operations to come up with a rough estimate of what the operating and capital costs might be.
Mr. Sanders said that if the Star kimberlite value was above $15 (U.S.), Shore would be "away to the races," and he believes that rock values as low as $10 (U.S.) to $12 (U.S.) might still be "in the ballpark." Mr. Sanders's sports analogies will ultimately have to be replaced with far more formal engineering studies, but the latest samples increase the chances of Star's kimberlite having a potentially economic value.
The capital cost of a Star diamond mine is another question that will have to be answered. In the mid-1990s, Kensington Resources Ltd. commissioned a scoping study that looked at the economics of the region, and that report indicated that a large diamond mine might cost about $800-million to construct. Mr. Sanders said that his company did not think that the cost of a mine would "be anywhere close to that," based on discussions with people involved in building big projects in the tar sands.
Although the bulk sample program will provide a good idea of the value of Star's diamonds, it will not provide a great deal of data about the grade of the big pipe beyond the limited zones that are being sampled. Although the lower-grade rock lies above the better material, Mr. Sanders said it was "certainly not stuff that you would put on the waste pile."
The economics of Star will therefore have to be based upon the deposit as a whole, not just the zone with the highest rock value. If the sample results prove to be representative of the entire pipe, Star might have a grade of about 0.12 carat per tonne, based on a 20-per-cent contribution from the upper zone and an 80-per-cent share of the kimberlite at greater depths.
If so, Shore could well be in the ballpark, or away to the races, depending upon the value of Star's diamonds, although the company will subsequently have to come up with grade projections for other parts of the huge pipe, presumably based on diamond counts from past and future drilling efforts.
The best material lies below a depth of 200 metres in the core of the body, but it can be found at somewhat shallower depths away from that core zone, and that adds a new engineering twist to a hypothetical mine. Mr. Sanders thinks that a future open pit mine might not necessarily start where the current sample is being collected. Instead, Shore might decide to start the pit where the higher-grade rock was closer to the surface.
Shore's shares traded as high as $2.29 early this year, but dipped to a low of $1.03 in late June, after the first set of results from the bulk sample program. Speculators were much more enthused with the latest batch, as Shore hit an intraday high of $1.78 immediately following the news on Thursday, up from a low of just $1.32 earlier that day.
Shore moved up another 33 cents on Friday, closing at $1.98.
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