NWT Mineral Exploration

[Tackler]

SRM Shear's Churchill play takes another hit

2004-11-15 13:20 ET

Also SWY Stornoway Diamond Corp

by Will Purcell

Pamela Strand's Shear Minerals Ltd. took a pounding from the market on Friday. The company produced diamond counts from its six latest kimberlite finds on the Churchill project. The tallies were an even greater disappointment than what Shear found in the 16 kimberlites it discovered in 2003 and speculators were quick to leap off the Churchill bandwagon as a result. The latest bust leaves Shear and its Churchill partners searching for the kimberlitic sources of its promising geochemistry. That mineral promise sparked the initial interest in the Churchill play a few years ago and the main mineral corridors remain a key focus for Ms. Strand and her partners. Shear hopes to zero in on the source of the indicator grains in a busy program next year. The mineral promise remains a silver lining for the project, but 2005 is shaping up as a do-or-die year.

The disappointing diamond counts

Shear discovered six new kimberlites this year in 11 tries, during a 2004 drilling program cut short by particularly bad weather. As things turned out, the brief and inclement summer seems a blessing in disguise. Only one of the six kimberlites produced any diamonds, and the tally from KD-428 was anything but impressive. That leaves Shear an opportunity to reassess its target selection for next year.

About 164 kilograms of rock produced just three microdiamonds larger than a 0.106-millimetre cutoff. That amounts to less than 20 stones per tonne. Only one of the diamonds clung to a 0.15-millimetre screen, and even that stone slipped through a 0.225-millimetre mesh. Based on that, KD-428 was barely diamondiferous and showed no sign of having a healthy size distribution.

That was the best of the news. The other five kimberlite discoveries failed to produce a single diamond. Shear did not bother revealing the weights of the samples, but the company typically processes something close to 150 kilograms of kimberlite from its pipes. As a result, the company likely tested up to 900 kilograms of kimberlite this year to get a three-microdiamond parcel.

Last year, Shear found diamonds in 10 of their 16 discoveries on Churchill and one of the two finds on Churchill West. The company likely processed close to two tonnes of kimberlite during 2003, and the rock revealed 36 diamonds.

The best diamond count came from a body on the Churchill West play. About 129 kilograms of kimberlite from CW-3001 produced 12 diamonds, or nearly 100 stones per tonne. There was little promotional value in the number of diamonds. Further, the sample did not offer any hope for a favourable size distribution, as none of the diamonds remained on a 0.30-millimetre sieve.

The Qaumallak-1 pipe did offer a faint hint of hope for a coarse diamond size distribution. About 158 kilograms of kimberlite produced eight diamonds. That small haul included one that clung to a 0.425-millimetre sieve. Two others remained on a 0.30-millimetre mesh, but the diamond count was barely 50 stones per tonne.

Shear had great luck with its drilling program in 2003, scoring 18 discoveries in 27 attempts. That result proved that the company had a good handle on its geophysical data. Shear did not have a comparable understanding of its indicator mineral information, and the company relied heavily on geophysics when it selected its 2003 drill targets.

That turned out to be fortunate. Despite the disappointing tallies in 2003, the Churchill story got a boost from the fact that those pipes were not the source of the encouraging arrays of indicator minerals. Shear relied heavily on its growing knowledge of geochemistry this year, and that aroused hopes that the company would deliver one or two promotable finds this year. That makes the latest bust an especially bitter pill for investors, and leaves Ms. Strand and her partners to re-evaluate their approach.

Although Shear relied on its indicator mineral data to select targets this year, there was no guarantee that it was selecting the right anomalies. That uncertainty made the current disappointment a worst-case scenario for Shear and its partners, which includes Eira Thomas's Stornoway Diamond Corp. and BHP Billiton Ltd.

The chemical silver lining

Narrowing down the heads of mineral trains often consumes years and millions of dollars, and can still result in many drilling disappointments before an explorer strikes the source of its mineral promise. As a result, Ms. Strand and Ms. Thomas remain convinced that the Churchill play will yield some potentially economic diamond deposits.

Ms. Strand said that Shear had diamond counts from its 2004 finds, but did not yet have the results of its indicator mineral work. Based on the diamond counts, Shear is clearly hoping that its six new kimberlites have poor geochemistry, ruling them out as a source of its mineral promise.

Indicators have pointed to the Churchill play being in the heart of diamond country since Hunter Exploration Group first collected a few samples several years ago. Shear picked up the play in 2001 and added to the project as it added to the chemical encouragement.

The indicator hope stems from a promotable proportion of G-10 garnets within the pyrope garnet population found in several mineral corridors. As well, Shear produced arrays of other minerals that suggest there are significantly diamondiferous kimberlites to be found on the huge project.

The size of the Churchill play is making Shear's diamond hunt a lengthy challenge. Although the company has collected several thousand till samples, it still has not properly defined any mineral trains. Shear collected a significant number of new samples this year that will help it sharpen its mineral corridors. As well, a busy year of sampling seems certain for next year. Ms. Strand said that the new information should help Shear see smaller indicator mineral trains begin to emerge from the diffuse corridors currently identified.

Although notoriously impatient investors tripped over each other as they abandoned the Churchill bandwagon, following the latest disappointment, Ms. Stand and Ms. Thomas plan the busiest year yet on the project. "Everyone is committed to finding the source of the G-10 chemistry," Ms. Strand said. "This is diamond exploration," she stated. "It takes time."

Ms. Thomas is well aware of just how long it can take to score a big find. The first of the incredibly rich Diavik pipes did not turn up until the spring of 1994, in the third year of exploration on what was a smaller property. The Diavik partners were busy drilling magnetic targets during the first few years and found just a few marginally diamondiferous pipes among many barren bodies.

It was not until the partners were able to zero in on electromagnetic targets at the head of some promising mineral trains that the Diavik bounty became evident. Ms. Thomas was just out of university and running the exploration program for her father's Aber Diamond Corp. at the time. That experience undoubtedly reinforces her optimism for Churchill.

The numbers at Churchill offer a clear indication of the challenges facing Shear and its partners. The company collected another 4,213 till samples this year alone, and it will need many more tests before Shear can truly zero in on a narrow zone at the heads of the mineral trains. As well, Ms. Strand expects to have about 2,000 geophysical targets from its existing geophysical work.

Ms. Strand said that the partners had a lot of data to sort through during the winter, which she thinks will help narrow down the search. Although another big round of till sampling will take place next year, she said that the program would have to be well defined. That would suggest that the Churchill partners expect to have a much higher confidence next year, after they analyze the current data.

There is no doubt that the optimism of Ms. Strand and Ms. Thomas could survive another disappointment next year, but the faith of investors is another matter entirely. Because of the sagging market enthusiasm, the 2005 drill program will be vital to the promotability of the Churchill play.

As a result, Shear plans its busiest drill program yet. Ms. Strand said that between 25 and 30 targets would be drilled next spring, and a summer program could test a comparable number. Based on that, the Churchill partners could drill upwards of 50 targets next year. Further, those features will likely be at the heads of the emerging individual mineral trains within the larger corridors.

Ms. Strand said that Shear had enough cash for the program next year, with over $5-million in cash on hand. That is fortunate, given the beating the company's shares received of late. As well, she said the partners would work more efficiently next year. Shear expects to set up a camp early, which will reduce expenses. Further, the company expects to move its drill rig on skids, rather than flying it from one target to another. That should be an easy and efficient method, as most of the moves will cover a distance of less than one kilometre.

The Churchill play has been a roller coaster for investors over the past few years. Shear's shares traded near the 20-cent mark late in 2002, but interest in the company's first drill program carried the stock to a peak of $1.70 in mid-2003. The disappointing diamond counts sent the stock to a 50-cent low last fall, but Shear struggled above $1 early this year, as speculators anticipated some good news from the 2004 program.

Shear closed at 35 cents on Friday. That was down eight cents, but a good bounce off the intraday low of 26 cents. Stornoway shed nine pennies, ending at $1.56.