Diadem tries African gold
2006-01-23 16:38 ET by Will Purcell
Rod Thomas's slumbering Diadem Resources Ltd. sprang to life several days ago, as over 21 million shares traded in a five-day stretch. That provided some investors with a quick double, which sounds grand, but is not. At its recent peak, you see, the stock barely topped a nickel. Mr. Thomas talks of a planned consolidation and continued interest in a Northwest Territories diamond project, but a new gold play in Mali is the main act for most of Diadem's new shareholders. The company is making plans for a Mali drill program, which could come "sooner rather than later," according to Diadem's president.
The Mali move
Diadem started its Mali move in November, when it agreed to look at the Tinkeleni gold play belonging to La Societe African Minerals Exploration Ltd. (SARL). The deal, which amounts to an option on an option, did not spark much enthusiasm. If Diadem pursues the project, it would get a 100-per-cent interest in the property after paying $378,000 (U.S.) to SARL.
A week later, Diadem picked up an option on three other Mali gold plays, this time from North Atlantic Resources Ltd. The struggling junior can earn a 60-per-cent share of the Diokeba and Dalakan properties by spending $2-million on each property. Diadem must spend $1-million on the Sinzeni property to pick up a similar share. That $5-million total would keep Mr. Thomas busy hunting for new cash.
As well, the company must issue 625,000 shares to North Atlantic. That part of the arrangement is trivial by comparison, as a Diadem share was worth just four pennies at the time. That pegged a value of just $25,000 on the shares.
Speculators also ignored the news of that second Mali deal. Diadem's shares oscillated between 3.5 cents and 4.5 cents through December and into January, on lacklustre volumes. Interest suddenly picked up on Jan. 12, and about 14 million Diadem shares traded over the next two days.
The sudden burst of enthusiasm is curious, as Diadem apparently had no news worthy of sharing with investors. Still, Mr. Thomas had a few theories about his newfound popularity. "I would like to think the consolidation that we proposed is considered the right stuff in the right direction," he said, which would be a new attitude toward rollbacks, usually seen as a sign of surrender. He added that the Franklin diamond play was still of interest.
The Mali projects are a more likely trigger for the attention, and Diadem is already beating the bushes for exploration dollars to get its African promotion rolling. "Mali is a good place to look for gold," said Mr. Thomas, who briefly worked in the West African country in the early 1990s, during a stint with BHP Minerals Ltd. "My sense is there is a huge amount of gold there."
Mr. Thomas's senses seem accurate, as miners defined over 50 million ounces of gold in several deposits across the country. None of those discovered ounces are on Diadem's properties, but earlier work did produce enough to attract Mr. Thomas and Diadem. As well, the properties lie in a promising area.
The Diokeba project will likely be the top project for Diadem, at least to start. The property is in western Mali, about 400 kilometres west-northwest of Bamako. That puts the play just 20 kilometres southeast of the Sadiola mine run by AngloGold Ltd., Iamgold Corp. and the Mali government. Sadiola contained about 14 million ounces of gold and it hit peak annual production of nearly 500,000 ounces several years ago.
The Sadiola mine will be a key part of Mr. Thomas's story, as the Diokeba property contains the same rocks that occur near the mine and there are intriguing geological features worth a closer look. He said there had not been any core drilling on the property, although a reverse circulation drill program did turn up some gold values.
North Atlantic had little enthusiasm for its tests. The company completed 102 holes to an average depth of about 25 metres, but it found "no significant results." Mr. Thomas had a markedly different spin. He termed the initial work "very encouraging results" that offered a lot of upside.
The other two North Atlantic properties are in the southern part of Mali, about 200 kilometres southeast of Bamako. The two southern properties are also relatively unexplored, and Diadem is making the most of their proximity to existing mines in its opening promotional campaigns.
The Dalakan property is 25 kilometres southeast of the one-million-ounce Kalana mine, run by Avnel Gold mining Ltd. and the Malian government. The Sinzeni project is about 30 kilometres to the northwest of Dalakan, which puts it 50 kilometres south of the 11-million-ounce Morila mine, run by AngloGold, Randgold Resources Ltd. and the government.
North Atlantic also offered no enthusiasm for the results of its reverse circulation drilling on Dalakan. The company tested two geochemical anomalies with nearly 4,000 metres of holes, but the work again delivered no significant results. Despite the disappointing drill results at Dalakan and Diokeba, surface samples delivered geochemical anomalies, rarely a turn-on for investors.
North Atlantic also gave a quick look to the Tinkeleni property, about 25 kilometres southwest of Morila. The company signed an option deal on the play in 2004 and it completed a round of reverse circulation drilling over one encouraging geochemical anomaly. It found nothing of significance and apparently dropped its option.
North Atlantic's reverse circulation drill failures seem disappointing, but Diadem believes that any big gold finds on the Mali properties will turn up in diamond drilling, a safe belief. Near-surface signals are not necessarily representative of what lies below. The Sadiola mine had a major surface expression, but Morila did not. As a result, Diadem will be testing its properties with deeper core holes.
Mr. Thomas said Diadem was still putting its plans together, but the preliminary strategy called for drilling as soon as possible. "There are already targets outlined," he said, adding that North Atlantic's work was just a preliminary assessment of the properties.
The former vice-president of exploration for Diadem added that North Atlantic had aggressively gone in and picked up properties, then moved on to more attractive ones, such as its Foulalaba project. North Atlantic's apparent lack of enthusiasm for the earlier results suggests that Diadem has some intermediate work to do, and better defining the drill targets will be the first step.
The cash
Diadem had about $500,000 in working capital at the end of August, but it will need plenty of new cash to earn its interests in the Mali gold plays. The company had over 41 million warrants outstanding and almost 15 million options that could fetch over $5-million upon exercise. Unfortunately, nearly all of them are still out of the money.
Diadem plans to roll back its shares on a 1-for-16 basis, which would leave the company with about 10 million shares outstanding. The move would boost the value of the consolidated shares to about 80 cents, giving them a heftier bark. Rollbacks typically leave a company's existing shareholders feeling grumpy, but Diadem expects shareholder approval to be a formality.
The company may well be right, given the recent market interest. Meanwhile, the much lower share tally after consolidation will help Mr. Thomas entice a new crop of investors. The company is working on boosting its new shares by as much as one million, through a private placement that would gross $800,000. The units would come with 500,000 warrants, exercisable for $1, so Diadem could have enough cash to get things rolling on its Mali gold projects.
Diadem lost one-half cent Friday, closing at five cents on 1.3 million shares.
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