Better grade, but diamond players’ steep climb slips

Analysts responded favorably to recent news about the quality of diamonds discovered by partners BHP-Utah Mines and Dia Met Minerals (VSE), saying they gleaned valuable information from the release by “reading between the lines.”

Although BHP did little more than confirm the results of a bulk sample taken on the Point Lake pipe in the Northwest Territories, it was the revelation that 25% of the stones are in fact gems and not “near gems” that had observers excited.

“You take the lowest value of a gem-quality carat and you’re still looking at rock worth $50-60 per ton,” said one analyst who asked not to be named. At an average mining cost of $25 per ton, that base case scenario would leave a profit margin of at least $25 for every ton processed. Using a surface area of at least 50 acres, he estimated the pipe’s reserves to be 100-200 million tons.

Investors, however, sent Dia Met’s share price down more than $2 to $14 in the days following the announcement. Aber Resources (TSE) fell 41 cents to $1.63, while SouthernEra (TSE) dropped 64 cents to $1.45.

Included in the release was a better grade figure for the 160-ton sample (101 carats instead of the previous estimate of 90 carats) and confirmation that a few of the stones are in the 1- 3-carat range.

If that grade were to hold up in larger samples, the Point Lake pipe would compare

favorably with the producing Finsch pipe in South Africa, which has an area of 44.2 acres, a grade of 68-80 carats per 100 tons, and an annual production of 4.2 million carats.

“At this stage, they’re only releasing the information they think they can repeat,” said one analyst, referring to the scanty details contained in the latest statement.

Hugo Dummett, manager of worldwide exploration for BHP said the company had not ruled out the possibility of announcing more details — including colors and sizes — in the future.

But for the near term anyway, the latest confirmation that Dia Met and BHP could be sitting on a commercial diamond deposit may be the last news to emerge from the Point Lake pipe. BHP plans to test other targets on the 850,000-acre property before shelling out the millions that would be required to test a 5,000-ton bulk sample in the barrens.

To extract a sample of that size, the partners would have to drain the 75-acre Point Lake or drive a ramp from dry land. Analysts agree that a mill would have to be built on site to avoid the prohibitive costs of trucking the sample to Dia Met’s recovery plant in Colorado along the winter road to the Lupin mine.

“They’re probably trying to pick the best pipe to build a mill beside before making that kind of capital investment,” said Howard Coopersmith, president of Diamond Company and a veteran diamond explorer.

“We’re trying to evaluate the property as a package,” confirmed Dummett, who said a similarly systematic exploration program was used to test the potential of the Sloan pipes in Colorado. “We have so many options that we don’t want to pre-empt anything.”

In its release, Dia Met said the results of its recently completed geophysical survey over the ground combined with results of last summer’s geochemical survey confirm that there are several potential kimberlite pipes on the property, some apparently larger than the Point Lake pipe. These new targets will be the focus of ongoing exploration to select other pipes “worthy of bulk sampling in the coming winter season.”