One Step Ahead

[Ignutz]

Shore ups its carat crop
2004-11-04 14:14 ET - Street Wire


by Will Purcell

Shore Gold Inc. has another batch of diamonds from its Star kimberlite. The company's 25,000-tonne bulk sample continues to produce encouraging grades from the 235-metre level of the mammoth kimberlite complex. As well, the latest portion delivered a particularly promotable haul of larger gems. There was considerably more promise than disappointment in the latest results. The latest lots of kimberlite support hopes that the lower portions of the pipe will have an economic grade, while the big diamonds increase the chances the value of the Star diamonds will exceed expectations.

The ninth set

Shore Gold's ninth set of samples weighed 1,631 tonnes, all of it taken from the 235-metre level. The rock contained nearly 309 carats of diamonds, with nearly all of the carats contained in stones large enough to cling to a 1.18-millimetre screen. That works out to a sample grade of nearly 0.19 carat per tonne.

That figure was significantly higher than the 0.154-carat-per-tonne figure produced by the eighth set of samples in mid-October. That result triggered a bit of a sell-off. Shore's shares were trading as high as $2.80 at the time, but the news sent the company's shares to a low of $2.10 by the end of the month.

The healthier diamond content of the latest samples may be the result of a more favourable location, not just an indication of higher-grade rock. Six of the batches sampled the southeastern drive of the 235-metre level with the latest samples, while a lone lot of kimberlite came from the northern drive. The last time, three batches came from each region of the pipe.

The six individual samples in the latest test from the southeastern region weighed 1,343 tonnes and contained nearly 263 carats. That was good for a grade of about 0.20 carat per tonne. The one sample from the northern zone weighed about 288 tonnes. That rock produced just over 46 carats, for a grade of 0.16 carat per tonne.

The news that got the market's speculative juices flowing had little to do with grade. Rather, it was the presence of two valuable diamonds in a parcel that included several large stones. Those finds quickly caught the attention of investors.

Shore now has a second 19.7-carat diamond. This time the company's vice-president of exploration, George Read, described the diamond as having a "particularly high value." The company classified the diamond as an off-white gem that falls about 0.03 carat short of being the largest diamond in Shore's parcel. Nevertheless, the gem opened the door for the possibility of still larger stones. The diamond was a fragment of a significantly larger stone that the company believes had been broken during mining.

A second stone also caught Mr. Read's eye. That stone weighed just 4.77 carats, but it was a white, flawless and octahedral diamond. The latest parcel also included a diamond weighing 11.57 carats that ranks fifth in the entire sample, but that stone was grey in colour.

Shore recovered an 8.07-carat off-white stone ranking 10th among Shore's entire diamond haul, along with a 5.31-carat brown stone. The latter two finds were not as toutable, but Shore seemed particularly pleased with the promotability of its latest parcel.

Shore wasted little time in posting pictures of its gems on the company's website. That is usually a clear sign that the diamonds carry a significant value. There were other signs that the latest samples had a healthy diamond size distribution, and that is an improvement over the earlier set of samples. The mid-October result had a smaller average diamond size and the size distribution of those samples fell a bit short of what the company found in its earlier tests.

The average diamond weighed 0.11 carat in the eighth set of samples and one-carat diamonds accounted for about 27 per cent of the weight of the diamond parcel. The cumulative tally reveals an average stone size of about 0.12 carat and just over one-third of the weight of the diamond parcel comes from stones weighing at least one carat.

There was a significant rebound with latest batches of kimberlite. The average diamond weighed 0.126 carat and one carat diamonds contributed nearly 38 per cent of the weight of the parcel.

The total tally

Shore now has the diamond tallies from 16,207 tonnes of kimberlite. The company's diamond parcel now weighs 2,122 carats, or about 0.13 carat per tonne. So far, Shore has 274 diamonds weighing at least one carat, and the haul includes 104 stones that weigh more than two carats. There were at least 22 diamonds in Shore's 2,100-carat parcel weighing at least five carats. Those five-carat diamonds account for nearly 200 carats, or just less than 10 per cent of Shore's parcel.

Star's grade is clearly modest when compared with the economic pipes in Canada's North, but its diamond size distribution is another matter. Tahera Diamond Corp. processed 9.400 tonnes of kimberlite from its Jericho pipe in the mid-1990s, coming up with just over 11,000 carats of diamonds and a grade of 1.18 carats per tonne.

That value is roughly seven times higher than Shore is averaging in its early Joli Fou phase. The Jericho pipe also displayed a noteworthy diamond size distribution. Tahera's sample contained 64 diamonds that weighed five carats or more, but that was just triple the number in Shore's significantly smaller diamond parcel. Five-carat diamonds accounted for about 6 per cent of the Jericho parcel.

Winspear Diamonds Inc. processed nearly 6,000 tonnes of kimberlite form Snap Lake in 1999. The rock yielded nearly 11,000 carats of diamonds. Five-carat diamonds accounted for just 4 per cent of the parcel weight and one-carat stones contributed less than one-quarter of the weight of the diamonds. Those values are significantly lower than Shore has found in its early Joli Fou samples.

That could bode well for the value of the Star diamonds. Tahera now pegs the value of its Jericho diamonds at something close to $100 (U.S.) per carat, and Winspear received an appraisal of $118 (U.S.) per carat for its parcel in 1999. Size has an important influence on value, so Shore's Star appears to be off to a good start.

The 235-metre level has produced 1,454 carats from 7,947 tonnes of kimberlite, indicating a grade of 0.183 carat per tonne. Most of that rock came from the southeastern drift, which yielded an average grade of 0.203 carat per tonne, while the northern zone rock has an average grade of about 0.124 carat per tonne.

As Shore's sample edges closer to its 25,000-tonne target, the company's chances of exceeding its 3,000-carat goal are growing rapidly. It is logical to expect that the remaining 8,800 tonnes of kimberlite will come from the far richer early Joli Fou phase of rock. Further, most of it will probably come from the southeastern drive of the 235-metre level that has delivered the best of the grades.

If the current results are representative of what is to come, Shore's final tally would exceed 3,500 carats. The complete sample could top the 3,700-carat mark, based on the average grade from the promising 235-metre level.

The lingering questions

There now seems no doubt that Shore's samples lived up to Mr. Read's expectations for the early Joli Fou phase of Star's kimberlite. Shore's one reverse circulation hole into the depths of Star suggested an average grade of about 0.12 carat per tonne in that phase of the pipe. The company drilled many core holes into various parts of Star, and most of the diamond counts pointed to a grade in that range as well.

The individual grades within the individual samples taken from the early Joli Fou phase continue to vary between about 0.1 carat per tonne and 0.3 carat per tonne. That is hardly unusual and Mr. Read called the variation "situation normal for any kimberlite."

No doubt Shore is intentionally taking an inordinate portion of its bulk sample from the early Joli Fou phase, as the goal of the test is a large diamond parcel, not to deliver a representative grade. What is still unclear is whether Shore's sample is coming predominately from a higher-grade region within the higher-grade early Joli Fou phase.

With carats the primary focus, it seems probable that Shore would target its sample in the most promising region of Star. The grade of the material from the southeastern drive at the 235-metre level is significantly higher than what is coming from the northern region, and from other levels within the early Joli Fou rock. Still, that could just be a matter of luck, as richer regions could be lurking in those areas as well.

It will take a major drilling program to better delineate the diamond content of the huge Star pipe, estimated to contain up to 500 million tonnes of kimberlite. Shore classified about 80 per cent of the rock as the favourable early Joli Fou material. That drilling would represent a further advance of the Star project and offer another vote of confidence in the project. In the meantime, the toutable grades and large diamonds increase the odds of Shore moving to a more formal study next year.

Firm decisions on such matters will likely require an appraisal of the Star diamonds. That is still a few months in the offing, but expectations that Shore will handily surpass its target of $100 (U.S.) per carat continue to grow as well. In mid-September, Mr. Read said he thought a value of $125 (U.S.) per carat would prove conservative, and there is clearly nothing in the results since then to prompt a more pessimistic view.

Shore jumped 26 cents on Tuesday and another two on Wednesday, closing at $2.52

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