Teck Cominco eyes diamonds

Vancouver Teck Cominco (TEK-T) has inked a deal with Diamonds North Resources (DDN-V) paving the way for the worlds largest zinc producer to earn up to a 70% interest in the Blue Ice diamond property on Victoria Island.

The major agreed to pick up 909,091 units in the junior at a price of $1.10 each. A unit holds one share and one-half warrant. A full warrant allows Teck Cominco to buy another share for $1.10 within a one-year period. Along with the $1 million financing, the companies will jointly fund a $3 million exploration program on Diamonds North’s Blue Ice property. In return, Teck Cominco will have the right to earn an initial 30% interest in the project by exercising the warrants for a price of $500,000 and by spending $9.5 million over 3 years.

Teck Cominco can then elect to up its interest to 50% by spending another $5 million over 1 year. The major can boost its stake to 65% by completing a bankable feasibility study within the next three years and add another 5% by arranging project financing.

Teck Cominco also has the right to purchase up to a 10% portion of any future equity financings of Diamonds North but if the major fails to participate in any financing to a level of at least 6%, the junior has the right to terminate this part of the deal.

Located 240 km west northwest of Cambridge Bay, the Blue Ice project holds 450,000 acres in the central portion of Victoria Island, in Canada’s arctic. It is underlain by the Slave Craton, which hosts Canada’s two diamond mines. In 2002, the junior identified a 20-km trend of semi-continuous kimberlite, dubbed the Galaxy structure. So far, 9 kimberlites have been discovered, eight of which are diamondiferous.

The $3 million program will concentrate on collecting larger samples from the kimberlites through drilling. The partners expect to gather 2.5-to-3 tonnes of kimberlite, as well as drill test high priority geophysical targets along the Galaxy structure. An aeromagnetic geophysical survey is also being planned.

The initial diamond counts in several kimberlites along the Galaxy structure have returned promising values with five kimberlites ranging from 9-to-180 stones per 10 kg. Also encouraging has been the recovery of large macro diamonds, with many stones exceeding 1 mm in 3 directions.