STOCK MARKETS — Diamond stock sell-off dampens western

Weakness on major eastern markets and an extended pause in the gold rally at the US$390 level, combined with some heart-stopping air pockets in the diamond issues, helped push western markets down over the week ended July 19.

The Vancouver Stock Exchange resource index lost more than 58 points to close at 1,309.62, while the composite index dipped 38 points to finish at 980.

Several diamond exploration issues took a beating over the period, twisting the “buy on dips” theory to more of a “buy on cliffs” situation. John Kaiser, an analyst at Pacific International Securities, attributed the drop to Paul Sarnoff’s Gold Stock Advisory newsletter titled “Diamond Stocks Can Be Dangerous to Your Wealth.”

Sarnoff notes that the Northwest Territories diamond play has not provided enough evidence to give it independent credibility and advises investors to stay away.

Kaiser admits that there is justification in that point-of-view but notes that Dia Met Minerals’ joint-venture partner recently submitted its gem-quality diamonds for an evaluation of their commercial worth. Kaiser anticipates that the results, due in about four weeks, will give the play a solid foundation and recommends investors stick around. Members of the DHK group were caught in the down-draft, with Dentonia Resources plunging $2.50 to $5.13, Kettle River Resources down $3.62 at $10.13 and Alberta-listed Horseshoe Gold Mining off $2.25 at $5.50. The three companies recently completed a subscription agreement with Kennecott for a private placement of $2 million in each company. The unit prices are somewhat higher than the current trading levels, with the Dentonia and Horseshoe units priced at $8 each and the Kettle River units priced at $16 each.

Albert Applegath’s Kalahari Resources, which has a large ground position in the Northwest Territories, took a hit, losing 65 cents to close at $2.30. Even Consolidated Pine Channel, which holds diamond exploration ground in Saskatchewan, lost ground, slipping 88 cents to finish at $6. Jacqueline Gold continues to fight an uphill battle with two local mining analysts who have refused to retract separate opinions on the company’s San Lazarus project in New Mexico.

Based on discussions with companies which have previously worked on the property and an examination of their results, the two analysts believe Jacqueline, along with 30% partner BMR Gold, may be drilling down vertical structures. If that is so, reported grades of more than one ounce gold per ton could be elevated because of the high-grade, sporadic nature of the mineralization. Jacqueline and BMR believe the reverse circulation drilling is intersecting a horizontal zone of gold mineralization.

Recent assay results of 25 ft. grading 1.16 oz. gold in Hole RDH-15 and 20 ft. grading 1.10 oz. gold in Hole RDH-17 did little to help the issues, however.

Jacqueline, which has a short position of about 160,000 shares, closed down 43 cents at $1.85 while BMR slipped 3 cents to close at 79 cents. Further drilling results from the Casino copper-gold project in the southern Yukon did not seem to help owner Pacific Sentinel Gold.

The issue dipped 55 cents to close at $3.85.

Pacific Sentinel has completed 44 large-diameter holes on the property to date, returning an average thickness of Supergene and Hypogene mineralization of 823 ft. grading 0.30% copper and 0.010 oz. gold.

A positive judgment on the White River project in Northern Ontario in favor of Akiko Gold Resources and Gold Giant Minerals paves the way for Hemlo Gold to begin exploration under a 50% earn-in agreement.

Akiko Gold closed down 15 cents at $1.50 while Gold Giant lost 33 cents to finish at $1.75.