De Beers Disposes of Interest in Saskatchewan Diamond Play

De Beers, the world’s leading diamond player, is selling its entire 42.25% interest in the Fort la Corne (FalC) diamond project in Saskatchewan to Shore Gold (SGF-T, Shgdf-O) for $180 million in cash.

Shore, which will assume operatorship of the joint venture, has also agreed to buy Cameco’s (CCO-T, CCJ-N) 5.51% minority interest for $23.5 million, and UEM’s 10% carried interest for $42.6 million, in doing so, acquiring 100% of the project.

In turn, Newmont Mining (NMC-T, NEM-N), which already owns a 9.9% equity stake in Shore, will acquire a direct 40% participating interest in the project for $170.4 million. Separately, Shore will continue to hold a 100% interest in the neighbouring Star kimberlite, where it is aggressively advancing the project through prefeasibility studies, with a budget of $60 million.

“We remain confident in the potential for this region and will continue to focus on maximizing its potential,” said Shore Gold president and CEO Kenneth MacNeill in a statement.

“This deal makes sense for the Fort la Corne project as it allows for utilization of the assets previously held by the joint venture with the neighbouring Star kimberlite held by Shore Gold,” said Jim Gowans, president of De Beers Canada. “This will improve the viability of the kimberlite field and make way for Shore Gold to develop the project.”

De Beers’ departure from the Saskatchewan play is in no way a negative reflection on the economic potential of these huge kimberlite bodies, says George Read, Shore’s senior vice-president of exploration and development.

“It’s not as though they are walking away from the Fort la Corne project; they are selling it as an opportunity,” Read says. “De Beers has an incredible demand for financing at the moment, with three major projects under way.”

De Beers is currently building two diamond mines in Canada — the Snap Lake underground mine in the Northwest Territories and the Victor open-pit operation in northern Ontario. Originally estimated to cost $1.6 billion in all, De Beers’ board recently approved some $400 million in additional spending to bring the two projects into production on schedule. De Beers is also advancing a third project, Gahcho Ku in the N.W.T., through the environmental assessment process. Gahcho Ku carries an estimated price tag of $825-$960 million.

“Shore and Newmont are gaining an enormously good and sound project,” explains Read. “We think that within the Orion cluster, which is within the Fort la Corne joint venture, there is great opportunity. There are five Star-like replicas or better in there — the potential for diamondiferous kimberlite within Orion is fantastic.”

FalC fight

The sale of De Beers’ interest in the FalC project follows a very public spat between Shore and De Beers. Shore acquired its interest in the project in October 2005 by merging with Kensington Resources and shortly thereafter purchased the voting rights of the other minority partners in the joint venture, Cameco and UEM. This gave Shore a majority vote in the project, despite the fact that De Beers was the operator.

After losing its court challenge and the subsequent appeal, which questioned the validity of the voting pool, De Beers resumed exploration at FalC, with an aggressive $43-million budget that had been unanimously approved for 2006.

Long perceived as consisting of little more than low-grade, highly complex geological curiosities, the Fort la Corne kimberlite field in north-central Saskatchewan comprises some 71 known kimberlite bodies. They are among the largest diamond-bearing kimberlites in the world in terms of sheer mass, ranging up to 2.5 sq. km in surface area.

By going underground on the Star kimberlite, Shore Gold single-handedly changed the public’s perception of the potential of these bodies. The company has consistently recovered large-carat diamonds weighing up to 19.7 carats during the batch-by-batch processing of some 47,000 tonnes of bulk sample. Diamond valuations conducted in February 2006 on a 5,950-carat parcel of rough diamonds averaged an impressive US$102 per carat.

The Star project adjoins the southern end of the FalC joint-venture area. A portion of Star (Shore geologists currently estimate about 22%) extends onto the FalC property.

The 225-sq.-km landholdings of the FalC joint venture contain 63 kimberlite bodies.

A main cluster, comprising 52 of the FalC kimberlites, forms a 32-km-long, north-northwest-oriented trend, 65 km east of Prince Albert, Sask. The other 11 kimberlites are grouped together in a satellite cluster another 60 km northeast, near Snowden. The FalC project originally held 69 kimberlite bodies, but its holdings were trimmed in recent years.

Each of the known bodies was tested with at least one drill hole, and on that basis, 49 of the original discoveries are diamond-bearing, and 34 have yielded microdiamonds larger than 1 mm in at least one dimension.

The Saskatchewan diamond play dates back to 1988, when Monopros, an exploration arm of De Beers, unearthed what was later confirmed to be large, rafted kimberlite blocks near Sturgeon Lake, Sask., 30 km northwest of Prince Albert. Sparked by rumours of kimberlite discoveries, a staking rush ensued and close to 8,000 sq. km was snapped up near Prince Albert. Using aeromagnetic maps published by the Geological Survey of Canada, Uranerz Exploration & Mining staked a large land position covering 28 isolated contour highs in the Fort la Corne area. Airborne magnetic surveys later revealed 88 magnetic highs in the project area, 71 of which exhibited kimberlite-type signatures.

Uranerz partnered with Cameco in 1989 to create the FalC joint venture. A first pass of shallow exploratory rotary drilling hit kimberlite in each of the seven targets drilled that year. De Beers joined the joint venture in 1992 under a 3-year earn-in agreement. The joint venture was again amended in 1995 to include Kensington Resources. De Beers assumed operatorship of the project at the end of 1998.

Spurred on by the success of Shore’s underground bulk-sampling strategy at Star and its hurry-up approach, De Beers and the FalC partners embarked on an unprecedented campaign of exploration drilling, having approved a $26-million program for 2005, the largest for the project up to that date. The 2005 program was part of a larger plan to advance the project to a prefeasibility decision in 2008.

The FalC holdings cover some 20 larger kimberlite bodies within a 5-km radius in the southern portion of the claims. Four of these bodies (140/141, 122, 148 and 150) were extensively explored from 2000 to 2004; three more (120, 147 and 121/122) were drilled in 2004.

The 2005 program consisted of 140 new core holes into 18 of the kimberlite bodies, which ranged from the western extension of Star along the southeastern property boundary to Kimberlite 158, 15 km northwest. Sampling of the core resulted in over 12 tonnes of kimberlite being analyzed for microdiamonds using caustic fusion methods. Kimberlites 123, 133, 145, 147, 219, 223 and the western extension of Star all showed elevated microdiamond counts. Larger-size stones exceeding a 0.85-mm cutoff were recovered from Kimberlites 124, 147 and the western extension of Star, or Star West as it is better known.

This year’s drilling is concentrating on the Orion cluster, a group of eight kimberlites comprising 140/141, 133, 145, 219, 120, 147, 148 and 220. Star West is also being further tested. The planned drilling will total about 300 core holes and 5-9 large-diameter holes.

“With a majority interest, in participation with Newmont, we can push the project at our own speed,” Read says. “Newmont brings enormous enthusiasm in the likes of their president, Pierre Lassonde, as well as incredible expertise in bulk mining. They’ve got many world-class deposits where they are mining bulk tonnages that will be similarly required of these very large kimberlites within the Fort la Corne. Some people have referred to Newmont
as the world’s largest dirt movers that make an enormous profit out of it.”