In the wake
The move will allow the pair to consolidate their respective 35% interests in the Aviat joint venture and the promising AV-1 kimberlite discovery. With exposure in the Melville Peninsula, Rankin Inlet and Coronation Gulf regions of Nunavut, and the Otish Mountains of Quebec, the merged company will control more than 11 million acres of prospective properties, making it one of the largest landholders among diamond exploration companies in Canada.
“This transaction represents a key step in the creation of a premiere, world-class diamond exploration company, and we are confident the combined company will attract interest from a broader group in the investment community and make ongoing exploration easier to finance,” says Stornoway President Catherine McLeod-Seltzer.
Stornoway shareholders will receive 0.8734 of a Northern Empire share for each share held. This transaction remains subject to a fairness opinion, and to the approval of shareholders, regulators and courts.
Stornoway CEO Eira Thomas will become CEO of the combined company on completion of the plan of arrangement and be responsible for its operations. John Robins, president of Northern Empire, and McLeod-Seltzer will be co-chairmen.
“We have been talking about it for several months now,” says Bruce McLeod, vice-president and chief financial officer of Northern Empire. “It gives us a critical mass with a larger market cap that is more attractive to a lot of the funds and shareholders outside of Canada and puts us on their radar screens.”
The new merged company will have 40.8 million shares outstanding. As it now stands, Stornoway has $3.5 million in cash or $6.3 million fully diluted in the money, whereas Northern Empire has $5 million cash or $7 million fully diluted in the money.
Northern Empire and Stornoway are each earning a 35% interest in the Aviat properties from the Hunter Exploration Group by spending a total of $2 million on exploration before Oct. 1, 2005.
Hunter Exploration has agreed to sell a 20% participating interest in the Aviat project to BHP Billiton Diamonds for $7.1 million. As part of the sale, Hunter will relinquish the diamond-marketing rights to the 10% carried interest it will retain. Both Stornoway and Northern Empire hold a 30-day right of first refusal on the sale of Hunter’s interest, which expires in early June. McLeod says no decision has been made.
Haywood Securities mining analyst James Mustard believes that with the merged company now owning 70% of Aviat and 35% of the Churchill project, just north of Rankin Inlet, there is no compelling reason to take up the right of first offer. Also, Hunter Exploration is selling a 14% minority stake in the Churchill project to BHP Billiton for $3 million.
The Aviat joint venture has been incestuous: Northern Empire and Stornoway are both part of the Northair Group stable, while John Robins, one of the principals of Hunter Exploration, is president of Northern Empire.
The Aviat project covers more than 7 million acres on the Melville Peninsula and includes the newly discovered AV-1 kimberlite. New microdiamond results confirm that the AV-1 discovery is significantly diamond-bearing with potential for larger-size stones.
Two composite samples collected in March 2003 from the surface area of the AV-1 outcrop, for a total of 760.2 kg, have returned 1,145 microdiamonds, including eight stones exceeding a 1.18-mm square mesh screen size and one stone larger than 1.7 mm square mesh. The four largest stones measure 2.42 by 2.22 by 2.1 mm, 2.12 by 1.78 by 1.5 mm, 2.06 by 1.9 by 1.3 mm, and 2.08 by 1.42 by 0.7 mm. Caustic fusion results from another 200 kg of kimberlite material are expected in the coming weeks.
The AV-1 kimberlite showing and a separate field of diamond-bearing, angular kimberlite boulders were discovered at the end of last summer’s program during follow-up work on promising, anomalous indicator mineral till samples. The exposed portion of the AV-1 discovery measures 76 by 13 metres and outrops on the edge of a lake. Caustic fusion results indicate AV-1 is significantly diamondiferous. In total, 1,373 microdiamonds have been recovered from a composite of 946.25 kg of kimberlite material.
Ground geophysics completed over the discovery area in early March suggests the source body is larger than the outcrop. Two obvious magnetic signatures define a double-lobed anomaly at least 135 metres long and about 35 metres wide.
Last year’s regional till sampling returned elevated kimberlite mineral grains several kilometres up-ice from AV-1, as well as up-ice and offset from the kimberlite boulders. An airborne magnetic survey over the Aviat North project is already under way, and will be followed by an aggressive field program of prospecting, mapping, till sampling, and more than 1,500 metres of drilling.
In the accompanying table, the microdiamond distribution of the AV-1 discovery is shown using the detailed square-mesh, sieve-size classification.
Recovered
Sieve SizeDiamonds
+1.70 mm1
+1.18 mm10
+0.85 mm22
+0.60 mm39
+0.425 mm88
+0.300 mm163
+0.212 mm265
+0.150 mm355
+0.106 mm430
Total1,373
(Sample Size: 946.25 kg)
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