EXPLORATION ’95 — Diamond issues given cool hand by

With investor sentiment shifting from extreme optimism to extreme disappointment and, finally, to what can only be termed apathy, companies exploring for diamonds have taken a beating during the past year.

John Kaiser, who publishes the Kaiser Bottom-Fishing Report out of Moraga, Calif., believes there is not a promoter left who, for even a second, would consider steering his company into diamond exploration.

Even Dia Met Minerals (TSE), Canada’s most advanced candidate for producer status, appears to have gone to sleep now that various analysts have concluded that $10-12 is a fair price for the stock, writes Kaiser. Dia Met has a 29% interest in the Northwest Territories Diamonds project; a subsidiary of BHP Minerals has 51%, and private individuals, the balance. Dia Met at the $10-per-share level (compared with $33 last April) represents an evaporation of more than $500 in market capitalization. Still, those investors who filled their boots at 25 cents in the summer of 1991, before diamond fever struck that fall, remain well in the black.

Kaiser is not in any hurry to buy Dia Met at these levels, but suggests investors re-examine the company at this time next year when it may be cheaper and on the verge of coming alive again.

An Environmental Review Panel is examining the joint venture’s “project description,” with the objective of establishing guidelines for the environmental impact statement and subsequent public hearings. Assuming a positive feasibility is tabled, BHP will start construction sometime next year, with actual production slated for late 1997.

Regarding the nearby Diavik project, owned 60% by Kennecott and 40% by Aber Resources (TSE), Kaiser believes that only the waiting predatory jaws of international mining companies are preventing Aber from slipping below $5. The two companies plan to process a mini-bulk sample from the A154 pipe, and Aber is in a holding pattern at the $6-to-$8 range while investors await grades and values.

Kaiser cautions that the logistics of mining the A154 pipe may be onerous, given that it is situated under Lac de Gras, a huge lake in the Northwest Territories which is part of the Coppermine River system.

Farther north, Lytton Minerals (TSE) continues to hold varying interests with several partners in a land package aggregating 4.7 million hectares. The largest land package, at about 3.6 million hectares, is held in a joint venture with New Indigo Resources (VSE). The companies recently intersected a kimberlite pipe on the property and announced plans to complete a convertible debenture financing of $8 million each.

Both issues have held up well against other diamond explorers in the Territories. At the $6 level, New Indigo has a market capitalization of about $60 million, whereas Lytton, which recently traded at $2, has a market capitalization of about $130 million.

Brokerage house Yorkton Securities, in a recent report on diamonds, suggests that until a viable discovery is made, Lytton’s high market capitalization will remain hard to justify.

Texas Star (VSE), on the other hand, has been hammered by the market. The issue recently traded at the 40 cents level (equal to a market capitalization of slightly more than $6 million), and Yorkton is at a loss to explain the market’s poor valuation of the project.

Texas Star’s holdings include a stake in the Crater of Diamonds project in Arkansas; a half interest in 400,000 hectares of ground in northwestern Russia near Arkhangelsk; and a 50/50 joint venture with Lytton on 520,000 hectares in the Northwest Territories.

One sign of the market’s malaise is the share price of Ashton Mining of Canada (TSE) which, at the current 70 cents level, trades at a discount to the company’s cash value per share of about 86 cents (as of the end of 1994). Ashton, which is 60%-owned by Ashton Mining of Australia, holds joint-venture interests in land packages in the Territories, Alberta, Saskatchewan, and the James Bay Lowlands in Ontario, as well as a stake in a diamond exploration venture in the Upper Peninsula area of Wisconsin and Michigan. Of its $18 million in working capital, Ashton expects to spend about $6 million this year in North America.

Market-watchers are awaiting evaluations from kimberlite intersections on the Drybones Bay project owned by Trade Winds Resources (VSE) near Yellowknife, N.W.T. Kaiser points out that the company has the advantage of a relatively low market capitalization of about $7 million.

Kaiser is also watching the exploration program of Monopros on the Slave Diamond Syndicate’s ground in the Territories. The De Beers subsidiary expects to spend about $1 million this year, including drilling on 16 targets. Monopros is earning a 60% interest from the syndicate, which includes Gerle Gold (VSE) with 40%, and Norcal Resources (VSE), Tenajon Resources (VSE), and Westley Technologies (TSE), each with 20%. Kaiser, who views Norcal as a good “bottom-fish” candidate for purchase, remarked that the issue may actually rise in value if the Slave Diamond property proves to be a dud, as this would prompt Norcal insiders to seek out a new project.

As for the DHK joint venture with Kennecott, Kaiser hopes that additional data with respect to the Tli Kwi Cho sampling will be released. Poor results from underground bulk sampling on the Tli Kwi Cho pipe last summer are believed to be largely responsible for the collapse of the diamond exploration market.

Subject to the completion of a loan and diamond selling agreement with the DHK group (which includes VSE-listed Dentonia Resources and Kettle River Resources, plus Alberta-listed Horseshoe Gold Mining), Kennecott plans to extract a 20-30-tonne sample from the DO-18 pipe, as well as drill-test other targets.

The DHK companies equally share a 35% interest in the project, and Kennecott has 40%; the remainder is held 10% by SouthernEra Resources (TSE) and 15% by Aber Resources (TSE).

Randy Turner, president of Winspear Resources (VSE), expects expenditures at the Camsell Lake joint venture in the Territories to total $1 million. Further drilling on the CL-25 pipe and on 10 other targets is planned. Drilling last year returned two kimberlite intersections from the CL-25 pipe, with the best hole containing 7 macro-diamonds and 156 micros in 238.8 kg of core.

The property is held 40% by Aber Resources, 30% by Winspear, 20% by Amarado Resources (VSE) and 10% by Consolidated Newgate Resources (VSE). Kaiser does not expect any major developments in the diamond play as a whole until April or May. He advises investors to watch for surprises, since both the lucky and the quiet may still come through.