Wednesday, March 01, 2006 4:28:05 PM
ALLAN BARRY REPORT ON
CANADIAN DIAMOND EXPLORATION
3rd EDITION
January 9/2006
Welcome to the third edition of our report on Canadian Diamond Exploration. In our premier edition, published on August 15/2005, we discussed the reasons why we follow the diamond exploration and mining industry and we focused on companies with projects in Canada. Our second edition, published on October 20/2005, focused on explaining some of the important technical tools that exploration companies use to find diamonds. In this third edition we will discuss some of the key developments we look for when assessing whether or not we will invest in a diamond exploration stock. We also give a description of how we think investors can best use our past and future reports. In our section entitled "Our Diamonds in the Rough", we will discuss some of the companies that are significantly involved in Canadian diamond exploration.
Since our premier edition went out, we have received a number of email messages and phone calls from our readers. Thank you for your encouraging comments. As a new publication, we truly appreciate feedback from our readers and we feel this will help improve future reports - keep them coming!
Upcoming mining conferences
The editor of this report will be attending several mining conferences in the near future, specifically:
· January 22-23, 2006 – Cambridge House International will be hosting the Vancouver Resource Investment Conference at the Vancouver Convention and Exhibition Centre. http://www.goldshow.ca/vancouver/jan2005.html
· January 23-26, 2006 – The B.C and Yukon Chamber of Mines will be hosting their annual Mineral Exploration Roundup at The Westin Bayshore Resort and Marina in Vancouver. http://www.chamberofmines.bc.ca/roundupoverview.htm#
· March 5-8, 2006 – The Prospectors & Developers Association of Canada will be hosting their annual PDAC conference at the Metro Toronto Convention Centre. http://www.pdac.ca/pdac/conv/index.html
These conferences offer a wonderful opportunity to meet and talk with the key people involved in running companies that are exploring for a wide range of commodities. We highly advise investors to attend these conferences in your area to add to your due diligence in the companies you are invested in or are considering investing in. For out-of-towners, this would be a great time to plan a trip to Vancouver or Toronto to visit these two great cities.
We publish two publications: the Allan Barry Report on Canadian Diamond Exploration and the Allan Barry Report on Precious and Base Metal Exploration. Several of the companies featured in these reports will be attending these conferences. We highly recommend taking the opportunity to come meet with these companies and learn more about what their plans include.
For our readers that would like to meet and chat with the editor of this report, by all means feel free to call or email and we can set up a time to meet. Our contact information is in the closing section of this report. Or come by the booths of the companies featured in our two reports that are attending the conferences and they would be happy to help you locate Allan at the conferences.
Our guide for readers to get the most out of our reports
The first time we feature a company it is primarily an introduction of the company to our readers. We are selective in what companies we choose to feature in our reports and don't foresee them coming in and out of favour often; however if a company falls out of favour we will state the reasons why in a future report.
We received comments from our readers after our second edition went out noting that it didn’t include all the companies from the first edition. Did this mean they had fallen out of favour? Absolutely not – and we don't want to leave that impression with our readers.
To make things as clear as possible, the first time a company is featured in our report, we are introducing it to our readers. The next time it appears there has been significant news that we would like to comment on. Further developments will be included in subsequent editions of the report.
Our goal is to feature companies that we feel have high quality projects. In the upcoming section we will outline the main things we look for in order to assess the quality of a company.
Our analysis is based on fundamentals
The fundamentals that apply to a diamond exploration company start with the projects the company is involved in. If the projects are the kind we would invest our own money in then we will look at buying stock. Obviously we are not so bold to think that we are always correct; many things can get in the way of the company realizing its potential. Nonetheless, the first question we ask ourselves is “If we took the analysis of the stock out of the picture and all we were looking at were the merits of the project, would we be interested in spending our money to develop that project?” If the answer is “Yes”, then we begin to look at investing.
For us the main yardstick we use to determine our interest in a project is what the drilling is telling us. In the exploration industry the drill is often called the truth machine. If the truth machine is talking, we are listening. The fact of the matter is that if you aren’t drilling you can’t make a discovery. We are interested in companies that are making and developing new discoveries.
Most often a company catches our attention when they have completed early stage drilling and have interesting results from that drilling. Often diamond exploration companies that make these discoveries are small and not followed by a large audience of investors. Therefore, even after a company hits with their drilling we can still get involved with the stock at a reasonable price.
Before a company makes a hit with the drill, they have acquired a project in a prospective area. The next step is geophysical, geological and geochemical analysis. Using these tools the technical team behind a junior develops a theory of where and why they should drill. The drill then tells them whether or not their theory makes sense or if more work is needed to make that determination.
All the companies we have featured in our first two editions of this report have projects in prospective areas. They have also developed a theory of why they will be successful when they drill the targets they have identified. They have drilled and the truth machine has told them their theory makes sense. These steps are the primary developments on which we base our decision on whether or not we will invest in a company.
Typically, before the truth machine starts turning, the stock is cheaper than after they drill into a new discovery. Yes they are cheaper, but they are riskier as well. The technical team that develops any drill program feels their reasoning is sound and spending the company’s money is warranted. But Mother Nature often works in strange ways. We feel a lot more comfortable about a project when we can base our investment decision on what the truth machine tells us.
Our first priority is drill results, and then we look at the people involved in running the company and the technical team developing drill targets. The reason drill results are the first item we look at is because no matter how good the people are that are involved with a company, they can’t make something appear if it isn’t there.
We contact the key individuals and try to continue communicating with them as exploration results are announced in news releases. We encourage our readers to do the same. These companies have investor relation’s people that enjoy the opportunity to tell their company’s story.
When we speak with these people we are trying to understand the projects they are involved with and the reasoning behind their drilling and exploration efforts. We are doing this to assess whether or not we feel they will be successful in their drilling, and how that success could affect the value of the company.
After we have looked at the technical merits of a company’s project and spoken with the people involved, the next step is to look at the valuation of the company based on its stock price and the shares issued and outstanding. We begin this part of the analysis by looking at the market capitalization of the company. Market capitalization is the number of shares a company has multiplied by the current share price. This is also called the market value, which is the term we prefer. In general, assessing the market value is a quick way to measure the value that the market is placing on a company. For example, let’s say a company has 50 million shares issued and outstanding (this is also called fully diluted) and the stock is trading at $0.50, they would have a market value of 25 million dollars. Twenty five million dollars is the value that the market is currently placing on the company.
After we have the market value then we ask would we buy the entire company if we had the money to purchase all the shares? If the answer is yes then we feel we are getting the stock for a reasonable price and we would be comfortable buying the stock at its current price. In our opinion this is one of the best rules of thumb when deciding whether or not to invest in a company, regardless of the size of the company.
Paying a Reasonable Price
Another important topic this brings up is paying a reasonable price for a stock. We feel it is a fool’s game to try and buy at the cheapest price and then sell at the highest, i.e. the “buy-low-and-sell-high” mentality. Of course it would be nice if you were able to do that – but in reality it happens so rarely that you are asking for trouble if you think you can time the market with any kind of consistency. We are much more interested in buying at a reasonable price that we feel a knowledgeable businessperson would pay for the entire company and then selling at a premium from the price we bought at.
When we assess the market value, we are trying to determine if we are getting the stock at a reasonable price or if it is undervalued. We feature companies in our reports that we feel have:
* Quality projects
* Quality people
* Reasonable or undervalued stock prices
* Potential to increase market value in the future
This is the bottom line of what we are trying to present with our reports.
Valuation of the Sector
Another area we look at is the valuation of the sector the companies are part of. This report is focused on Canadian Diamond exploration done by small exploration companies, otherwise known as “the junior diamond market”. Several of the companies we have featured in our two previous editions of our report are currently trading near multi-year lows. It would be safe to say that this group of companies involved in Canadian Diamond Exploration is currently out of favour. We think that this situation is overdone. Several of the companies we are following are preparing for significant developments in 2006 and we feel this year will be much more positive for the sector.
Improvements to Diamond reporting and what we look for
Canada has grown from a newcomer in the diamond business into the third largest producer in dollar value of rough diamonds in the world. During this time of growth, there has been a substantial increase in the knowledge of diamond exploration and mining in Canada. Methods of assessing the diamond potential of a kimberlite discovery (kimberlite is the dominant rock type from which diamonds are produced) have dramatically advanced.
The diamond industry in Canada is still in its early stages and has many years of new discoveries and production ahead of it. As the industry evolves we will see changes, which will serve to strengthen the industry.
After a new kimberlite discovery, the next step is to determine if diamonds are present and if so the next several steps are taken to fully assess whether or not enough diamonds are present to turn that kimberlite into a mine.
One of the first steps taken after a kimberlite is found is to do caustic fusion testing. In basic terms, the kimberlite from drill core is taken to a laboratory where they dissolve the kimberlite in a caustic solution that leaves the diamonds intact. Then they pick out any diamonds that are present, after which they examine and classify the stones.
Some of the changes we are seeing are in the reporting of diamond exploration results. We feel that these changes will assist the technical people involved in the industry and are a very powerful tool for investors when assessing the potential of a diamond discovery. The changes are related to the classification process and reporting of those results.
When assessing the diamond potential of a kimberlite, the bottom-line of that assessment is statistical analysis. The statistics that are used are related to the presence of diamonds and the distribution of diamonds in a kimberlite. Because of the variable distribution of diamonds in a kimberlite, the more accurately the diamonds are measured, the better your statistical analysis will be. The changes we are seeing will help improve this process.
One of the first reports from the assessment of a kimberlite for its diamond potential is micro-diamond analysis. After a kimberlite is discovered the next step is to send the drill core into the lab for caustic fusion analysis. As we said earlier the kimberlite is put into a caustic solution, this process will dissolve the kimberlite leaving diamonds if they are present. There are a couple issues relating to this method of assessment that we feel investors should be aware of. The main issue one has to remember is how small in weight diamonds are compared to the rock it is found in. In a high-grade discovery (for example, one carat per tonne) it is important to realize the weight of those diamonds. A one-carat diamond weighs 0.20 of a gram or 1/5 of a gram. So in a high-grade diamond deposit you will find 0.20 of a gram of diamonds in 1 tonne of kimberlite rock.
Another important fact to remember is that these kimberlite deposits can be multi-million tonnes in size. Usually early stage caustic fusion testing is done on core that is between twenty and two hundred kilos of kimberlite rock. A definitive assessment of the diamond potential of a kimberlite can’t be made from such a small sample. A much larger sample is needed to get a realistic assessment of the diamond grade of a kimberlite.
A perfect example of how dangerous it is to make decisions based on a small sample is De Beers’ Victor Kimberlite in Ontario. De Beers found this deposit several years ago and did a small test of the kimberlite and found a modest amount of diamonds. The deposit was left alone for several years and then De Beers had to make a decision whether to further develop the deposit or let the claims lapse. They went in with a much larger sample and found there was in fact a lot more diamonds than the first tests had suggested. Further testing found that there is a grade of almost ¼ of a carat per tonne. What was even more astonishing was these diamonds are such high quality that they are valued around $400.00 per carat. This makes the rock worth around $100.00 per tonne and Victor is now going into development of a mine and will be one of Canada’s future diamond mines. If the technical people involved in this project based their decisions only on the small sample they would have most likely walked away from a diamond mine worth billions of dollars. That is not a mistake we would like to make.
Other deposits can be full of diamonds; take for example the Diavik diamond mine, which is 40% owned by Aber Diamonds. One of the deposits at this project is called the A-154 South kimberlite. This kimberlite deposit is extremely high grade. It has reported grades of around 4 carats per tonne and the diamonds are worth around $120.00 per carat. So the value of the rock is close to $500.00 per tonne.
From the example of these two deposits one can learn a great deal. From Victor one can learn not to put too much value on a small testing of kimberlite and generally much larger samples are needed to accurately assess the diamond grade of a kimberlite. From Diavik’s A-154 kimberlite we learned that in a deposit like that you don’t need to be a rocket scientist to figure out how valuable the kimberlite is. In some cases the size of the early stage samples are very important, in others they can be so high-grade that even small samples can tell you a great deal.
Regardless of whether a company has a Victor type kimberlite or an A-154 type kimberlite, it is important to be aware that to accurately assess the diamond grade the larger the sample the better. Nonetheless a technical person and investor can still get valuable information from the early stage tests.
For example, one can learn if diamonds are present in the drill core, although you need larger samples to get a realistic evaluation of the mining grade potential. Thus we advise to be cautious about making a definitive decision until larger samples are taken. Another important piece of information one can learn from early stage results is that the micro-diamond results can give an indication of the presence of macro-diamonds. In order to get a good amount of macro-diamonds you need to test more rock. The macro-diamond results give you an indication of the potential presence of commercial sized stones. Another important indicator from these early tests that is often overlooked by investors is an indication about the value per carat. If the test indicates a high percentage of white stones with few inclusions, there is an outstanding potential of a high value per carat.
In order to properly assess the ultimate value of a diamond deposit you need to know what the tonnage is, what the carats per tonne are, and the value per carat. Early stage testing can give you indications about these key questions but they are not able to give you a definitive answer. Therefore we think it is very important to be aware of these results because they can give you important clues to the answers to those questions. The final answers can’t be realistically determined until larger tests are completed.
In the upcoming section we will be discussing some companies we follow that have the potential of finding kimberlites that could have positive answers to these important questions.
SOME OF OUR DIAMONDS IN THE ROUGH
This section of the report is dedicated to discussing companies that we feel have quality projects that offer significant potential to grow into companies with higher market values.
In this edition we will discuss a couple companies that have been featured in previous reports. We will also be featuring two new companies, which have exciting projects.
We are either shareholders, or planning to become shareholders, of all of the companies included in this section. We believe strongly in the age-old adage about eating our own cooking. At times we offer our consulting services to companies we own shares in. We are only interested in offering those services to companies we first and foremost want to be shareholders of, as well as being able to provide service that will assist the company in unlocking value to the shareholders.
At the beginning of the discussion of each company we will indicate if we are a shareholder or a consultant to the company. We also advise readers to look at our disclaimer at the end of this report. The following companies are listed alphabetically.
Metalex Ventures
Metalex Ventures has been around for a few years now; it has been in the spotlight and now is in the doldrums. What got the company into the spotlight was the fact that Chuck Fipke was at the helm. They had acquired several projects around De Beers Victor diamond deposit in northern Ontario near Attawapiskat in the James Bay Lowlands. The public was betting he would repeat the success he enjoyed in finding Canada's first diamond mine. It is in the doldrums now because they didn't find anything substantial in this area, although we feel the area still has significant potential. What has caught our recent attention and the reason we have become shareholders is because of a new discovery they have found west of this area in the Kyle Lake region.
We feel that the big run-up in stock price was overly positive based on Chuck Fipke getting involved in an area where De Beers had already found some exciting diamond deposits. We also feel that the current value in the doldrums is overly negative especially when they have made a new discovery that looks very interesting. These kind of wild swings are good places to look for opportunity after a big run-up the following sell-off can get way overdone. We feel this is a very exciting turnaround play that offers excellent upside potential.
There are two aspects of the company’s recent discovery that have caught our attention. One of those is the diamond distribution that is pointing toward a healthy grade of diamonds. The second issue, which often is overlooked by investors in junior diamond stocks, is the description of the diamonds, many investors and analysts overlook this but we don’t. When they described these stones they mentioned that 62% of the diamonds are white and free of inclusions, this is a very good indication of the potential of having a high value per carat. The value per carat is just as important as the carats per tonne. These two factors as well as the overall tonnage are what one needs to know in order to realistically evaluate the potential of having a diamond deposit that is economically mine able.
If future diamond testing proves to be as good as the initial tests suggested, the results have the potential of adding significant market value. We feel that this project has the potential to launch the company into a much larger market value. More testing and time will tell but we like their chances.
Metalex’s stock symbol is MTX and the shares trade on the Toronto Stock Exchange Venture Market. Their website is http://www.metalexventures.com. Their website contains past news releases and additional information to do your own due diligence.
Shear Minerals
Shear has been featured in the first two editions of our report on Canadian Diamond Exploration. The company’s stock price has been through a tough period since we featured the company and is currently trading less than it was when those two previous editions went out. However, we are undeterred in our conviction that Shear is onto something big, and although they have hit a rough patch, we strongly believe that the worst is over. As we indicated in our previous editions we are a shareholder of the company at higher prices and are using these lower valuations to purchase more and bring down our average purchase price.
We are not going into great detail about the merits of this project because we have covered that in our past editions. For new readers that would like to receive those earlier reports please feel free to contact us.
Shear Minerals has a lot in common with Stornoway, a company we are featuring later in this report, besides their joint venture partnership on this project. Shear also has a large land package, in a prospective area. They have found significantly more kimberlites on their project but to date they have not found a kimberlite that has the same kind of grades as Stornoway has found. As we will mention when discussing Stornoway the first job a company with a huge claim block has is to weed out the less prospective ground and focus on the most promising areas on their claim. Shear is well on its way in this process. We feel that they are narrowing the search and are on the verge of new discoveries that could lead the company to having a much larger market value.
In our previous reports, we have mentioned that kimberlites are found in clusters. The world average is around 20 kimberlites per cluster but some fields can contain over 100. In our opinion, Shear is onto one of these 100 kimberlite type fields – they have found around 40 kimberlites so far. A major issue when looking at these large fields is that a lot of the kimberlites will be barren, a small percentage will be diamond bearing, and a few have the potential to be diamond bearing to the point of having enough diamonds to turn into a diamond mine. In a large field the trick is to find the key kimberlites, and Shear is using some of the new techniques that have been discussed in papers delivered at the past International Kimberlite Conferences that we spoke about in our second edition. The big question is will their best kimberlites be the 100th one found or the 41st? The answer remains to be seen. We do believe that the company is narrowing the search and the upcoming field season that begins in April will be a very interesting time for the company.
Shear’s stock symbol is SRM and the shares trade on the Toronto Stock Exchange Venture Market. Their website is http://www.shearminerals.com. On their website you can find past news releases and additional information to do your own due diligence.
Snowfield Development Corp.
Snowfield was first featured in our premier edition of this report on Canadian Diamond Exploration in August 2005. The main focus of the company is the Ticho Diamond Project that is 25 miles outside of Yellowknife along the shoreline of Great Slave Lake. We are a shareholder and consultant to the company and will be increasing our shareholdings in the future.
One of the major issues that make this project exciting is its close proximity to Yellowknife. Yellowknife is a hub for Canadian diamond exploration and the Ticho Diamond Project is in close proximity to the infrastructure of Yellowknife and a vast amount of technical people and companies with lots of experience in diamond exploration. For a diamond explorer practically everything you need is in Yellowknife, only 25 miles from Snowfields project.
This close proximity to Yellowknife is important for several reasons, the first of which we just mentioned. Another very important factor is that the exploration season for this area is much longer than practically every place else in Canada that is being explored for diamonds. In the winter the project can be accessed by a 40-minute drive along an ice highway from Yellowknife on Great Slave Lake that leads right to Snowfields exploration camp. In the summer time when the ice is off the lake access is by boat that takes a little longer but is still very easy to get to the exploration camp.
These benefits reduce the cost of exploration dramatically and they will also have an impact on the economics of developing a mine if there is a mine able diamond deposit present. The biggest impact is on how big a diamond deposit needs to be found. Take for example the Diavik Diamond Mine. To bring that deposit into production required building a mine with a price tag over one billion dollars. They had to find a diamond deposit that was worth several billion dollars to justify spending that kind of money. In the area where the Ticho Project is located the cost of developing a mine would be much less expensive, therefore the company would not have to find a multi-billion dollar diamond deposit although that potential is present.
The main reason we feel the company is onto something big is because of the unique diamond indicator minerals that have been found in the drill core from the one kimberlite that has been found on the property to date. The next step is to test the kimberlite for the presence of diamonds. That process is underway and we will find out more about this potential shortly. Based on the unique suite of indicator minerals that have been found in the drill core from this project, and the fact that some of these diamond indicators are known to exist only in diamond bearing kimberlite, we feel the upcoming testing has very good potential of finding diamonds.
Another important fact to be aware of is that there has only been two kimberlites found in this area to date. One of those kimberlites is the diamond bearing Drybones Bay pipe that New Shoshone Ventures is developing and the other is the Mud Lake kimberlite that Snowfield is developing. There is no kimberlite cluster in the world that only has two kimberlites present so there is a strong argument to be made that there are still more kimberlites to be found in this area.
The cold season has been slow to arrive in the Yellowknife area this winter but that time is upon us now. This time of the year is the cheapest and most cost effective time to work. We expect to see news on diamond testing from the Mud Lake kimberlite and additional drilling to look for more kimberlites to be underway shortly and a steady flow of news in the near term.
Snowfield’s stock symbol is SNO and the shares trade on the Toronto Stock Exchange Venture Market. Their website is http://www.snowfield.com. Their website contains past news releases and additional information to do your own due diligence.
Stornoway Diamond Corp.
We have followed Stornoway for several years because of their discovery of diamond bearing kimberlite in Northern Canada and the quality of the management of the company. Eira Thomas leads the company and has surrounded herself with a very accomplished team of diamond explorers. Due to some recent news coming out of the company from work done in last year’s field season we have purchased shares in the company. They have a busy schedule ahead with results still pending from work already completed and an aggressive work campaign coming up in the next couple months.
Almost everybody who invests in Canadian diamond stocks has heard of Eira Thomas. For our readers that don't know about her background, Eira was significantly involved in the early days of the Canadian diamond scene. Her father Grenville Thomas was running a tiny company named Aber Diamonds when the first diamond discoveries where being made. Aber was featured in the first edition of our report on Canadian Diamond Exploration in August of 2005. When we spoke about Aber we used it as a model of the kinds of companies we look to invest in that will hopefully turn into a huge winner like Aber. As we discussed in that edition, Aber started as a junior penny stock that is now a major player in the global diamond business.
Eira went to work for her father fresh out of university and was part of the team that discovered the Diavik diamond mine. Aber's 40% interest in that mine helped turn the company into a major player in the diamond industry. Several years passed as Aber was growing into the company they are now, and Eira still very young and having been bitten by the treasure-hunting bug, she started a new company called Stornoway Diamonds that has a very exciting project called the Aviat diamond project in Northern Canada.
Before discussing the technical aspects of the Aviat project we feel it is important to discuss the team that is running this company. The two key figureheads are Eira Thomas and Catherine Macleod-Seltzer. As we mentioned earlier Eira is a very well known figure in the Canadian Diamond Exploration scene. Catherine Macleod-Seltzer is another very well known figure in the metals exploration scene. We have a sister publication called the Allan Barry Report on Precious and Base Metal Exploration, and in that report we have featured two companies that Catherine is involved with. For readers that are interested in that report, our contact information is in the closing section of this report, and we would be more than happy to send you a copy of the reports featuring her companies. Together these two women make a very formidable team. As we mentioned earlier in this report we focus on companies that have had excellent drilling results primarily because no matter how good the people are that are running a company they can't make something appear if it is not there, but in this case this excellent team has found something that we think is outstanding.
A few years ago Stornoway acquired a very large land package of several million acres. Normally we feel that a huge land package can be as much trouble as it can be an asset. What we mean by that is that the vast majority of a huge land package is going to be worthless ground and a small portion will be the exciting part. The main trick is to eliminate the worthless ground and focus on the most prospective ground. This process can take a lot of money to sort out. Fortunately for Stornoway shareholders, the company has a large amount of cash in the bank and a technical team capable of effectively finding the key ground. The first couple years of work on this project were really the weeding out of the weaker ground and trying to focus in on the most promising ground. We feel that they are now at the point of zeroing in on the key target areas on their large land package.
During this weeding out process they have been able to focus on some very exciting areas that are now paying dividends. In the last couple months they have released excellent results from drill testing some of the kimberlites they have identified. In the last few weeks they have also announced a schedule of when pending results will be released over the next few months. The first batch of results is scheduled to come out around the middle of January followed by additional results in the first quarter of 2006.
Basically what they have is a large land package in a prospective area, where they have found kimberlites with very exciting diamond counts. This area affords the company the opportunity to find an entire kimberlite field. As we have mentioned in our previous reports, kimberlites are always found in clusters. The world average of kimberlites per cluster is around 20. Some of these fields can host over 100 kimberlites so based on that the potential of finding a lot more kimberlites on this property is outstanding.
It is one thing to find several kimberlites, it is an entirely different thing to find a cluster of kimberlites with the potential of finding enough diamonds to turn that find into a diamond mine. We feel that based on the diamonds found to date and the diamond indicator minerals from this area that there is a very strong argument to be made that Stornoway is on its way to finding a major diamond deposit.
Another important aspect is that the company is also a joint venture partner of Shear Minerals. We have featured Shear in our first two editions of this report and again earlier in this report.
With the interest that Stornoway has in their Aviat Project and their interest in the joint venture on Shear Minerals project we feel that Stornoway has the assets to be a major force on the Canadian Diamond scene. With the upcoming work on these two projects we feel that Stornoway has a very busy period upcoming that could help them emerge into a company that could grow into another Aber type success story. We feel very strongly that 2006 will be a breakthrough year for the company.
Stornoway’s stock symbol is SWY and the shares trade on the Toronto Stock Exchange. Their website is http://www.stornowaydiamonds.com. Their website contains past news releases and additional information to do your own due diligence.
WHAT MAKES THE ALLAN BARRY REPORT UNIQUE
For the last 12 years, the editor of this report has had a career as a consultant to publicly traded junior exploration companies. Services provided to these companies include investor relations, corporate communications, strategic planning, and fund-raising.
As an investor relations consultant to small companies one has to wear several hats:
* communicating the company’s efforts to the investing community;
* communicating technical aspects of those efforts;
* being involved in raising funds for drilling and exploration;
* being involved in the technical analysis;
* and reporting of what has been found.
These efforts have provided a unique opportunity to learn, from an insider’s perspective, the challenges that junior exploration companies face. Additionally it has opened doors to meeting a very accomplished group of technical people.
Spending this time as a consultant to junior exploration companies has provided a unique perspective that is an asset few analysts or newsletter writers possess.
IN CLOSING
We would like to take this opportunity to thank you for taking the time to read this report. We hope this information proves to be informative and helpful. We ask the reader not to post this report on any website for at least three days after you receive it and that if it is posted to post the entire report without any editing. We invite our readers to pass on our contact information to anybody they feel may be interested in receiving this report or future reports and we would be glad to add them to our email list for future publications.
There is no charge for this publication. In order to be added to our email list we need your name, phone number and email address. You can call us on our toll free number at 1-877-574-4575 or locally at 604-574-4575 or email allanbl@shaw.ca with the above information.
Regards,
Allan Barry Laboucan,
Editor
Allan Barry Reports
Disclaimer: The information included in this Allan Barry Report on Canadian Diamond Exploration, is for information purposes only. No statement or expression of opinion, or any other matters herein, directly or indirectly, is an offer, solicitation or recommendation to buy or sell any securities mentioned. The information contained in this e-mail is drawn from sources believed to be reliable, but the accuracy and completeness of the information is not guaranteed, nor in providing it does the editor Allan Barry Laboucan or his companies, or affiliated companies, assume any liability. We do not receive or request compensation in any form in order to feature companies mentioned herein. The editor may have equity positions in companies referenced in this newsletter, or plans on taking a position, or offers consulting services to these companies and will notify the reader of these positions or services provided to the company in the section of the report on each individual company. The editor his personal company or affiliated companies, disclaims all responsibility and accepts no liability (including negligence) for the consequences for any person acting, or refraining from acting, on the information provided in this publication.
CANADIAN DIAMOND EXPLORATION
3rd EDITION
January 9/2006
Welcome to the third edition of our report on Canadian Diamond Exploration. In our premier edition, published on August 15/2005, we discussed the reasons why we follow the diamond exploration and mining industry and we focused on companies with projects in Canada. Our second edition, published on October 20/2005, focused on explaining some of the important technical tools that exploration companies use to find diamonds. In this third edition we will discuss some of the key developments we look for when assessing whether or not we will invest in a diamond exploration stock. We also give a description of how we think investors can best use our past and future reports. In our section entitled "Our Diamonds in the Rough", we will discuss some of the companies that are significantly involved in Canadian diamond exploration.
Since our premier edition went out, we have received a number of email messages and phone calls from our readers. Thank you for your encouraging comments. As a new publication, we truly appreciate feedback from our readers and we feel this will help improve future reports - keep them coming!
Upcoming mining conferences
The editor of this report will be attending several mining conferences in the near future, specifically:
· January 22-23, 2006 – Cambridge House International will be hosting the Vancouver Resource Investment Conference at the Vancouver Convention and Exhibition Centre. http://www.goldshow.ca/vancouver/jan2005.html
· January 23-26, 2006 – The B.C and Yukon Chamber of Mines will be hosting their annual Mineral Exploration Roundup at The Westin Bayshore Resort and Marina in Vancouver. http://www.chamberofmines.bc.ca/roundupoverview.htm#
· March 5-8, 2006 – The Prospectors & Developers Association of Canada will be hosting their annual PDAC conference at the Metro Toronto Convention Centre. http://www.pdac.ca/pdac/conv/index.html
These conferences offer a wonderful opportunity to meet and talk with the key people involved in running companies that are exploring for a wide range of commodities. We highly advise investors to attend these conferences in your area to add to your due diligence in the companies you are invested in or are considering investing in. For out-of-towners, this would be a great time to plan a trip to Vancouver or Toronto to visit these two great cities.
We publish two publications: the Allan Barry Report on Canadian Diamond Exploration and the Allan Barry Report on Precious and Base Metal Exploration. Several of the companies featured in these reports will be attending these conferences. We highly recommend taking the opportunity to come meet with these companies and learn more about what their plans include.
For our readers that would like to meet and chat with the editor of this report, by all means feel free to call or email and we can set up a time to meet. Our contact information is in the closing section of this report. Or come by the booths of the companies featured in our two reports that are attending the conferences and they would be happy to help you locate Allan at the conferences.
Our guide for readers to get the most out of our reports
The first time we feature a company it is primarily an introduction of the company to our readers. We are selective in what companies we choose to feature in our reports and don't foresee them coming in and out of favour often; however if a company falls out of favour we will state the reasons why in a future report.
We received comments from our readers after our second edition went out noting that it didn’t include all the companies from the first edition. Did this mean they had fallen out of favour? Absolutely not – and we don't want to leave that impression with our readers.
To make things as clear as possible, the first time a company is featured in our report, we are introducing it to our readers. The next time it appears there has been significant news that we would like to comment on. Further developments will be included in subsequent editions of the report.
Our goal is to feature companies that we feel have high quality projects. In the upcoming section we will outline the main things we look for in order to assess the quality of a company.
Our analysis is based on fundamentals
The fundamentals that apply to a diamond exploration company start with the projects the company is involved in. If the projects are the kind we would invest our own money in then we will look at buying stock. Obviously we are not so bold to think that we are always correct; many things can get in the way of the company realizing its potential. Nonetheless, the first question we ask ourselves is “If we took the analysis of the stock out of the picture and all we were looking at were the merits of the project, would we be interested in spending our money to develop that project?” If the answer is “Yes”, then we begin to look at investing.
For us the main yardstick we use to determine our interest in a project is what the drilling is telling us. In the exploration industry the drill is often called the truth machine. If the truth machine is talking, we are listening. The fact of the matter is that if you aren’t drilling you can’t make a discovery. We are interested in companies that are making and developing new discoveries.
Most often a company catches our attention when they have completed early stage drilling and have interesting results from that drilling. Often diamond exploration companies that make these discoveries are small and not followed by a large audience of investors. Therefore, even after a company hits with their drilling we can still get involved with the stock at a reasonable price.
Before a company makes a hit with the drill, they have acquired a project in a prospective area. The next step is geophysical, geological and geochemical analysis. Using these tools the technical team behind a junior develops a theory of where and why they should drill. The drill then tells them whether or not their theory makes sense or if more work is needed to make that determination.
All the companies we have featured in our first two editions of this report have projects in prospective areas. They have also developed a theory of why they will be successful when they drill the targets they have identified. They have drilled and the truth machine has told them their theory makes sense. These steps are the primary developments on which we base our decision on whether or not we will invest in a company.
Typically, before the truth machine starts turning, the stock is cheaper than after they drill into a new discovery. Yes they are cheaper, but they are riskier as well. The technical team that develops any drill program feels their reasoning is sound and spending the company’s money is warranted. But Mother Nature often works in strange ways. We feel a lot more comfortable about a project when we can base our investment decision on what the truth machine tells us.
Our first priority is drill results, and then we look at the people involved in running the company and the technical team developing drill targets. The reason drill results are the first item we look at is because no matter how good the people are that are involved with a company, they can’t make something appear if it isn’t there.
We contact the key individuals and try to continue communicating with them as exploration results are announced in news releases. We encourage our readers to do the same. These companies have investor relation’s people that enjoy the opportunity to tell their company’s story.
When we speak with these people we are trying to understand the projects they are involved with and the reasoning behind their drilling and exploration efforts. We are doing this to assess whether or not we feel they will be successful in their drilling, and how that success could affect the value of the company.
After we have looked at the technical merits of a company’s project and spoken with the people involved, the next step is to look at the valuation of the company based on its stock price and the shares issued and outstanding. We begin this part of the analysis by looking at the market capitalization of the company. Market capitalization is the number of shares a company has multiplied by the current share price. This is also called the market value, which is the term we prefer. In general, assessing the market value is a quick way to measure the value that the market is placing on a company. For example, let’s say a company has 50 million shares issued and outstanding (this is also called fully diluted) and the stock is trading at $0.50, they would have a market value of 25 million dollars. Twenty five million dollars is the value that the market is currently placing on the company.
After we have the market value then we ask would we buy the entire company if we had the money to purchase all the shares? If the answer is yes then we feel we are getting the stock for a reasonable price and we would be comfortable buying the stock at its current price. In our opinion this is one of the best rules of thumb when deciding whether or not to invest in a company, regardless of the size of the company.
Paying a Reasonable Price
Another important topic this brings up is paying a reasonable price for a stock. We feel it is a fool’s game to try and buy at the cheapest price and then sell at the highest, i.e. the “buy-low-and-sell-high” mentality. Of course it would be nice if you were able to do that – but in reality it happens so rarely that you are asking for trouble if you think you can time the market with any kind of consistency. We are much more interested in buying at a reasonable price that we feel a knowledgeable businessperson would pay for the entire company and then selling at a premium from the price we bought at.
When we assess the market value, we are trying to determine if we are getting the stock at a reasonable price or if it is undervalued. We feature companies in our reports that we feel have:
* Quality projects
* Quality people
* Reasonable or undervalued stock prices
* Potential to increase market value in the future
This is the bottom line of what we are trying to present with our reports.
Valuation of the Sector
Another area we look at is the valuation of the sector the companies are part of. This report is focused on Canadian Diamond exploration done by small exploration companies, otherwise known as “the junior diamond market”. Several of the companies we have featured in our two previous editions of our report are currently trading near multi-year lows. It would be safe to say that this group of companies involved in Canadian Diamond Exploration is currently out of favour. We think that this situation is overdone. Several of the companies we are following are preparing for significant developments in 2006 and we feel this year will be much more positive for the sector.
Improvements to Diamond reporting and what we look for
Canada has grown from a newcomer in the diamond business into the third largest producer in dollar value of rough diamonds in the world. During this time of growth, there has been a substantial increase in the knowledge of diamond exploration and mining in Canada. Methods of assessing the diamond potential of a kimberlite discovery (kimberlite is the dominant rock type from which diamonds are produced) have dramatically advanced.
The diamond industry in Canada is still in its early stages and has many years of new discoveries and production ahead of it. As the industry evolves we will see changes, which will serve to strengthen the industry.
After a new kimberlite discovery, the next step is to determine if diamonds are present and if so the next several steps are taken to fully assess whether or not enough diamonds are present to turn that kimberlite into a mine.
One of the first steps taken after a kimberlite is found is to do caustic fusion testing. In basic terms, the kimberlite from drill core is taken to a laboratory where they dissolve the kimberlite in a caustic solution that leaves the diamonds intact. Then they pick out any diamonds that are present, after which they examine and classify the stones.
Some of the changes we are seeing are in the reporting of diamond exploration results. We feel that these changes will assist the technical people involved in the industry and are a very powerful tool for investors when assessing the potential of a diamond discovery. The changes are related to the classification process and reporting of those results.
When assessing the diamond potential of a kimberlite, the bottom-line of that assessment is statistical analysis. The statistics that are used are related to the presence of diamonds and the distribution of diamonds in a kimberlite. Because of the variable distribution of diamonds in a kimberlite, the more accurately the diamonds are measured, the better your statistical analysis will be. The changes we are seeing will help improve this process.
One of the first reports from the assessment of a kimberlite for its diamond potential is micro-diamond analysis. After a kimberlite is discovered the next step is to send the drill core into the lab for caustic fusion analysis. As we said earlier the kimberlite is put into a caustic solution, this process will dissolve the kimberlite leaving diamonds if they are present. There are a couple issues relating to this method of assessment that we feel investors should be aware of. The main issue one has to remember is how small in weight diamonds are compared to the rock it is found in. In a high-grade discovery (for example, one carat per tonne) it is important to realize the weight of those diamonds. A one-carat diamond weighs 0.20 of a gram or 1/5 of a gram. So in a high-grade diamond deposit you will find 0.20 of a gram of diamonds in 1 tonne of kimberlite rock.
Another important fact to remember is that these kimberlite deposits can be multi-million tonnes in size. Usually early stage caustic fusion testing is done on core that is between twenty and two hundred kilos of kimberlite rock. A definitive assessment of the diamond potential of a kimberlite can’t be made from such a small sample. A much larger sample is needed to get a realistic assessment of the diamond grade of a kimberlite.
A perfect example of how dangerous it is to make decisions based on a small sample is De Beers’ Victor Kimberlite in Ontario. De Beers found this deposit several years ago and did a small test of the kimberlite and found a modest amount of diamonds. The deposit was left alone for several years and then De Beers had to make a decision whether to further develop the deposit or let the claims lapse. They went in with a much larger sample and found there was in fact a lot more diamonds than the first tests had suggested. Further testing found that there is a grade of almost ¼ of a carat per tonne. What was even more astonishing was these diamonds are such high quality that they are valued around $400.00 per carat. This makes the rock worth around $100.00 per tonne and Victor is now going into development of a mine and will be one of Canada’s future diamond mines. If the technical people involved in this project based their decisions only on the small sample they would have most likely walked away from a diamond mine worth billions of dollars. That is not a mistake we would like to make.
Other deposits can be full of diamonds; take for example the Diavik diamond mine, which is 40% owned by Aber Diamonds. One of the deposits at this project is called the A-154 South kimberlite. This kimberlite deposit is extremely high grade. It has reported grades of around 4 carats per tonne and the diamonds are worth around $120.00 per carat. So the value of the rock is close to $500.00 per tonne.
From the example of these two deposits one can learn a great deal. From Victor one can learn not to put too much value on a small testing of kimberlite and generally much larger samples are needed to accurately assess the diamond grade of a kimberlite. From Diavik’s A-154 kimberlite we learned that in a deposit like that you don’t need to be a rocket scientist to figure out how valuable the kimberlite is. In some cases the size of the early stage samples are very important, in others they can be so high-grade that even small samples can tell you a great deal.
Regardless of whether a company has a Victor type kimberlite or an A-154 type kimberlite, it is important to be aware that to accurately assess the diamond grade the larger the sample the better. Nonetheless a technical person and investor can still get valuable information from the early stage tests.
For example, one can learn if diamonds are present in the drill core, although you need larger samples to get a realistic evaluation of the mining grade potential. Thus we advise to be cautious about making a definitive decision until larger samples are taken. Another important piece of information one can learn from early stage results is that the micro-diamond results can give an indication of the presence of macro-diamonds. In order to get a good amount of macro-diamonds you need to test more rock. The macro-diamond results give you an indication of the potential presence of commercial sized stones. Another important indicator from these early tests that is often overlooked by investors is an indication about the value per carat. If the test indicates a high percentage of white stones with few inclusions, there is an outstanding potential of a high value per carat.
In order to properly assess the ultimate value of a diamond deposit you need to know what the tonnage is, what the carats per tonne are, and the value per carat. Early stage testing can give you indications about these key questions but they are not able to give you a definitive answer. Therefore we think it is very important to be aware of these results because they can give you important clues to the answers to those questions. The final answers can’t be realistically determined until larger tests are completed.
In the upcoming section we will be discussing some companies we follow that have the potential of finding kimberlites that could have positive answers to these important questions.
SOME OF OUR DIAMONDS IN THE ROUGH
This section of the report is dedicated to discussing companies that we feel have quality projects that offer significant potential to grow into companies with higher market values.
In this edition we will discuss a couple companies that have been featured in previous reports. We will also be featuring two new companies, which have exciting projects.
We are either shareholders, or planning to become shareholders, of all of the companies included in this section. We believe strongly in the age-old adage about eating our own cooking. At times we offer our consulting services to companies we own shares in. We are only interested in offering those services to companies we first and foremost want to be shareholders of, as well as being able to provide service that will assist the company in unlocking value to the shareholders.
At the beginning of the discussion of each company we will indicate if we are a shareholder or a consultant to the company. We also advise readers to look at our disclaimer at the end of this report. The following companies are listed alphabetically.
Metalex Ventures
Metalex Ventures has been around for a few years now; it has been in the spotlight and now is in the doldrums. What got the company into the spotlight was the fact that Chuck Fipke was at the helm. They had acquired several projects around De Beers Victor diamond deposit in northern Ontario near Attawapiskat in the James Bay Lowlands. The public was betting he would repeat the success he enjoyed in finding Canada's first diamond mine. It is in the doldrums now because they didn't find anything substantial in this area, although we feel the area still has significant potential. What has caught our recent attention and the reason we have become shareholders is because of a new discovery they have found west of this area in the Kyle Lake region.
We feel that the big run-up in stock price was overly positive based on Chuck Fipke getting involved in an area where De Beers had already found some exciting diamond deposits. We also feel that the current value in the doldrums is overly negative especially when they have made a new discovery that looks very interesting. These kind of wild swings are good places to look for opportunity after a big run-up the following sell-off can get way overdone. We feel this is a very exciting turnaround play that offers excellent upside potential.
There are two aspects of the company’s recent discovery that have caught our attention. One of those is the diamond distribution that is pointing toward a healthy grade of diamonds. The second issue, which often is overlooked by investors in junior diamond stocks, is the description of the diamonds, many investors and analysts overlook this but we don’t. When they described these stones they mentioned that 62% of the diamonds are white and free of inclusions, this is a very good indication of the potential of having a high value per carat. The value per carat is just as important as the carats per tonne. These two factors as well as the overall tonnage are what one needs to know in order to realistically evaluate the potential of having a diamond deposit that is economically mine able.
If future diamond testing proves to be as good as the initial tests suggested, the results have the potential of adding significant market value. We feel that this project has the potential to launch the company into a much larger market value. More testing and time will tell but we like their chances.
Metalex’s stock symbol is MTX and the shares trade on the Toronto Stock Exchange Venture Market. Their website is http://www.metalexventures.com. Their website contains past news releases and additional information to do your own due diligence.
Shear Minerals
Shear has been featured in the first two editions of our report on Canadian Diamond Exploration. The company’s stock price has been through a tough period since we featured the company and is currently trading less than it was when those two previous editions went out. However, we are undeterred in our conviction that Shear is onto something big, and although they have hit a rough patch, we strongly believe that the worst is over. As we indicated in our previous editions we are a shareholder of the company at higher prices and are using these lower valuations to purchase more and bring down our average purchase price.
We are not going into great detail about the merits of this project because we have covered that in our past editions. For new readers that would like to receive those earlier reports please feel free to contact us.
Shear Minerals has a lot in common with Stornoway, a company we are featuring later in this report, besides their joint venture partnership on this project. Shear also has a large land package, in a prospective area. They have found significantly more kimberlites on their project but to date they have not found a kimberlite that has the same kind of grades as Stornoway has found. As we will mention when discussing Stornoway the first job a company with a huge claim block has is to weed out the less prospective ground and focus on the most promising areas on their claim. Shear is well on its way in this process. We feel that they are narrowing the search and are on the verge of new discoveries that could lead the company to having a much larger market value.
In our previous reports, we have mentioned that kimberlites are found in clusters. The world average is around 20 kimberlites per cluster but some fields can contain over 100. In our opinion, Shear is onto one of these 100 kimberlite type fields – they have found around 40 kimberlites so far. A major issue when looking at these large fields is that a lot of the kimberlites will be barren, a small percentage will be diamond bearing, and a few have the potential to be diamond bearing to the point of having enough diamonds to turn into a diamond mine. In a large field the trick is to find the key kimberlites, and Shear is using some of the new techniques that have been discussed in papers delivered at the past International Kimberlite Conferences that we spoke about in our second edition. The big question is will their best kimberlites be the 100th one found or the 41st? The answer remains to be seen. We do believe that the company is narrowing the search and the upcoming field season that begins in April will be a very interesting time for the company.
Shear’s stock symbol is SRM and the shares trade on the Toronto Stock Exchange Venture Market. Their website is http://www.shearminerals.com. On their website you can find past news releases and additional information to do your own due diligence.
Snowfield Development Corp.
Snowfield was first featured in our premier edition of this report on Canadian Diamond Exploration in August 2005. The main focus of the company is the Ticho Diamond Project that is 25 miles outside of Yellowknife along the shoreline of Great Slave Lake. We are a shareholder and consultant to the company and will be increasing our shareholdings in the future.
One of the major issues that make this project exciting is its close proximity to Yellowknife. Yellowknife is a hub for Canadian diamond exploration and the Ticho Diamond Project is in close proximity to the infrastructure of Yellowknife and a vast amount of technical people and companies with lots of experience in diamond exploration. For a diamond explorer practically everything you need is in Yellowknife, only 25 miles from Snowfields project.
This close proximity to Yellowknife is important for several reasons, the first of which we just mentioned. Another very important factor is that the exploration season for this area is much longer than practically every place else in Canada that is being explored for diamonds. In the winter the project can be accessed by a 40-minute drive along an ice highway from Yellowknife on Great Slave Lake that leads right to Snowfields exploration camp. In the summer time when the ice is off the lake access is by boat that takes a little longer but is still very easy to get to the exploration camp.
These benefits reduce the cost of exploration dramatically and they will also have an impact on the economics of developing a mine if there is a mine able diamond deposit present. The biggest impact is on how big a diamond deposit needs to be found. Take for example the Diavik Diamond Mine. To bring that deposit into production required building a mine with a price tag over one billion dollars. They had to find a diamond deposit that was worth several billion dollars to justify spending that kind of money. In the area where the Ticho Project is located the cost of developing a mine would be much less expensive, therefore the company would not have to find a multi-billion dollar diamond deposit although that potential is present.
The main reason we feel the company is onto something big is because of the unique diamond indicator minerals that have been found in the drill core from the one kimberlite that has been found on the property to date. The next step is to test the kimberlite for the presence of diamonds. That process is underway and we will find out more about this potential shortly. Based on the unique suite of indicator minerals that have been found in the drill core from this project, and the fact that some of these diamond indicators are known to exist only in diamond bearing kimberlite, we feel the upcoming testing has very good potential of finding diamonds.
Another important fact to be aware of is that there has only been two kimberlites found in this area to date. One of those kimberlites is the diamond bearing Drybones Bay pipe that New Shoshone Ventures is developing and the other is the Mud Lake kimberlite that Snowfield is developing. There is no kimberlite cluster in the world that only has two kimberlites present so there is a strong argument to be made that there are still more kimberlites to be found in this area.
The cold season has been slow to arrive in the Yellowknife area this winter but that time is upon us now. This time of the year is the cheapest and most cost effective time to work. We expect to see news on diamond testing from the Mud Lake kimberlite and additional drilling to look for more kimberlites to be underway shortly and a steady flow of news in the near term.
Snowfield’s stock symbol is SNO and the shares trade on the Toronto Stock Exchange Venture Market. Their website is http://www.snowfield.com. Their website contains past news releases and additional information to do your own due diligence.
Stornoway Diamond Corp.
We have followed Stornoway for several years because of their discovery of diamond bearing kimberlite in Northern Canada and the quality of the management of the company. Eira Thomas leads the company and has surrounded herself with a very accomplished team of diamond explorers. Due to some recent news coming out of the company from work done in last year’s field season we have purchased shares in the company. They have a busy schedule ahead with results still pending from work already completed and an aggressive work campaign coming up in the next couple months.
Almost everybody who invests in Canadian diamond stocks has heard of Eira Thomas. For our readers that don't know about her background, Eira was significantly involved in the early days of the Canadian diamond scene. Her father Grenville Thomas was running a tiny company named Aber Diamonds when the first diamond discoveries where being made. Aber was featured in the first edition of our report on Canadian Diamond Exploration in August of 2005. When we spoke about Aber we used it as a model of the kinds of companies we look to invest in that will hopefully turn into a huge winner like Aber. As we discussed in that edition, Aber started as a junior penny stock that is now a major player in the global diamond business.
Eira went to work for her father fresh out of university and was part of the team that discovered the Diavik diamond mine. Aber's 40% interest in that mine helped turn the company into a major player in the diamond industry. Several years passed as Aber was growing into the company they are now, and Eira still very young and having been bitten by the treasure-hunting bug, she started a new company called Stornoway Diamonds that has a very exciting project called the Aviat diamond project in Northern Canada.
Before discussing the technical aspects of the Aviat project we feel it is important to discuss the team that is running this company. The two key figureheads are Eira Thomas and Catherine Macleod-Seltzer. As we mentioned earlier Eira is a very well known figure in the Canadian Diamond Exploration scene. Catherine Macleod-Seltzer is another very well known figure in the metals exploration scene. We have a sister publication called the Allan Barry Report on Precious and Base Metal Exploration, and in that report we have featured two companies that Catherine is involved with. For readers that are interested in that report, our contact information is in the closing section of this report, and we would be more than happy to send you a copy of the reports featuring her companies. Together these two women make a very formidable team. As we mentioned earlier in this report we focus on companies that have had excellent drilling results primarily because no matter how good the people are that are running a company they can't make something appear if it is not there, but in this case this excellent team has found something that we think is outstanding.
A few years ago Stornoway acquired a very large land package of several million acres. Normally we feel that a huge land package can be as much trouble as it can be an asset. What we mean by that is that the vast majority of a huge land package is going to be worthless ground and a small portion will be the exciting part. The main trick is to eliminate the worthless ground and focus on the most prospective ground. This process can take a lot of money to sort out. Fortunately for Stornoway shareholders, the company has a large amount of cash in the bank and a technical team capable of effectively finding the key ground. The first couple years of work on this project were really the weeding out of the weaker ground and trying to focus in on the most promising ground. We feel that they are now at the point of zeroing in on the key target areas on their large land package.
During this weeding out process they have been able to focus on some very exciting areas that are now paying dividends. In the last couple months they have released excellent results from drill testing some of the kimberlites they have identified. In the last few weeks they have also announced a schedule of when pending results will be released over the next few months. The first batch of results is scheduled to come out around the middle of January followed by additional results in the first quarter of 2006.
Basically what they have is a large land package in a prospective area, where they have found kimberlites with very exciting diamond counts. This area affords the company the opportunity to find an entire kimberlite field. As we have mentioned in our previous reports, kimberlites are always found in clusters. The world average of kimberlites per cluster is around 20. Some of these fields can host over 100 kimberlites so based on that the potential of finding a lot more kimberlites on this property is outstanding.
It is one thing to find several kimberlites, it is an entirely different thing to find a cluster of kimberlites with the potential of finding enough diamonds to turn that find into a diamond mine. We feel that based on the diamonds found to date and the diamond indicator minerals from this area that there is a very strong argument to be made that Stornoway is on its way to finding a major diamond deposit.
Another important aspect is that the company is also a joint venture partner of Shear Minerals. We have featured Shear in our first two editions of this report and again earlier in this report.
With the interest that Stornoway has in their Aviat Project and their interest in the joint venture on Shear Minerals project we feel that Stornoway has the assets to be a major force on the Canadian Diamond scene. With the upcoming work on these two projects we feel that Stornoway has a very busy period upcoming that could help them emerge into a company that could grow into another Aber type success story. We feel very strongly that 2006 will be a breakthrough year for the company.
Stornoway’s stock symbol is SWY and the shares trade on the Toronto Stock Exchange. Their website is http://www.stornowaydiamonds.com. Their website contains past news releases and additional information to do your own due diligence.
WHAT MAKES THE ALLAN BARRY REPORT UNIQUE
For the last 12 years, the editor of this report has had a career as a consultant to publicly traded junior exploration companies. Services provided to these companies include investor relations, corporate communications, strategic planning, and fund-raising.
As an investor relations consultant to small companies one has to wear several hats:
* communicating the company’s efforts to the investing community;
* communicating technical aspects of those efforts;
* being involved in raising funds for drilling and exploration;
* being involved in the technical analysis;
* and reporting of what has been found.
These efforts have provided a unique opportunity to learn, from an insider’s perspective, the challenges that junior exploration companies face. Additionally it has opened doors to meeting a very accomplished group of technical people.
Spending this time as a consultant to junior exploration companies has provided a unique perspective that is an asset few analysts or newsletter writers possess.
IN CLOSING
We would like to take this opportunity to thank you for taking the time to read this report. We hope this information proves to be informative and helpful. We ask the reader not to post this report on any website for at least three days after you receive it and that if it is posted to post the entire report without any editing. We invite our readers to pass on our contact information to anybody they feel may be interested in receiving this report or future reports and we would be glad to add them to our email list for future publications.
There is no charge for this publication. In order to be added to our email list we need your name, phone number and email address. You can call us on our toll free number at 1-877-574-4575 or locally at 604-574-4575 or email allanbl@shaw.ca with the above information.
Regards,
Allan Barry Laboucan,
Editor
Allan Barry Reports
Disclaimer: The information included in this Allan Barry Report on Canadian Diamond Exploration, is for information purposes only. No statement or expression of opinion, or any other matters herein, directly or indirectly, is an offer, solicitation or recommendation to buy or sell any securities mentioned. The information contained in this e-mail is drawn from sources believed to be reliable, but the accuracy and completeness of the information is not guaranteed, nor in providing it does the editor Allan Barry Laboucan or his companies, or affiliated companies, assume any liability. We do not receive or request compensation in any form in order to feature companies mentioned herein. The editor may have equity positions in companies referenced in this newsletter, or plans on taking a position, or offers consulting services to these companies and will notify the reader of these positions or services provided to the company in the section of the report on each individual company. The editor his personal company or affiliated companies, disclaims all responsibility and accepts no liability (including negligence) for the consequences for any person acting, or refraining from acting, on the information provided in this publication.
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