De Beers’ FalC claim dismissed (April 10, 2006)

The Court of Queen’s Bench for Saskatchewan has dismissed an action brought by De Beers Canada against its Fort la Corne (FalC) joint-venture partners Shore Gold (SGF-T, SHGDF-O), Cameco (CCO-T, CCJ-N) and UEM.

De Beers had asked the court to void an earlier voting agreement that gave Shore voting support from Cameco and UEM with regard to operating decisions at the joint venture for up to seven years. That support carried a $10-million price tag.

De Beers was also looking for the court to issue a restraining order preventing the joint venture’s management committee — now effectively controlled by Shore — from approving the 2006 exploration program and budget.

That meeting can now be called as soon as 10 days after the court’s ruling, which was handed down on March 30. In 2005, the project budget was a record $26 million.

The court also awarded costs to the defendants. De Beers has filed a notice to appeal the court’s decision.

The 225-sq.-km FalC project is home to 63 known kimberlite bodies, with the largest measuring up to 2 sq. km — on scale with some of the biggest in the world. The joint-venture partners are in the midst of a 3-year exploration and evaluation program designed to advance the project to a decision regarding prefeasibility in 2008, with the ultimate goal of outlining a resource of 70-100 million carats of diamonds.

Shore inherited its 42.245% stake in the FalC diamond project via its merger with Kensington Resources in October. Cameco holds a 5.51% stake in the project, with UEM at 10%; De Beers Canada owns the remaining 42.245%. UEM is jointly owned by Cameco and Cogema, a subsidiary of French energy giant Areva (ARVCF-O).

At Shore’s neighbouring Star kimberlite, a recent bundle of 5,949.88 carats worth of diamonds recently returned an average modelled value of US$102 per carat. The valuations were completed by R. Steinmetz and Sons, Rio Tinto Diamonds, and WWW International Diamond Consultants, and are based on the actual price a producer would receive for the parcel in Antwerp, Belgium. A valuation of a 3,050-carat parcel of Star diamonds in 2005 yielded an average value of US$110 per carat.

WWW’s estimate includes a modelled average of US$130 per carat (within a range of US$111-US$159) for 4,991.68 carats from the Early Joli Fou (EJF) pyroclastic kimberlite and kimberlite breccia, which occur as alternating units throughout the Early Joli Fou kimberlite. The 1,992.6 carats from the breccia average US$173 apiece.

WWW valued a 572.29-carat batch of diamonds from the nearby Cantuar kimberlite at US$145 per carat. The sample size from which the stones were recovered was not disclosed.

The best stone of the recent batch is a 5.41-carat diamond from the EJF pyroclastic kimberlite. It is valued at US$4,400 per carat, or US$23,804. Cantuar yielded the next most valuable stone, with a 4.77-carat diamond running US$3,430 per carat, or US$16,361.

The Star kimberlite comprises five principal phases: Cantuar, Pense, Early Joli Fou, Mid Joli Fou and Late Joli Fou. The Early Joli Fou is the dominant phase.

The latest 1191.53-tonne batch of kimberlite from Star recently yielded 190.44 carats worth of diamond, with 1,093 diamonds exceeding 1.18 mm totalling 189.98 carats. The haul contains 30 stones exceeding 1 carat, including a large, white stone weighing in at 8.23 carats.

The bulk sample included 1,106.63 tonnes of material from the EJF, which yielded 184.8 carats, for an average grade of 16.7 carats per hundred tonne (cpht). The remaining 5.64 carats were derived from an 84.9-tonne sample of the Mid Joli Fou phase, good for an average grade of 6.64 cpht. Shore says the lower grade in the MJF sample is explained by the smaller sample size.

Shore describes 68% of the diamonds as white, with another 12% classified as off-white. The parcel includes five amber stones.

The latest results are part of a second round of underground bulk sampling at Star, during which the company processed more than 17,000 tonnes of kimberlite. The program was designed to assemble 6,000 carats for valuation. Results for the program’s final 11 batches are expected by the end of April. Planning for a third phase of underground development is under way; work will include bulk sampling of the Cantuar and Pense kimberlites.

Meanwhile, drilling has begun on the western part of the Star kimberlite, which falls within the FalC claims. Down-hole geophysics and geotechnical measurements of the holes are planned. The drilling is aimed at defining the volume and internal structure of the kimberlite in anticipation of a prefeasibility study.

Shore lost $8.5 million (or 8 a share) during 2005, up from the $1.5 million (3 a share) lost in 2004. The bigger loss is mostly attributed to $9 million worth of expensed stock options. At the end of March, Shore had around $247 million in cash and equivalents.

Shares in Shore eased to sit 22 better at $7.05 in late-afternoon trading in Toronto following the news on March 31.