News – 21-FEB-05

Vancouver — The search for diamond-bearing kimberlites in Brazil has been ongoing for at least 40 years, but success has so far proved elusive.

And yet historically there is reason for hope.

In 1725, Brazil became the world’s major producer of diamonds, surpassing India, following a major discovery of the gemstones. The discovery was made by Sebastino Leme de Prado and alluvial gold miners, who were processing river gravels in the area currently known as Minas Gerais. The unknown stones were sent to Lisbon, Portugal, where they were identified as diamonds, sparking a rush in the Portuguese colony to find more of the precious gems. The country’s position as top producer continued until the late-1800s, when diamonds were discovered in South Africa.

De Beers has maintained a footprint in the country since 1968, determined to trace the source of the abundant alluvial diamonds that have been recovered from the mid-18th century to the present day.

The South African company’s initial involvement was with the French firm COFERMAT, and together they formed the entity SOPEMI. Sopemi began exploring for diamonds in 1972, following the establishment of a joint venture with French government-owned Bureau de recherches gologiques et minires and the Brazilian group CAEMI. De Beers gained management control of SOPEMI in 1974.

Reconnaissance exploration (prospecting, geochemical work, and stream sediment-sampling) and geophysical surveys were conducted over large portions of Brazil, especially the large cratonic areas, and to date, De Beers has uncovered about 460 kimberlitic intrusions.

The most advanced work has been on the Canastra kimberlite, in southwestern Minas Gerais state. However, in late 2000, after bulk sampling, the company concluded the diamondiferous pipe did not meet its investment criteria and discontinued development.

More recently, a few junior companies have joined the fray. Brazilian Diamonds (BDY-T), formerly Black Swan Resources, is exploring several concessions in the area around Coromandel, the epicentre of alluvial production in southeastern Brazil. A number of these properties were formerly held by other companies, such as Lundin Mining (LUN-T) and Superior Diamonds (SUP-V).

Brazilian Diamonds’ alluvial concessions cover major tracts of river systems, which have accounted for some of the largest stones produced in the country. The land position along Rio Santo Antonio do Bonito is just downstream from a highly productive section of the river that has yielded nine stones greater than 300 carats, including the 727-carat Presidente Vargas diamond. The company is evaluating the alluvial potential of paleo-gravels while testing several kimberlite structures along the drainage.

So far, sampling of the Santo Antonio do Bonito area kimberlites has not shown a significant number of diamonds. But a large number remain untested, and positive indicator minerals recovered in the streams point to a nearby source.

Brazilian Diamonds, in conjunction with CODEMIG, a mining-development agency of Minas Gerais state, has commissioned a feasibility study of the area.

The company is also exploring the potential of the Rio Paranaiba, where a 121-carat stone was recently recovered, and the Rio Abaete. The latter has received a lot of attention following the 1999 discovery, by garimpeiros, of a high-quality 79-carat pink diamond, which was subsequetly sold for US$10 million.

Having assembled a significant land package of prospective ground, Brazilian Diamonds began farming out some its alluvial projects. In 2000, the company joint-ventured the Abaete project to Australian-based AKD, which carried out bulk sampling. The Aussie then established a test plant and recovered several diamonds ranging up to 5.5 carats. However, AKD decided the project was insufficiently economic and withdrew in early 2004.

In late 2002, Brazilian Diamonds acquired De Beers subsidiary Minerao do Sul, which held rights to the diamondiferous Canastra 1 kimberlite pipe, along with a complete geological database, surface land rights, and more than 500 sq. km of concessions. The acquisition cost US$1 million.

Between 1998 and 2000, De Beers Brasil extracted about 20,000 tonnes from Canastra 1 and subjected the material to bulk sampling. Five-thousand carats of diamonds were recovered and shipped to South Africa, where they were sorted and valued in the range of US$125 per carat. But results fell below De Beers’ economic threshold, and no further work was recommended.

Since acquiring the land package from De Beers, Brazilian Diamonds has discovered additional kimberlites in the vicinity of Canastra 1. The aspiring diamond producer also reprocessed a portion of the tailings left from De Beers’ trial mining operation. The tailings fractions are the rejects that had been processed through an X-ray fluorescence circuit after being sorted through a dense media separation (DMS) concentrator. Using a Flowsort X-ray machine and grease table, the company recovered a modest amount of diamonds missed in the initial processing; this suggests the previous grade estimate of 16 carats per 100 tonnes may be understated.

The company’s re-evaluation of Canastra is continuing, and a conceptual mine study report by Gemcom in 2003 suggested economic potential. Permitting and licensing of the proposed operation are under way.

Brazilian Diamonds recently reported drill results from its Tuscano 1 kimberlite. A high microdiamond count of 182 stones was recovered from a 67-kg sample covering two separate phases. Additional holes are being drilled.

Great Southern Enterprises (GSR-V) is involved in two alluvial diamond projects in Minas Gerais: the Rio Prata and the Rio Verde.

The former consists of three licences, about 300 km southeast of Brasilia. About 20,000 cubic metres have been processed on site, and 80,000 cubic metres of prospective gravels have been outlined.

Rio Verde comprises 6 sq. km near the confluence of the Verde and Paranaiba Rivers. The company is earning a 25% stake in the project in return for US$100,000 in payments and an advance of US$300,000 for plant construction and development. A small plant exists on-site.

Toronto-based Vaaldiam Resources (VAA-V) has entered into an agreement to acquire a 70% interest in the Duas Barras project, 150 km north of Diamantina in Minas Gerais. The 70-sq.-km project covers about 5 km of the Jequitinhonha River, along which alluvial operations and garimpeiros are active. Vaaldiam is building a mobile recovery plant to test previous reported grades of 0.26 carat per cubic metre. To earn its interest, the company is required to pay US$150,000 and spend up to US$1.5 million on equipment and development work. The previous operator reportedly recovered more than 1,100 carats of diamonds from about 4,300 cubic metres in a bulk-sampling program in 2002, and the stones sold for an average of US$222 per carat. A small amount of coarse, free gold was also recovered in the bulk sample.

Diagem (DGM-V) holds 1,300 sq. km of diamond projects in Mato Grosso state. The junior has been active in Brazil since the mid-1990s, when it began exploring the alluvial potential of the Juina Diamond province.

On its 213 and 214 properties, Diagem and partner Rio Tinto have identified at least five diamondiferous kimberlite pipes with favourable geochemistry. Alluvial operations in the vicinity of a couple of the pipes have yielded some high-quality diamonds.

On Diagem’s wholly owned Chapada West and East properties, some minor drilling has been carried out.

Properties 370, 469 and 371 cover an east-west river system, including many tributaries. The area has extensive alluvial flats with considerable gravel accumulations. Recent bulk sampling of basal conglomerates on property 37
0 yielded 3 carats from 11.25 cubic metres for a grade of 0.27 carat per cubic metre. Several stones in the 1.1-to-2.7-carat range were recovered.

In mid-2003, Diagem commenced trial mining on Resource Block 1 at property 213, with a 26-carat gemstone recovered in the first week. Production increased to 400 carats per week by November 2004, when a cease-operations order came down from IBAMA, challenging the trial mining operation. Not being able to produce diamonds, Diagem focused instead on finding further resources of diamondiferous gravels.

In early 2004, the company received its first certificate of origin from the Brazilian government for a 1,200-carat parcel of diamonds. The stones were shipped to Antwerp where they were given an average price of US$30 per carat, excluding 16- and 25-carat gem-quality stones with estimated valuations of US$400 and US$1,500, respectively, per carat. A second export of just under 4,000 carats occurred in mid-2004.

In 2001, Consolidated AGX Resources (CSX-V) entered into an option agreement to acquire a half-interest in the Batovi project in the Amazon Craton of Mato Grosso. The company has collected 129 samples for heavy mineral separation. Recovered indicator minerals have been mounted for microprobe analysis at the lab. In 2002, AGX sold a 20% interest in Batovi to Iciena Ventures (IIE.H-V) for $600,000.

Iciena Ventures has entered into an agreement to acquire the 1,000-sq. km Jatoba project in the Paranatinga kimberlite field. Iciena will pay US$325,000 in cash and issue 2.5 million shares. Previous operator Aries Resource (AES-V) drill-tested eight magnetic targets. Four of the holes intersected kimberlite, and material from two was submitted for microprobe analysis, confirming garnets, ilmenite, spinel and chrome diopside. Iciena plans to test the drilled kimberlite for diamond content.

Australian explorer Elkedra Diamonds is busy proving up its Chapada project, in south-central Mato Grosso. The company anticipates production by late 2005. There are 5.4-million bank cubic metres (bcm) of probable reserves grading 0.05 carat per bcm. A 9-year mine life is projected based on the planned throughput of 600,000 bcm per year, with annual output expected to exceed 30,000 carats. Diamonds recovered in bulk sampling indicate an average value of more than US$400 per carat.

Elkedra has partnered with the Lev Leviev Diamond Group through an off-take agreement for all production from Chapada. The Leviev group has also taken a 7.8% equity interest in the company.