One Step Ahead

[Ignutz]

Forest Gate's diamond future. [v.FGT]

If the company does spin off its New Brunswick projects to Blue Note, Forest Gate would keep just its East Side diamond project. The property, on the southeastern edge of the Fort a la Corne district, contains one diamondiferous kimberlite and at least one other intriguing anomaly. Still, the property has just a modest amount of promotability, barring a pleasant surprise.

The company drilled several holes into the Dizzy kimberlite, coming up with 37 diamonds from nearly 500 kilograms of material. A bit less than half of the kimberlite came from the central and western part of Dizzy, but it accounted for 31 of the diamonds, including all eight macrodiamonds in the parcel. That provides a hint of hope that Dizzy has better zones. Nevertheless, it would take a significantly larger diamond haul and some heftier stones to excite the market.

Forest Gate is rather quiet about its East Side project, although the company is working on a new exploration plan for the play. The plan likely will include a new look at Dizzy, but as well, the company may also try poking holes into at least one other anomaly.

The East Side project is just a few kilometres northeast of the Star kimberlite, where Shore Gold Inc. should produce well over 3,000 carats from a 25,000-tonne bulk sample. The grade of the better kimberlite phase at Star is about 0.15 carat per tonne, and a diamond value of over $100 (U.S.) per carat could bring the deposit to an economic threshold. As well, a group led by De Beers Canada Corp. and Kensington Resources Ltd. have several intriguing kimberlites just north of Star. Those partners are testing those pipes once again, in the hope of finding richer zones.

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004-11-19 13:43 ET - Street Wire
by Will Purcell

Michael Judson's Forest Gate Resources Inc. plans to buy the old Caribou mine from Breakwater Resources Ltd. The 17-cent diamond explorer also plans to spin off its other New Brunswick metal projects into a new company. Breakwater invested over $100-million in the Caribou operation over the years, but the mine has sat mothballed for most of the past 15 years. As a result, Forest Gate can pick up the Caribou project for next to nothing. Mr. Judson's company currently has three other metal prospects in the Bathurst area of New Brunswick that it would transfer to its subsidiary. That company, Blue Note Metals Inc., would then become a separate public entity.

The Caribou mine

Anaconda Mines Ltd. discovered massive sulphides at Caribou, about 50 kilometres west of Bathurst, in 1955. The company completed a considerable amount of exploration, coming up with a small cap that contained a high-grade copper deposit. Anaconda mined copper from that cap for nearly a decade.

The mine ran from the mid-1960s until 1974, when the open pit deposit ran out. In the early 1980s, Anaconda built a heap leach plant for precious metals, designed to process about 60,000 tonnes of material stockpiled during the heyday of the mine.

Others had more energetic plans for Caribou, and Anaconda passed the project over to one of them in 1986. The Australia-based East West Minerals NL purchased the mine and completed a feasibility study based on the lead and zinc potential of the deposit. In 1988, the company built a 2,000-tonne-per-day concentrator and the operation ran for about a year.

The plant closed in 1989, but began running again in 1990, just before Breakwater bought the subsidiary that owned Caribou from East West. At the time, there was just an estimated 12 million tonnes of material in the deposit. The rock had an estimated zinc content of about 7.7 per cent, with a lead grade of about 3.7 per cent.

Unfortunately, the economy suffered a major slump in 1990. Falling metal process combined with poor recoveries forced Breakwater to shut Caribou down that fall, just months after the purchase.

Caribou collected dust until the mid-1990s, when Breakwater decided to make a major investment in getting the mine running again. The company completed metallurgical work and came up with a new plan, based on a new method. Breakwater also increased the mill capacity to 3,000 tonnes per day.

The operation began running in 1997, with the usual series of glitches and bugs. The performance improved steadily, but Caribou never reached full production, as once again Breakwater was a victim of bad timing. The resource sector hit the skids in 1998 and declining metal process forced another shutdown in the summer of 1998.

By then, Breakwater had invested well over $100-million in the Caribou project. The company began writing off its investment in 1999, when it took a $30-million hit. Another $27.1-million was written off in 2000, and in 2001, the company wrote off the remaining $53.4-million assigned to the Caribou assets.

Forest Gate's Caribou plans

Breakwater will receive 600,000 Forest Gate shares for the Caribou mine. That suggests an effective purchase price of just $120,000, based on the average value of Forest Gate's shares over the past few months. The real value of the deal to Breakwater lies elsewhere. The company will no longer have to pay for the mothballed mine, and the Forest Gate transaction will relieve it of any future obligations.

Meanwhile, Mr. Judson and Forest Gate have high hopes for the old mine. Based on Breakwater's last plan, Forest Gate thinks that it will take about $15-million in capital spending to get the mine running again, plus another $20-million over its life. The plan projects operating costs of about $43 per tonne of ore milled.

In the late 1990s, Breakwater estimated the deposit contained 9.4 million tonnes of rock, with a zinc content of 7.1 per cent, a lead grade of 3.6 per cent and nearly 100 grams of silver per tonne. That works out to a gross value of about $130 (U.S.) per tonne, which would suggest a healthy profit margin. Still, Forest Gate will have to succeed where Breakwater failed. Although Breakwater was plagued with bad timing, its metal recoveries also fell well short of expectations.

Forest Gate thinks it has the answers to the metallurgical problems. The company proposes its own series of changes to the process, based on Breakwater's latest round of metallurgy. More design and equipment changes planned for the concentrator as a result.

Forest Gate found a believer to assume responsibility for the new project. John Martin was Breakwater's manager at Caribou from 1999 to 2001. There was no real mining to manage during that period, but the company was busy trying to find a solution to its metallurgical woes. It was during Mr. Martin's stint as manager that the company developed the revised plan that Forest Gate is now banking on.

The exploration projects

If all goes according to plan, Mr. Martin will be the president of Blue Note, which would also assume responsibility for Forest Gate's three metal prospects in New Brunswick. Those projects are in the same general area as Caribou, about 50 kilometres to the west of Bathurst and just 15 kilometres from Noranda's big Brunswick No. 12 lead-zinc mine.

Forest Gate has been active on the California Lake silver project this year. Earlier, more than 30 drill holes intersected a system of veins that produced assays of up to about 7,000 grams of gold per tonne, over narrow widths. Earlier this year, the company identified an intriguing geophysical anomaly on the California Lake property, and Forest Gate drilled the target this summer. Assays are pending.

Forest Gate also poked holes into an anomaly on the Rio Road property, a gold project that is eight kilometres east of the California Lake play. The company also found a target on Rio Road this year. Earlier efforts produced small amounts of gold near the surface, but Forest Gate is seeking a deeper feature, as the gold values increase with depth.

Forest Gate's third play is about 10 kilometres to the south of the California and Rio projects. The Canoe Lake polymetallic deposit contains roughly 20 million tonnes of sulphide rock according to estimates. That material has modest grades of gold, silver, copper, lead and zinc. As well, higher-grade lenses are present. The company planned a geophysical survey on the property this summer, on a portion of the play that remains untested.

Forest Gate's diamond future

If the company does spin off its New Brunswick projects to Blue Note, Forest Gate would keep just its East Side diamond project. The property, on the southeastern edge of the Fort a la Corne district, contains one diamondiferous kimberlite and at least one other intriguing anomaly. Still, the property has just a modest amount of promotability, barring a pleasant surprise.

The company drilled several holes into the Dizzy kimberlite, coming up with 37 diamonds from nearly 500 kilograms of material. A bit less than half of the kimberlite came from the central and western part of Dizzy, but it accounted for 31 of the diamonds, including all eight macrodiamonds in the parcel. That provides a hint of hope that Dizzy has better zones. Nevertheless, it would take a significantly larger diamond haul and some heftier stones to excite the market.

Forest Gate is rather quiet about its East Side project, although the company is working on a new exploration plan for the play. The plan likely will include a new look at Dizzy, but as well, the company may also try poking holes into at least one other anomaly.

The East Side project is just a few kilometres northeast of the Star kimberlite, where Shore Gold Inc. should produce well over 3,000 carats from a 25,000-tonne bulk sample. The grade of the better kimberlite phase at Star is about 0.15 carat per tonne, and a diamond value of over $100 (U.S.) per carat could bring the deposit to an economic threshold. As well, a group led by De Beers Canada Corp. and Kensington Resources Ltd. have several intriguing kimberlites just north of Star. Those partners are testing those pipes once again, in the hope of finding richer zones.

The players

Mr. Judson and Lorne Woods created Forest Gate in 1999 and took the company public early in 2003. The two are principals of Judson Woods Inc., a Montreal-based public relations company that is no stranger to diamond and metals promotions. Mr. Judson is president of Judson Woods, while Mr. Woods is its managing partner.

Judson Woods provided a helping hand to Rhonda Corp. in the early 1990s. Rhonda was an active player on several diamond plays at the time, with stakes in several projects in Saskatchewan and the North. One of Rhonda's properties included what is now the East Side play. Rhonda sold the project to Judson Woods, which quickly passed it on to Forest Gate.

Mr. Woods is content to stay on the sidelines with Forest Gate, but Mr. Judson remains far more active. He served as president and a director of the company since the start. If Forest Gate does spin off its New Brunswick plays to Blue Note, the latter company would seem to have the more promotable projects. As a result, it is possible that little Forest Gate would add to its diamond projects.

Forest Gate's shares crested at 34 cents early this year, as speculators awaited the Dizzy diamond counts. The company has been a tougher tout of late, and a share cost just 12 cents for a time this summer.

Forest Gate closed at 17 cents on Thursday.

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