More rare gems at Shore Gold’s Star

It’s not every day that parallels are drawn between the vast plains of central Saskatchewan and the Kingdom of Lesotho, a mountainous, landlocked country in southern Africa. But Shore Gold (SGF-T) says the two have one thing in common: Type IIa diamonds — rare gems that make up less than about 2% of all natural rough diamonds in the world.

Shore Gold says an analysis of a bulk sample of the Star kimberlite from its Star-Orion South diamond project in the Fort la Corne forest in central Saskatchewan indicates that 26% of all diamonds greater than 2.7 carats are the rarer Type IIa diamonds.

Only a small number of active diamond mines regularly produce Type IIa diamonds, the most important being the Letseng mine in Lesotho, Shore Gold’s senior vice-president of exploration and development George Read explained in a press release.

“While Letseng is a low-grade (1.5-3 carat per hundred tonnes) kimberlite, it is probably the most prolific source of large high-value Type IIa diamonds, which make it a highly economic deposit,” the company said. “A recent study on plus 2.7 carat diamonds from Star shows that Star has a similar proportion of Type IIa diamonds to Letseng.”

Shore Gold compares the percentages of Type IIa diamonds from Letseng and Star by carat size. For diamonds greater than 2.7 carats, for instance, the percentage of Type IIa diamonds at Letseng is 29.19% while at Star the corresponding figure is 26.15%. For diamonds greater than 3 carats, the percentage of Type IIa diamonds at Letseng increases to 30.33% and to 27.16% at Star; for diamonds greater than 4 carats the corresponding percentages at Letseng are 33.99% and 29.45% at Star. And for diamonds greater than 5 carats the figures are 41.24% at Letseng and 33.33% at Star.

The difference is the grade, Shore Gold asserts. “The proportion of Type IIa diamonds in the Star kimberlite is similar to the proportion of Type IIa diamonds in Letseng,” the company says. “However the grade of Star is some seven times greater than Letseng.”

The company also points to strengthening diamond prices and notes that the diamond prices from March 2008 used in its current financial model and reserve estimate for the Star-Orion South diamond project are now out of date and that parcel prices show increases of between 11% and 19%, which “will have a significant positive effect on the future economics.”

Shore Gold’s 100%-owned Star project, 60 km east of Prince Albert, is in a burned portion of the Fort la Corne forest, 2 km north of the Saskatchewan River. The company describes the Fort la Corne area as “one of the most extensive kimberlite fields in the world,” with over 70 kimberlites of which more than 70% have been shown to contain diamonds.

Saskatchewan has yet to open a diamond mine but in anticipation the provincial government has de- signed a new diamond royalty regime. The royalty structure was made public on June 2 and involves: a 1% base royalty on the value of mine production with an initial five-year holiday; a stepped royalty rate on profits to a maximum of 10%, once capital investment has been fully recovered; and a full-cost recognition including a 100% depreciation rate of capital costs and a processing allowance.

At presstime, Shore Gold was trading at 81¢ per share. Over the last year it reached a low of 40.5¢ per share (July 10, 2009) and a high of $1.68 per share (Sept. 17, 2009). The company has 224.5 million shares outstanding.