Winspear raises $14m for underground work — Bulk-sampling program to precede full feasibility

Winspear Resources (WSP-V) has negotiated a $14-million private placement with Deutsche Bank Securities, Canaccord Capital and Yorkton Securities, with proceeds earmarked for underground bulk sampling on the NW Snap Lake kimberlite dyke in the Northwest Territories.

The financing consists of class A and B special warrants priced at $2.55 each. A class A special warrant will be convertible into one flow-through share and one-quarter of a share purchase warrant, whereas each class B special warrant will be convertible into one share and half a share purchase warrant. A whole warrant will entitle the holder to buy an additional share at $2.75 within a 12-month period. The anticipated closing date is Oct. 22. Approximately $2 million of the transaction will be non-brokered.

Winspear holds a 67.76% interest in the Snap Lake dyke project, which it operates and which is part of the Camsell Lake property. The remaining interest is held by Aber Resources (ABZ-T). An updated scoping study, prepared by the Canadian branch of California-based Mineral Resource Development Inc. (MRDI), a division of H.A. Simons, found that the NW Snap Lake dyke has economic potential for an open-pit and underground mining operation, with a minimum mine life of 10 years.

Initial production would begin from an open pit on the northwestern peninsula of Snap Lake at the rate of 1,000 tonnes per day for a period of two years. During that time, about 700,000 tonnes of kimberlite would be mined and processed.

Underground mine development would begin during the mining of the open pit so that, in the last six months of the pit’s life, production from underground would be available at an increasing rate. The scoping study assumed that production from the underground mine would reach 3,000 tonnes per day in the fourth year.

Preliminary estimates put capital costs for the combined operation at US$161 million ($241 million), whereas operating costs are forecast to average US$47.68 per tonne ($71.52 per tonne) over the life of the mine. The study was based on the mining of 8.2 million tonnes of kimberlite with a contained diamond value of US$170 per tonne ($251 per tonne).

The project carries a 44.1% discounted after-tax cash-flow rate-of-return and a payback of 3.6 years.

MRDI has since updated the resource model of Snap Lake and, for the first time, provided grade estimates using microdiamond results from 189 holes drilled into the dyke. The stone size distribution linking microdiamonds and macrodiamonds was developed using the diamonds recovered from a 5,996-tonne bulk sample collected from pits 3 and 4 on the northwestern peninsula. This relationship was then used to estimate grade for diamonds greater than 1.18 mm. MRDI assumed the size of the stones distributed throughout the NW dyke is consistent.

The combined surface pits yielded an average grade of 1.789 carats per tonne based on the recovery of a 10,708-carat parcel, which was valued at US$104.96 per carat

The NW dyke subcrops on the northwestern peninsula of Snap Lake and dips 11-15 to the east beneath the lake. Drilling indicates the dyke extends 2 km in a northerly direction and 2.5 km downdip, with an average vertical thickness of 2.4 metres.

Winspear’s geologists believe the dyke to be a continuous sheet comprising a single phase kimberlite dominated by hypabyssal material, with local areas of kimberlite breccia. The dyke remains open, and though it thickens to the northeast, it thins to the south and southeast.

MRDI estimates 41.9 million carats are contained in an indicated and inferred resource totalling 21.3 million tonnes grading 1.97 carats per tonne at an average vertical thickness of 2.4 metres. The indicated portion alone is 9.35 million tonnes grading 1.95 carats at a vertical thickness of 2.8 metres.

MRDI calculated separate resource estimates using vertical thickness constraints. For that part of the dyke that exceeds 1 metre of thickness, the indicated resource is 9.25 million tonnes grading 1.96 carats per tonne at an average width of 2.9 metres. An additional inferred resource stands at 11.4 million tonnes grading 2 carats at a thickness of 2.3 metres.

The 2-metre-plus portion of the dyke is estimated to contain an indicated resource of 8.35 million tonnes grading 1.97 carat at an average thickness of 3.1 metres. A further 8.12 million tonnes grading 2.07 carats at 2.8 metres is inferred.

Under the proposed underground mining plan, 1.55 million tonnes of the indicated resource is occupied by the crown and structural pillars.

Winspear has applied for a Class B water licence in preparation for going underground next year at Snap Lake via a 1,200-metre-long decline. Plans call for the extraction of 20,000 tonnes of kimberlite; of that total, 6,000 tonnes representing three 2,000-tonne bulk samples would be processed in a 100-tonne-per-day dense media separation plant that is to be built on site during the first half of 2000, together with camp facilities and an air strip.

The underground bulk sampling is intended to provide further information on the quality and size distribution of the diamonds at depth, plus information on continuity and thickness of the NW dyke, as well as mining conditions beneath the lake. The cost of the underground program is $20 million, whereas costs to bring the project to full feasibility are estimated at $50 million.

Winspear has about $3 million in cash, while in-the-money warrants represent another $14 million. The company has 39.2 million shares outstanding, or 47 million fully diluted.

The indicated and inferred resources of the NW Snap Lake dyke are shown in the accompanying table.

	Indicated Resource	Inferred Resource
	Total	>1 m	>2 m	Total	>1 m	>2 m
Total tonnes	9.35	9.25	8.35	11.97	11.4	8.12
(millions)
Grade	1.95	1.96	1.97	1.98	2	2.07
(carats per tonne)
Total carats	18.26	18.11	16.49	23.68	22.75	16.8
(millions)
Internal waste	0.46	0.45	0.39	0.29	0.22	0.06
(millions, included
in total tonnes)
Average vertical	2.84	2.91	3.13	2.15	2.28	2.79
thickness (m)