Metalex plans bulk sample at Kyle Lake

It’s a tall order, but if Metalex Ventures (MTX-V) can get the various permits and funding it needs, it could begin a 10,000-tonne bulk sample at its Kyle Lake project in northern Ontario, early next year.

The program would aim to collect 1,000-2,000 carats of diamonds from Metalex’s 9.3-hectare U2 kimberlite at Kyle Lake, about 62 km west of De Beers’ Victor diamond mine.

The bulk sample is budgeted at around $30 million, including $3.5-4 million for the construction of an onsite processing plant.

Equipment — including a large-diameter drill rig of between 2 and 4 ft. — plus more than 1 million litres of fuel will have to be trucked into the site using De Beers’ winter road, which supplies Victor, in February and March.

“Our deadline for being able to do this project next year is to have everything mobilized in on that winter road,” Metalex president and CEO Chad Ulansky told shareholders at the company’s recent annual general meeting in Toronto. “If we miss it by two weeks—”

“We miss it by a year,” director Lori Waisberg chimed in.

The company will also need to have discussions with local First Nations.

Assuming those talks go well, the necessary permits are granted, and the company is able to raise the money to proceed, the bulk-sample drilling would take six to eight months. The material would be processed at the same time at the onsite processing plant and results would be in hand by the end of 2012 or in early 2013. With that, the company could start a feasibility study: a 1,000-2,000 carat parcel of diamond would allow a reliable valuation to be completed, and the drill results would provide enough information to estimate the grade and grade variation within the U2 kimberlite.

At that point, Ulanksy says it would take another year or two to finish the environmental, social and mine engineering components of a feasibility study.

The junior has about $16 million in the bank, enough for 12-18 months of operation, not including the U2 bulk sample.

Metalex’s board is currently evaluating its funding options, and is in talks with Dundee Corp. (DC.A-T). The two parties are considering an agreement that would see Dundee able to earn up to 51% of Kyle Lake. A $5-million loan for the processing plant, followed by another $25-million contribution once the company receives all permits for the bulk-sample program, would give Dundee a 30% interest. Another $20-million contribution and the completion of a feasibility study would bump Dundee up to 51%.

The initial $5-million loan would be converted into shares if the bulk sample doesn’t go ahead.

At presstime, no such agreement had been finalized, but Metalex shareholders approved the terms.

In early October and in preparation to advance Kyle Lake, Metalex announced it had bought out its 5.8% partner at the project, Arctic Star Diamond (ADD-V) for just under $265,000. If a mine at Kyle Lake goes into production, the junior will receive another $2 million.

Ulansky says U2 has similar properties to Victor in terms of diamond quality, drill results, coarse size distribution, and a high proportion of white stones (about 72% of U2 diamonds).

Like Victor, the U2 kimberlite has a variable grade — drilling has shown that a 1-hectare area in the northwest of the pipe, for example, is only weakly diamondiferous. That portion won’t be subject to bulk sampling.

While De Beers’ Victor pipe is 15 hectares, the company is only mining about a third of the kimberlite, Ulansky said. U2 would likely yield larger tonnage.

In July, hole 10 from U2 returned 214 commercial-sized diamonds (over 0.425 mm), including the largest diamond recovered so far from U2, a 2.61-carat gem-quality stone. The 39-tonne sample ended at 330 metres depth.

Metalex has determined that the T1 kimberlite at Kyle Lake is likely subeconomic — the diamonds it contains are too small. From a sample of about 400 tonnes, the pipe returned only 67 carats of stones. However, if U2 is developed and diamond prices see further increases, T1 could be re-evaluated.

In Angola, the company is evaluating two more kimberlites — a 7-hectare pipe and an 18-hectare anomaly — both of which lie under the Cuango River. While the river is one of the most diamondiferous in the world, the source of the diamonds hasn’t been found. The company has purchased amphibious vehicles, allowing it access to the kimberlites for the first time.

If the results aren’t promising, however, Metalex will likely give up on Angola, which is a difficult, bureaucratic place to work.

The company has dropped its project in Greenland, which it deemed unlikely to be economic.

Metalex is also exploring for gold and other commodities in Quebec and in Morocco, where it is likely to begin drill testing targets in the next year. Ulansky said the company’s concessions in the country have already attracted the interest of major companies.

Shares of Metalex recently traded at 41¢ apiece in a 52-week range of 38.5¢-$1.34. The junior has 66.5 million shares outstanding.

Chairman Chuck Fipke holds just under 20% of the company and Ned Goodman Investment Counsel Ltd. holds nearly 18%. Ned Goodman Investment is a subsidiary of Dundee Corp.