Wily Shore Gold takes the reins

The second-last day of March was a big one for Shore Gold’s shareholders, with the feisty junior explorer scoring a huge tactical victory over a stumbling De Beers, its major partner in the Fort la Corne (FalC) project in central Saskatchewan, where they are exploring one of the largest diamond-bearing kimberlite fields in the world.

Ownership in the FalC joint venture is divided between Shore Gold (42.235%), De Beers (42.245%), Cameco (5.51%) and UEM Inc. (formerly Uranerz Exploration and Mining) at a 10% carried interest. Shore Gold only recently came by its interest through its merger in late October with Kensington Resources.

De Beers had been objecting to a most unusual — and goodwill-killing — deal Shore Gold struck with Cameco and UEM shortly after the closing of the Kensington merger. Under the deal, Cameco and UEM agreed to sell to Shore Gold the voting rights to their shareholdings, for up to seven years, for a combined C$10 million.

In arranging the deal, the upstart Shore Gold was effectively ripping the operatorship of the FalC JV out of the hands of De Beers, the most experienced diamond explorer in history, and FalC’s operator since 1998.

Uncomfortable being pushed to the sidelines, De Beers objected strenuously to the backroom deal and filed a statement of claim in early February. It essentially argued that it had a right of first refusal on the sale of voting rights, not just on the sale of the actual ownership stakes in the JV. However, the case was quickly dismissed, with costs, on March 30.

De Beers has decided to appeal, but Shore Gold is now more or less free to push through its own exploration program for 2006 as soon as the management committee can meet in mid-April (wouldn’t you love to sit in on that meeting!). Shore Gold’s program will likely be far more aggressive and expensive than anything De Beers would have tabled, depending far more on bulk sampling than drilling.

With its myriad of superior diamond assets around the world, De Beers had adopted the slow-and-steady approach to its duties as FalC operator, tinkering around for years, poking, prodding and analyzing the absolutely immense kimberlite bodies. It was an exasperating period for its partners, particularly true believer Kensington.

Shore Gold, and Kensington before it, wants to attack this project and spend the big bucks necessary to settle the question once and for all: these massive bodies are proven to contain large, valuable diamonds, but are they economic to mine?

Meanwhile, next door to the FalC claims, Shore Gold is spending $44 million over 30 months at its wholly owned Star kimberlite completing a prefeasibility study. Compare that to FalC, which has had $30 million spent on it over 14 years.

This outlay at Star is easily handled by Shore: it started this year with $252 million in working capital, after raising $237 million in equity last year, including a major infusion from gold giant and bulk-mining expert Newmont Mining. Clearly, Shore Gold is one company that’s cashed up and ready for action.

With this latest dismissal in Saskatchewan’s courts, De Beers has lost some face in Canada, with its “partner of choice” theme once again ringing hollow here. When all three of your partners in a single JV conspire behind your back to take away your operatorship, it might be time to start rethinking the old marketing slogans.

But then again, maybe De Beers doesn’t believe it either: when you casually stroll through the “Partnerships” portion of their website, there’s no mention that the company has any joint-venture partners in Canada, where it’s been active almost four decades, though the company goes to great lengths to describe ones it has with juniors in Australia, Botswana, Brazil, India, South Africa, Tanzania and even the basket-case Zimbabwe.

Philosophically at least, De Beers is still committed to the concept of partnering with juniors. It has some 60 joint ventures worldwide with junior mining and exploration companies, and plans to spend US$95 million on exploration worldwide this year, or about 1.6% of its revenue from its interests in 20 diamond mines, mostly in southern Africa.