LETTERS TO THE EDITOR — Beware of pessimists, investors

The editorial comments and letters to the editor published in the Aug. 16 issue of The Northern miner require a response.

The editorial comments of “silence” failed to note that BHP and Dia Met have indicated that initial valuations on the diamonds recovered by bulk-sampling will be released soon, perhaps in early September. This is the most important “news,” in terms of information, that the public needs in order to calm wild speculation. The main variable any analyst should look for is the value per carat of the diamonds. I suggested a value of $284 per share for Dia Met based on a value per carat of US$120. Should the value be only US$60, then the appraised value for Dia Met shares drops to $123, using the calculations outlined in my letter published in the Aug. 2 issue. Paul Sarnoff is dead wrong in his statements, “There have been constant promotion and little substance . . . No commercially viable diamond find has yet been made . . . To date, only minimal results have been released; they do not match the world’s producing diamond mines either in quantity of carats or number of gemstones.”

Dia Met-BHP bulk samples demonstrating a grade of 1.25 carat per ton with 31% gem quality puts the play in the same class as the top three or four mines in the world. His classification of such results

as mediocre is ridiculous. Sarnoff’s conclusion (“Typically, they should trade for pennies, or, in the case of Dia Met, a few dollars”) is based on nothing and, as such, deserves to be pitched in the trash can. William Olsson’s comments (in the same issue) come from another planet. First of all, he suggests that the $50 million being spent on exploration this year for diamonds in the Northwest Territories is a small amount. Then he compares the 50 years of diamond market management by De Beers to the failed attempt by the Hunt brothers to form a silver cartel and concludes that a collapse of the diamond market is imminent. Thirdly, he suggests that the hard bedrock which the kimberlite pipes have intruded into will be a negative cost factor, when the opposite is more probable because hard surrounding rocks will support steeper open-pit mining slopes and more favorable stripping ratios. Finally, Olsson suggests that a mine is 10 years away and the stock should be appropriately discounted. Other informed experts have suggested four years. Olsson presents a fictitious $2-per-share earnings requirement to support a $40-per-share price for Dia Met based on a multiple of 20 (I used only a multiple of 11) and other out-of-the-sky calculations to suggest that a $21.36 earnings potential translates to only $1.55. Olsson had best leave the investment analysis math to an expert and stick to categorizing rocks which he might be better at.

Both Sarnoff and Olsson falsely insinuate that the insiders of Dia Met are self-serving swindlers. Sarnoff says, “But the promoters and insiders will have long since laughed themselves all the way to the bank.” And Olsson says, “We have yet to find diamonds in quantities that would make Dia Met investors rich (save for those who have already reaped the benefits by selling at $65; they, at least, have found their mother lode).” The insider trading records filed with the British Columbia Securities Commission are available for public review and anyone who looks at them will quickly discern the truth of the history of total commitment and buying versus the selling record of the insiders.

The ranks of those sour grapes who failed to buy shares at lower prices will probably be added to when Dia Met rockets to the much higher levels others are predicting, once the actual diamond valuations are released. Do take my optimism with a grain of salt if you like, but beware of pessimists like Sarnoff and Olsson who might chill you out of a very good thing. Wayne Fipke

Kelowna, B.C.