Diagem thwarted in Brazilian Amazon (May 23, 2008)

Diagem (DGE-V) has stopped activities at its Chapadao project in Brazil.

The company announced that it is complying with the Brazilian Federal Environmental Agency (IBAMA) embargo from the end of April and has frozen its exploration program at the project which lies in the Juina Diamond Province of Mato Grosso.

The embargo stems from illegal deforestation in the area deforestation that Diagem says, was done before it arrived and had been reported to IBAMA.

While the company is pursuing legal avenues to fight both the embargo and a $1.1 million fine slapped on it by IBAMA, it has had to scale back its workforce at the site. It says it will keep its mineral rights and will do minimum maintenance on project equipment and infrastructure.

In Toronto on May 23 the company’s shares were up a penny to 41 on just 8,000 shares traded. The company’s shares have traded between 39 and $1.10 over the last 52 weeks and it has roughly 27 million shares outstanding.

Embargoes, however, are not new to the company.

IBAMA issued an embargo on another property in the region– known as 213 property — back in 2003.

While in May of 2005 Diagem announced the embargo had been lifted after agreeing to re-habilitate mined out land within three years, the embargo is still in place as of today.

Diagem says the embargo on 213 was originally put in place after IBAMA questioned the validity of a mining licence granted by the National Department of Mineral Exploration.

While Diagem was not immediately available for comment on the latest embargo, in a press release company chief executive Denis Francoeur said: “the goal of the Company is to rapidly resume evaluation work on the project, which is undoubtedly in the best interest of the shareholders and the community of Juina. Diagem plans to rehire the laid-off employees once the embargo is lifted”.

The strong-arm tactics by IBAMA are part of its campaign to clamp down on the deforestation of Amazonian forest — Greenpeace estimates that as much as 80% of all logging done in the country is illegal.

Brazilian president Luiz Inacio Lula da Silva is trying to balance his stated desire to bring economic growth to 5% per year in the country as a means to deal with its massive poverty issues against protecting the Amazon Basin and Brazil’s international reputation.

IBAMA itself is going through turbulent times at the top. Criticized for being overly bureaucratic, Lula chose highly regarded, former Greenpeace member, Carlos Minc to head the ministry. Minc in-turn recently announced he was selecting Roberto Messias to head IBAMA, and gave a clear mandate to streamline the institution.

IBAMA launched its campaign to stem illegal deforestation in the state of Mato Grosso under the previous leadership of Marina Silva.

With a work force of 200 people operating from five land bases and the support from two air bases the campaign does have some teeth.

Diagem has one development stage project and two recently discovered kimberlite pipe clusters in the region.

The company received results from its most recent bulk sample at Chapadao before the embargo was put in place.

Results from the sample showed an in-situ grade of 0.68 carats per cubic metre from the processing of 94 cubic metres of the ash-fall layer. The sample yielded 556 diamonds weighing 111 carats for an average diamond weight of 0.20 carats with the minimum diamond size being 1.7 mm.

On April 30, the company released results from another bulk sample that returned an in-situ grade of 0.36 carats per cubic metres from 80 cubic metres of the ash-fall layer. This sample yielded 102 stones including a gem-quality 6.23 carat diamond.

A total of 2,215 metres of diamond drilling in twenty-eight holes had also been completed in crater facies kimberlitic rocks representing approximately 30% of the first-stage drill program.

Diagem says exploration work done thus far indicates the presence of pipe-like kimberlitic bodies forming a tight cluster. It is drawing that conclusion from ground magnetic anomalies and field observations.