McKenzie Bay sells Kelsey Lake

Junior McKenzie Bay International (MKBY-O) has inked a deal to sell the Kelsey Lake open-pit diamond mine, a past-producer that straddles the border between Colorado and Wyoming.

Subject to due diligence, Roberts Construction, a private North Dakota company and BJ&J Ltd., a private Colorado company, will acquire Great Western Diamond Company, a wholly owned subsidiary of McKenzie Bay, for US$1.4 million, the net book value of all equipment, less outstanding debts at the time of option.

Also under the deal, McKenzie Bay will receive a royalty of 50% of revenue (net of expenses) on any diamonds recovered over 10 carats per hundred tons of kimberlite mined based on an average price of US$118 per carat. Roberts will act as operator throughout the due diligence period.

Roberts will act as operator throughout the due-diligence period.

McKenzie Bay acquired Kelsey Lake (the only diamond mine in the U.S.) in April 2000 from Redaurum for US$1.9 million including cash, assumed debt and shares. Limited diamond production began in early September after a new X-ray diamond recovery machine was installed.

Kelsey Lake began operations in late 1996 under Redaurum. Production continued for only a year before the project was shut down. Redaurum spent up to US$28 million developing the property but was unable to produce diamonds at a profit.

The project hosts nine known kimberlites, three of which have been tested for diamond content.

Mining is permitted from the KL-1 and KL-2 pipes, each of which are 10.5 acres in size. They are located half a mile apart.

A resource of 18.7 million tons has been indicated, with grades of 3.4-4.6 carats per 100 tons.

McKenzie Bay plans to focus on the development of its Lac Dor vanadium project, 25 km southeast of Chibougamau, Que. The company hopes this will be a major producer of battery-grade vanadium oxides and the first mine in North America that primarily produces vanadium pentoxide.

Lac Dor is North America’s biggest vanadium-titanium deposit and ranks among the largest in the world. It is situated in the Archean-aged Lac Dor layered complex.

The vanadium is contained in two types of ilmenite (titanium-ore) — exsolution inclusions in magnetite and individual ilmenite grains. Although the former type is not recoverable by chemical leaching, the latter can be separated to produce a titanium concentrate.

Resources are pegged at 32 million tonnes grading 0.65% V2O5 in the measured category and 68 million tonnes of 0.49% V2O5 in the indicated category. Combined, these resources allow for a 40-year operating life at an annual mining rate of 2.5 million tonnes to a depth of 100 metres (T.N.M., Nov. 29/99).

SNC-Lavalin is preparing a feasibility study. This is slated for completion in January 2002.

Soquem, which is owned by the Quebec-government, retains the right to acquire, for 20% of the required capital expenditures, a 20% stake in the entire project within 120 days of the completion of an independent bankable feasibility.