Shore adds to its haul of Star sparkle
2004-09-02 by Will Purcell
Shore Gold Corp. now has had the diamond results from a fifth batch of kimberlite samples taken from its Star kimberlite complex for a couple of days. The latest set of tests produced a lower grade than what the company had come up with two weeks ago, and without any huge diamonds, Shore's shares took a brief tumble, dropping 45 cents to a low of $2.01 in intraday trading on Tuesday, but bouncing back sharply later in the day and again on Wednesday. Despite the initial reaction, there were no statistical surprises in the latest batch, and Shore seems well on its way to meeting its 3,000-carat goal. Ultimately, it will be the value of the rock and not just the diamond grade that will prove or kill the Star project.
The six latest kimberlite portions weighed a total of 1,578 tonnes and contained 214.13 carats of diamonds, yielding a grade of about 0.136 carat per tonne. Once again there were some notable diamonds in the mix, although at 6.41 carats, the weight of the largest stone was no match for the 19.71-carat stone that was recovered with much market fanfare at the end of July.
The absence of a similar find probably accounted for a part of the gloomier response to the latest results, but expectations had also been boosted by the grade of the fourth set of samples, revealed a few weeks ago. Six lots of kimberlite taken from the 235-metre level had produced 226 carats of diamonds, which was good enough for a grade of 0.18 carat per tonne. That rosy result may have raised the bar of expectations to an unrealistic level.
Shore has now processed 10,924 tonnes of its planned 25,000-tonne test and come up with nearly 1,128 carats, for a sample grade of just over 0.10 carat per tonne. The remaining portion of the Star sample will come from the early Joli Fou phase of kimberlite, which has produced an average grade of about 0.146 carat per tonne. If that value is representative of the remaining rock, Shore would recover an additional 2,059 carats, and that would bring its final tally to nearly 3,200 carats.
That would imply an average grade of about 0.13 carat per tonne, but average grades mean little with the current bulk sample, which is testing two distinct phases of kimberlite with a diamond content that varies by as much as an order of magnitude. As well, Shore appears to be intentionally sampling a part of the pipe that has superior grades, to allow it to collect the largest crop of carats for the lowest cost.
That makes determining the average grade of Star a challenge for investors, but there nevertheless are some valuable clues in the current results. Limiting the sample to just the material excavated from the shaft provides what would essentially be the result from a large vertical hole into the core region of the pipe.
Nearly 2,700 tonnes of material from the upper part of the shaft produced about 65 carats of diamonds, indicating a grade of just 0.024 carat per tonne, but that material originated from the late Joli Fou kimberlite phase. There were just over 2,700 tonnes of kimberlite taken from the lower regions of the shaft, and that earlier phase of Joli Fou rock produced 334 carats, for a grade of 0.123 carat per tonne.
With equal contributions from both phases supplied during the excavation of the shaft, a pessimistic view might suggest that the average grade of Star was a modest 0.07 carat per tonne, a value that is surprisingly comparable with what the company's one reverse circulation drill hole had produced in a 2002 program.
It is not that simple, as the early phase of material is estimated to account for about 80 per cent of the kimberlite within the Star pipe. If so, a logical first guess for the grade of Star as a whole might be around 0.10 carat per tonne, although that would assume that the rock in the vertical shaft is representative of the entire pipe.
There are indications suggesting that may not be the case. Nine batches of rock came from the lower portions of the shaft, and they all had grades varying from just under 0.10 carat per tonne, up to about 0.15 carat per tonne. Since then, Shore has hit a significant region at the 235-metre level of Star that has produced grades that are significantly higher than that.
In all, Shore has processed about 2,343 tonnes of kimberlite from the southeastern drift at the 235-metre mark and the rock has delivered 475.4 carats, for a grade of 0.203 carat per tonne. Some of the batches produced individual grades of up to 0.307 carat per tonne, while the grades of the poorest individual batches of kimberlite within the early Joli Fou phase have remained above 0.09 carat per tonne. That would seem to suggest that Shore may ultimately come up with a calculated grade for Star that will be in excess of 0.10 carat per tonne, with the added potential of higher-grade zones.
Although there were no diamonds larger than 10 carats for speculators to ooh and aah over, the latest crop of carats continued to produce signs that the early Joli Fou kimberlite phase has a coarse diamond size distribution. The last three sets of results have produced 663 carats from that portion of Star, and nearly one-third of the total weight has been contributed by diamonds weighing at least one carat.
That is a toutable proportion of larger diamonds. In 1999, Winspear Resources Ltd. processed over 6,000 tonnes of kimberlite from Snap Lake, coming up with well over 10,000 carats, and just under one-quarter of the weight of the parcel was contributed by diamonds weighing at least one carat.
Star's result appears comparable with what Lytton Minerals Ltd., now known as Tahera Diamond Corp., obtained from a 9,400-tonne test of its Jericho pipe in 1997. The company recovered 10,539 carats during the program, and about one-third of the weight was contributed by diamonds weighing at least one carat. The Jericho pipe produced some large stones in that test, including one that weighed 40 carats and four others that exceeded 20 carats.
Size is a powerful influence on the value of a diamond, and the seemingly coarse size distribution could augur well for the value of the Star diamond parcel. It is not the only influence however, and factors such as colour and clarity can more than make up for a more modest size distribution curve. In fact, Winspear's diamonds were valued in 1999 at about $118 (U.S.) per carat, while the Jericho stones were appraised at just $65 (U.S.) per carat that same year. There have been significant increases in diamond value since then, and the value of the Jericho diamonds has recently been reassessed at about $92 (U.S.) per carat.
Shore Gold thinks that Star could potentially be economic with a diamond value of about $100 (U.S.) per carat, and the company is now optimistic that an appraisal of its diamonds will surpass that hurdle, perhaps by a significant margin.
Speculators are easily distracted by the presence of larger diamonds as a large high-quality stone will carry a hefty value, but the bulk of the value of the diamonds within a deposit is provided by a significant number of quality diamonds weighing between one and five carats.
A good example of the value within a diamond deposit can be gleaned from two mini-bulk samples conducted at the Diavik mine in the mid-1990s. A bit less than 6,000 tonnes of kimberlite was processed from two pipes, producing just under 21,000 carats. The largest diamond weighed nearly 15 carats, but it was of poor quality, as were a number of other diamonds larger than 10 carats.
In fact, the largest gem-quality diamond from A-418 weighed 7.9 carats and the largest gem found in A-154 South weighed just six carats. Aber subsequently published pictures of 10 of its best diamonds and the stones weighed a total of just 39 carats, but with an average value of nearly $1,660 (U.S.) per carat, the tiny parcel accounted for nearly 5 per cent of the then appraised average value of $65 (U.S.) per carat for the Diavik parcels. Meanwhile, the less toutable Diavik diamonds accounted for the remaining 95 per cent of the 21,000-carat parcel.
Things can occasionally work the other way, when a single large diamond commands a particularly high value. In a 2001 mini-bulk test of its AK-5034 pipe in the Northwest Territories, De Beers Canada Corp. recovered 914 carats of diamonds. One of the stones weighed 10 carats and was valued at $60,000 (U.S.), much to the delight of investors.
The market was far less pleased when De Beers modeled the value of the AK-5034 diamonds at just $65.50 (U.S.) per carat, a value that implied the entire 914-carat parcel of diamonds was worth only $59,867 (U.S.), a figure that actually was less than the $60,000 (U.S.) appraised value of the 10-carat stone. That would suggest that De Beers had dismissed its valuable stone as a fluke.
Shore's vice-president of exploration, George Read, said that Shore had not attempted to have any individual diamonds appraised, and the formal assessment is not expected to begin until the sample is complete later this year. As a result, investors will have to wait to find out if Star's diamonds measure up to expectations.
Although most speculators seem far more concerned about the grade and revenue side of things, investors with an interest in engineering matters remain intrigued with just how Mr. Read and Shore plan to build a large mine at Star. If the Star test provides a promotable grade and value, speculators will begin to look for firmer answers to questions about capital and operating costs next year.
Shore had a big rebound Wednesday, adding 39 cents to close at $2.63.
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