Sagging gem sales hurt Canadian play

Fresh evidence of a deteriorating diamond market threw some cold water on Canada’s diamond exploration play in the first half of January.

South Africa’s De Beers, which controls the diamond cartel, says rough diamond sales by its Central Selling Organization (CSO) dropped 13% in 1992 to US$3.42 billion.

De Beers cited reduced demand from cutters, polishers and retailers who haven’t been replenishing their inventories in the face of a lingering global recession.

Analysts expect De Beers’ year-end results to show as much as a 30% decline in net income compared with 1991.

In recent months, the company has also had to buy millions of diamonds mined illegally in Angola and smuggled out of Africa to cutting stations in Antwerp, Belgium. De Beers says it spent more than $200 million to soak up the illicit supply and maintain prices last year.

But most analysts believe De Beers, with its access to enormous cash reserves, will be able to weather the recession and oversupply of diamonds. At current mining rates, the Angolan alluvial reserves are expected to dry up within a couple of years.

Dia Met Minerals (TSE), the flagship and thermometer of the Canadian diamond play, fell to as low as $34 from $40 at the beginning of 1993 following the gloomy announcement from De Beers. But despite the temporary stock market setback, the Canadian diamond exploration scene continues to heat up. Planning to conduct exploration programs on its Spider 1 and Spider 2 diamond properties in Ontario and Quebec, Montreal-based KWG Resources (ME) has raised more than $5 million through private placements of flow-through shares. In addition to financings completed over the last year, KWG has now raised a total of $7.4 million to finance exploration in the James Bay Lowlands and in the Kirkland Lake camp.

The company recently completed two drill holes on its Guiges Twp. kimberlite pipe near Lake Temiscamingue, Que. The company has also taken a 26-ton sample from its main Bucke Twp. pipe in northeastern Ontario and is preparing three additional drill sites in Quebec.

On the Spider 1 project in the James Bay Lowlands, an aeromagnetic survey is currently under way.

Other diamond developments announced recently include:

Ontario

— Glencairn Explorations (ASE) plans to begin drilling this month on its Alfie Creek diamond property near Kirkland Lake, Ont. The junior has the option to earn a 100% interest in the property from Kinbauri Gold, subject to a royalty and certain buyback provisions. Glencairn affiliate Wheaton River Minerals (TSE) also plans to test a nearby target at the Morrisette Creek property, where it is earning a 51% interest.

n Mountain Lake Resources (VSE) has acquired a 100% interest in nine units in Morrisette Twp. The property contains two magnetic targets.

— East West Resource (VSE) has raised $30,000, on top of the $150,000 announced previously, for exploration on its 25 kimberlite targets and gold-base metal targets along the Timiskaming rift north of Kirkland Lake. — T&H Resources (TSE) has optioned nine contiguous claims in Catherine Twp. near Kirkland lake. Two of six percussion holes drilled on the property contain diamond indicator minerals and two circular magnetic anomalies have been identified. Exploration is under way.

Alberta and Saskatchewan

— Rhonda Mining plans to make a private placement of 225,000 shares at $4 per share. The shares are accompanied by warrants to purchase an additional 225,000 shares at $5 per share expiring Jan. 7, 1995.

Rhonda expects to spend $1 million exploring its two million acres of claims near Fort a la Corne, Sask., this year.

— Takla Star Resources (ASE) has filed additional permit applications for 115,000 acres north of Legend, Alta., and 230,000 acres southeast of Pincher Creek, Alta. Both properties cover magnetic targets.

— Rich Minerals (ASE) plans to issue options to purchase one million common shares at 24-60 cents per share to two new employees. One, a geologist, has been hired to design an exploration plan for the company’s 1.5 million-acre mineral permit in Alberta.

Northwest Territories

— Caledonia Mining (TSE) has acquired the right to earn a 50% interest in claims covering 230,000 acres in the Winter Lake area west of Point Lake. — Garden Lake Resources (VSE) has completed an offering of special warrants for gross proceeds of $385,000. The junior has also issued warrants to Yorkton Securities to purchase up to 275,000 shares at 45 cents per share within 12 months.