Shore adds more Star sparkle
2004-10-05 12:33 ET - Street Wire
by Will Purcell
Shore Gold Inc. has a new set of diamonds from its bulk sample of the Star kimberlite. The company's shares hit a high of $3.15 in intraday trading just hours before Shore revealed its latest numbers, but the stock dipped to a low of $2.62 after the news. Despite the pessimistic reaction, the latest results include another haul of large diamonds and the best individual sample grade so far. As well, the average sample grade continues to climb, adding to the expectations for the richer kimberlite phase at Star.
The latest samples
Shore's four new lots of kimberlite weighed 1,005 tonnes and the rock produced nearly 200 carats of diamonds. That was good enough for an average grade of nearly 0.20 carat per tonne. Once again, it was the southeastern drive at the 235-metre level that produced the best results.
Nearly 774 tonnes of rock from that lucrative southeastern zone had an average grade of about 0.21 carat per tonne, while 231.6 tonnes of material from the north drive produced a grade of 0.15 carat per tonne. The southeastern tally got a hefty boost from a 184-tonne batch, which delivered 60 of the carats and a sample grade of one-third of a carat per tonne.
That confirms Shore's expectation that there would be pockets within the mammoth Star pipe that would have grades above 0.30 carat per tonne. As well, that sample also accounted for the largest three diamonds in the latest series of samples. The haul included a 12.84-carat stone, which ranks third in weight among all the Star gems. The one rich lot of kimberlite also contained diamonds weighing 8.33 carats and 4.05 carats.
It is difficult to find any unexpected disappointment in the latest samples. Shore classified about 73 per cent of the latest diamond parcel as white and another 15 per cent met an off-white classification.
Those proportions are a bit lower than Shore found at the start of its big test, but the result is better than the last set of samples. Further, the proportions are about average for the sample as a whole.
The description of the largest two diamonds was uninspiring. The 12.84-carat stone was off-white, while the eight-carat diamond was grey. Most of Shore's earlier large finds met a white classification, including all four of the stones larger than eight carats. Still, the colour and characteristics of any single diamond will matter little to the outcome.
Another potential concern in the latest result is the absence of any particularly large diamonds in the remaining three 250-tonne batches. There were no diamonds larger than three carats in those batches. Previously, 16 of the 27 batches of early Joli Fou kimberlite produced at least one diamond larger than three carats.
Nevertheless, the latest samples display a healthy diamond size distribution. Stones larger than one carat probably accounted for close to 75 carats of the 196 carats in the current test, and that 37-per-cent proportion is actually higher than the average of the earlier samples.
The encouragement
The best of the diamond grades come from the early Joli Fou kimberlite and the best rock within that phase comes from the portions taken from the southeastern drift at the 235-metre level. Shore has processed 3,841 tonnes of the material so far, and the rock yielded 826 carats. That suggests a grade of more than 0.21 carat per tonne.
Shore initially hoped its Star diamonds would be worth $100 (U.S.) per carat, based on results from a rival play to the north. The diamond size distribution is healthier than hoped and Shore's vice-president of exploration, George Read, has been more optimistic of late. The Saskatoon-based diamond hunter now believes that a value of $125 (U.S.) per carat could prove conservative.
If he is right and the rosy southeastern grade holds up, it would bode well for the project. A grade of 0.20 carat per tonne and a diamond value of $150 (U.S.) per carat combine to a rock value of $30 (U.S.) per tonne. Mr. Read and his company also tout operating costs of about $10 (U.S.) per tonne for a theoretical Star mine. That would leave a healthy profit margin, should the optimistic values prove accurate.
The lingering concern
Shore's samples from other parts of the pipe have not matched the grades that have come from the southeastern drifts at the 235-metre level. As well, there have been markedly fewer large diamonds from other parts of the pipe containing the early Joli Fou phase of kimberlite.
Shore processed five batches from the northern and northeastern parts of the 235-metre level and it collected 10 other samples while excavating the shaft. Of those 15 lots of kimberlite, only five had a grade of more than 0.14 carat per tonne.
Shore processed 16 batches of kimberlite from the southeastern zone so far, and all of them yielded grades greater than 0.14 carat per tonne. Four of those samples have an average grade of more than 0.30 carat per tonne.
The material from the early Joli Fou phase away from the southeastern drift weighed about 4,700 tonnes. The rock produced about 570 carats, yielding an average grade of 0.12 carat per tonne. Even that figure could carry some promotional oomph if it is combined with a toutable diamond value, but signs of a more modest size distribution curve accompanied the lower grade.
The largest diamond from the 4,730 tonnes of material weighed a respectable 6.41 carats and a second stone came close, at 6.23 carats. Still, there were at least 10 diamonds that weighed more than 6.41 carats recovered from just 3,840 tonnes of kimberlite from the richer southeastern zone.
The average diamond sizes within the other zones provide another clear sign of the variations in the diamond size distributions within the pipe. The average stone from the southeastern drift weighed an impressive 0.147 carat, while a typical diamond from the other areas containing early Joli Fou kimberlite weighed just 0.092 carat.
That trend continues into the late Joli Fou phase in the upper part of Star. That material has a clearly uneconomic grade of about 0.025 carat per tonne and the average diamond weighs just 0.062 carat. That works out to about 40 per cent of the weight of the average stone from the southeastern drift.
It is hardly unusual for zones with richer grades to also have coarser diamond size distributions. In fact, such a combination is good news, as it would logically contribute more value to a deposit than if the largest diamonds came from poorer parts of the pipe. There is little doubt the kimberlite from the southeastern drift is potentially economic, but just how extensive is that zone will be the lingering question after the sample is complete.
The complete tally and beyond
Shore has processed 13,129 tonnes of kimberlite so far, recovering 1,591 carats, or just over 0.12 carat per tonne. At that rate, Shore would just top its target of 3,000 carats, but it will be a big surprise if the company fails to beat the goal handily.
The remaining kimberlite is coming from the early Joli Fou phase, and the remaining 12,000 tonnes of rock should produce close to 2,000 carats, bringing the final tally to about 3,500 carats. If Shore continues to process richer rock, the final carat count could climb even higher.
That will provide more than enough diamonds for a proper evaluation, but the outcome will be unrepresentative of the actual grade of Star, as Shore has intentionally tested the more favourable regions within the pipe. Still, the continuing test delivers increasing confidence the grade of the early Joli Fou phase will be more than enough to advance the project to the next stage.
A typical batch of rock from the early Joli Fou phase has a grade of about 0.12 carat per tonne. None of the 31 individual kimberlite samples had a grade below 0.09 carat per tonne and eight batches produced grades above 0.20 carat per tonne. As a result, there is a good chance the average grade of the early Joli Fou phase will be 0.15 carat or more.
Shore expects to have a value for its diamonds this year, and that will be the main focus of speculators in the coming months. Nevertheless, coming up with a resource calculation for a wide portion of Star will be an important part of the next stage at Star, and that should take a significant amount of drilling.
The players
Drilling will take cash, but money will not be a problem for Shore. The company took advantage of its healthy share price, completing the sale of 12.56 million units at $2.20. The financing added $27.6-million to Shore's treasury, enough to advance Star significantly.
Benny Steinmetz and Brian Menell's Magma Diamond Resources Ltd. bought 1.2 million of the new units, preserving its 9.4-per-cent stake in Shore. Magma hopped onto the Star bandwagon in the summer of 2002 when it bought 2.5 million of Shore's shares and warrants, then priced at 75 cents per unit.
As a result Magma's chief executive officer, Mr. Menell, popped up on Shore's board early in 2003. Diamonds are nothing new for Mr. Menell, who has been involved in most aspects of the gem business for well over a decade, including eight spent with De Beers.
Mr. Steinmetz is also a principal of Bateman Engineering, which is a shareholder of Magma and is the company that constructed Shore's processing plant. Shore bought the remaining 50-per-cent interest in the plant from Bateman this summer, after Magma exercised its 2.5 million warrants.
Shore shed a dime on Monday, closing at $2.59.
AI
