Vaaldiam Resources strikes pink in Brazil (September 24, 2007)

With pink diamonds commanding some of the highest prices per carat ever paid, there was much back-slapping at the Toronto offices of Vaaldiam Resources (VAA-T, VAAFF-O) after the Toronto junior found two pink diamonds at its Brauna project in Brazil.

Pink diamonds are among the rarest and most treasured diamonds.

“Most of the pink diamonds come from Argyle and that mine is now nearly at the end of its life,” says Ken Johnson, Vaaldiam’s president and chief executive. “If you find another deposit that produces pink diamonds, that’s very special.”

The Argyle mine in Western Australia is owned by Rio Tinto (rtp-n, rio-l), and produces 95% of the world’s supply. A 3.14-carat Argyle pink diamond fetched US$1.5 million at a Christie’s auction in New York in 1989.

The four largest stones recovered in Vaaldiam’s mini-bulk sample of the Brauna 8 dyke weighed 0.92, 0.54, 0.32, and 0.3 carat respectively. The largest diamond of the four was pink. A second pink diamond from the sample appeared to have been broken during processing.

The remaining 97 diamonds in the sample were white. All of the diamonds in the sample — including broken diamonds — weighed 6.48 carats. They were recovered from 16.87 dry tonnes of kimberlite, indicating a recovered grade of 38.42 carats per hundred tonnes.

Brauna 8 is a vertically oriented kimberlite dyke that is 4 metres wide. It forms part of a dyke system traced on surface over about 15 km.

Brauna 8 lies about 5 km north of the Brauna 3 pipe, which is currently the focus of a drilling program designed to support a resource calculation.

Vaaldiam will complete bulk sampling at its Brauna project in the first quarter of next year. A feasibility study and resource calculation will be finished in the latter half of 2008 and production should begin by the middle of 2009, Johnson says.

Johnson, a diamond geologist for 25 years who discovered diamond deposits in the Central African Republic and in South Africa, estimates throughput at Brauna would be 500,000 to 600,000 tonnes per year, producing 100,000 to 125,000 carats annually.

He estimates capital costs for the project will be about US$15 million.

If all goes according to plan, Vaaldiam’s 100%-owned project will be South America’s first kimberlite deposit to be brought into production.

Meanwhile, Vaaldiam’s planned merger with Australian company Elkedra Diamonds (EDN-L, EDN-A), also a producer in Brazil, and Great Western Diamonds (GWD-V, GWSDF-O), is likely to be completed by the end of October.

If the merger goes ahead, Vaaldiam will own two producing mines outright that have a combined average value of production of US$300 per carat — making it South America’s top diamond producer.

Besides initial samples of pink diamonds at Brauna, Vaaldiam has recovered the first batch of stones from its 100%-owned Duas Barras alluvial diamond mine in Brazil’s Minas Gerais state.

The mine is processing diamondiferous gravels deposited along its 5-km stretch of the Jequitinhonha River, and is expected to produce about 25,000 carats this year. That amount is forecast to grow to 50,000 carats annually starting in 2008.

Vaaldiam says diamonds from Duas Barras will fetch about US$200 per carat for an estimated US$7.68 million in gross revenue next year.

“Duas Barras is performing beyond our expectations,” says Johnson, noting the project had produced 5,000 carats by the end of August and is on track to produce 25,000 carats by the end of the year. It expects to have its first diamond sale in the middle of October.

The project is also a low-cost producer.

“In terms of value of the gravel,” Johnson says, “the gravel is running at a revenue of about fifty-five dollars (US) per cubic metre and operating costs are less than twenty dollars (US) per cubic metre.”

Vaaldiam also holds 100% of the Pimenta Bueno property in Brazil’s western state of Rondonia. Advanced-stage exploration has identified 38 diamondiferous kimberlite pipes.

As for Vaaldiam’s two pink diamonds at Brauna, the Canadian junior hopes it’s just a sign of more.

“This doesn’t mean we are going to have an abundance of pink diamonds — we have to do more testing to see,” Johnson says. “But the fact that you find pink stones there — well, I would guess you are going to find some more. The question is what percentage of the parcels are going to be pink.”

In Toronto on the TSX, Vaaldiam shares rose 1.19% or 0.01 a share following the announcement to close at 85 apiece.