Shear rolls back shares and changes name

At the opening bell on December 30, Shear Minerals will begin trading on a consolidated basis under the new name of Shear Diamonds (SRM-V).

At the company’s recent annual meeting, shareholders and the board of directors approved a 10-to-1 rollback of the company’s shares. Going forward, the company will have 42.1 million shares outstanding on a post-consolidated basis, or 59.1 million on a fully diluted basis.

With the recent acquisition of the mothballed Jericho diamond mine in Nunavut, Shear is taking the next 18 months to examine the economic potential of re-starting the operation, while aggressively working to expand the project’s diamond resource base.

“When we purchased this mine it wasn’t about turning it on tomorrow; it was about figuring out what happened in the past and what improvements we are going to make,” said Shear’s President Pamela Strand at the company’s 2010 annual general meeting.

In August, Shear acquired the Jericho mine and related infrastructure, along with the former exploration assets of Tahera Diamond, by paying $2 million cash plus 80 million shares and a 2% royalty to Caz Petroleum, the leading creditor.

In conjunction with the purchase, Shear raised $13.1 million in a private placement financing by issuing 139.4 million shares priced at 6.5 cents apiece. The company currently sits with $9.2 million in its treasury.

“Shear is very excited, given the opportunity that Jericho provides the company moving forward,” remarked Strand. “The mine has been built and financed. The opportunity that these assets provide Shear ensures any additional carats we find are gravy.”

Situated 420 km northeast of Yellowknife in the Kivalliq region of Nunavut, the Jericho mine was a money loser right from the get go when it opened in 2006 until it went bust in 2008.

Tahera Diamond invested over $200 million in the development of the Jericho mine, including the construction of a 2,000-tonne-per-day diamond recovery plant, maintenance facility, fuel farm, and offices and accommodations to serve 225 people.

Jericho was put into production based on a revised nine-year, open-pit plan to mine a 5.5-million tonne kimberlite resource grading 0.85 carat per tonne, at a life-of-mine stripping ratio of 5.2-to-1. The mine plan called for the production of some 4.7 million carats at an estimated value of US$95 per carat.

The underperforming mine never reached design capacity and suffered higher-than-expected operating costs, compounded by lower-than-planned mining and recovery grades.

From January 2006 to May 2008, 13.6 million tonnes of material was mined from Jericho, including 1.5 million tonnes of kimberlite. Tahera recovered 780,000 carats of diamonds from the processing of 1.26 million tonnes of ore before operations finally ceased.

Jericho was known for its large gem diamond potential. The operation produced in excess of 1,000 diamonds that were greater than 10 carats apiece. One particular diamond, a 59-carat gem, sold for $450,000. Tahera had a marketing off-take agreement with jewelry retailer Tiffany & Co. (TIF-N) for Jericho’s entire run-of-mine production. Strand is quick to stress that Shear currently has no marketing arrangements in place.

As part of its due diligence, Shear had an internal re-engineering study done that addressed past operational issues and concluded there are substantial opportunities for improvement. The comprehensive study included separate reports by AMEC on the milling, Procon on the mining and SRK on the geology.

“We called this group of three the post-mortem,” said Julie Lassonde, executive chairman of Shear. “This autopsy provided Shear Minerals a road map to the areas of improvement.”

The report details significant issues with respect to crushing and sorting that impacted diamond liberation. It calls for the addition of a front end crusher and sizer to the mill. Lassonde notes that diamond recovery could also be improved by adding smaller screens, a grease table and a second pass of heavy media separation.

“We estimate at this time the capital cost to re-habilitate essentially a brand new mill is $19.2 million,” said Lassonde. “This is an incredible opportunity that we have been give to get this right.”

The mine is fully permitted, with an Inuit impact benefit agreement in place. However, the water license expires in December 2010. “Our renewal and applications are being submitted,” explained Strand.

Shear had SRK Consulting prepare an updated resource estimate that shows the Jericho kimberlite complex contains indicated resources of 1.8 million tonnes grading 1.06 carats per tonne, equivalent to 1.9 million carats worth an estimated US$103 per carat. Inferred resources host an additional 1.7 million tonnes averaging 0.65 carat, equal to 1.1 million carats valued at US$100 per carat.

Shear believes there is excellent potential to increase the resource base of the main Jericho kimberlite complex at depth as the existing resources are calculated to only 190 metres below surface. “We know very little of what exists underneath that, we don’t have a lot of drill holes or pierce points down there to let us know what is happening,” explained Strand. “There are a number of significant kimberlite intersections outside of the modeled kimberlite and the modeled mine plan.”

“We believe there is upside to add significant carats outside of the current pit shell,” said Strand, who noted the JD-2 kimberlite is only a couple hundred metres north of the main Jericho pipe.

Shear is in the process of finalizing an aggressive 18-month business plan with the goal of gaining confidence in both the grade and geological model of the kimberlite. “That would really be what we need to a make a go or no go re-opening production decision,” said Strand.

Shear is planning to carry out a large-diameter drilling campaign from within the pit with the objective of proving up the grade and adding tonnes to the resource model. “The bulk of our time, effort and money are going to go to re-prove up Jericho towards that production decision. That is our focus,” stressed Strand.

The Jericho pipe is one of seven kimberlites discovered within 10 km of the mine on the 275-sq.-km surrounding group of Carat claims. The others include JD-3, Contwoyto-1, JD-2 and TAH-1 pipes, as well as the OD and Bird Lake dykes. “These are all potential kimberlites that could be mined and trucked to Jericho,” suggested Strand.

Shear believes there is potential for new discoveries. There are five unresolved kimberlite indicator dispersion trains, several promising kimberlite float targets and a number of untested geophysical anomalies.

“We are optimistic that there is opportunity to work on some of the known kimberlites, but more importantly to find more,” Strand said. “We are explorationists at heart so we will do our best to prove these up as part of our business plan.”