Knife fight heads to court

Unable to come to terms with the Canadian exploration division of De Beers over the signing of a joint-venture agreement concerning the Knife Lake project in Nunavut, Rhonda (RDM-V) has ended discussions.

“We are finished negotiating,” declares Rhonda President Glen Alston.

The pair has been operating under the terms of a letter of understanding dated April 2000 that set out the basic terms in which De Beers had the right to earn a 70% interest in the property by spending $10 million over six years. A formal agreement was never signed, says Alston.

“We have spent lot of time trying to get an agreement negotiated,” Alston tells The Northern Miner. “We had asked De Beers to agree to a timeline to complete the negotiations, but they were not willing to give us this timeline, and we were not willing to continue negotiating with an open timeline.”

Apparently one of the major sticking points for Rhonda has been the inclusion of an agreement pertaining to the sale and marketing of diamonds. Alston says marketing rights were never mentioned in the letter of understanding. “We felt that that was quite separate from negotiating the formal joint-venture agreement.”

De Beers discovered a diamond-bearing kimberlite pipe on the 10-sq.-km Knife property, in the Coronation Gulf district, in May 2000 while drill-testing a coinciding geophysical and indicator mineral anomaly. Prior to the start of drilling, De Beers’ field crew discovered angular kimberlite boulders in a frost boil over the pipe. Each of two 5-kg samples of the boulders contained two microdiamonds. The new kimberlite discovery was initially tested with three holes. De Beers recovered 208 micros and nine macros from 397 kg of tested kimberlite material (a macro is here defined as exceeding 0.5 mm in one dimension). The 217 stones weighed a total of 0.128 carat.

The initial holes showed the Knife pipe to be multi-phase. One 20-kg sample taken over a 6.22-metre interval in the first hole returned 54 stones, including two macros exceeding 1 mm in one dimension.

By comparion, Artemisia, one of the kimberlites Ashton Mining of Canada (ACA-T) discovered last fall in the Coronation Gulf area, initially returned encouraging micro counts. A total of 812 micros and 86 macros were recovered from 246 kg of core. An additional 85.5 kg of outcropping kimberlite and talus yielded 309 micros and 34 macros.

Analyzed solely for commercial-size stones, a subsequent 11-tonne mini-bulk sample of Artemisia returned just 1.176 carats of diamonds larger than 0.8 mm square mesh, giving a sample grade of 0.107 carat per tonne, or 10.69 carats per 100 tonnes. These results were considered disappointing, and no further work is planned on Artemisia.

Anuri

The more promising Anuri kimberlites, discovered by Kennecott Canada Exploration on Tahera‘s (TAH-T) Rockinghorse property, have returned strong early micro counts. In total, 999 micros and 504 macros have been recovered from 1,227 kg of drill samples taken from the two linked pipes. Ninety macros were recovered on top of a 0.5-mm square mesh screen, and 13 exceed a 1-mm square mesh screen. The largest diamond recovered weighed three-quarters of a carat.

De Beers returned to the Knife property in the spring of 2001 and collected a 9-tonne mini-bulk sample from a further six delineation holes. Based on the kimberlite intercepts, the pipe is estimated to measure 390 by 230 metres at surface to cover about 6 hectares.

De Beers delivered the results of the 9-tonne sample, part of which was analyzed for commercial-size diamonds, to Rhonda in November 2001. On the advice of its lawyers, Rhonda neither opened nor reviewed those results while it continued to negotiate a definitive joint-venture agreement. Alston says all of the De Beers’ information has now been returned.

Dismayed by Rhonda’s actions, De Beers has started legal proceedings in the Ontario Superior Court of Justice seeking declarations as to the existence of the joint-venture agreement, and that it has earned a 51% ownership interest in the Knife Lake property. Alston is uncertain about the exact amount De Beers has spent on the Knife project to date but believes it is around $2 million.

Inulik

In the meantime, Rhonda has entered into a deal on its wholly owned Inulik property, which covers 325 sq. km of ground adjoining the Knife project. Teck Cominco (tek-t) has agreed to subscribe, by way of a private placement, for $1.5 million of Rhonda units priced at 55 each. A unit will consist of one share and a 2-year warrant to buy a flow-through share at 75.

Rhonda will use the proceeds to complete the planned 2002 field program budgeted at $750,000. A reconnaissance till-sampling program, carried out last summer across the property, revealed two sites that returned kimberlite indicator mineral counts in the tens of thousands. The mineral grains consist mainly of ilmenite and eclogitic garnets, with a scattering of pyropes. The two sites were 1.4 km apart from each other and 11 km from the Knife pipe.

Last year’s sampling also revealed elevated gold-bearing tills in a 10-km-long area associated with an interpreted regional fault system that cuts across the property in a northeastern fashion. Exploration work in the early 1990s by Noranda turned up mineralized boulders running up to 33 grams gold per tonne in an area 20 km to the northeast.

Upon completion of this year’s program, which will include further prospecting, till sampling and geophysics, Teck Cominco will have 60 days in which to exercise an option to earn an initial 51% interest by incurring expenditures of $5 million over four years. Teck Cominco will have the right to earn as much as 70% in specific discovery areas by completing a feasibility study and carrying Rhonda through to production.