American Gem testing Montana sapphire play

Newly formed American Gem (TSE) is out to prove that diamonds are not the only commodity with sparkle these days. It is developing a large, gem-quality sapphire deposit in the mountains east of Helena, Mont.

The U.S. junior came into being through a reverse takeover of Dolphin Explorations. The former’s shares were consolidated on a 20-for-1 basis, all outstanding shares of then-privately owned American Gem were acquired by means of a share-for-share exchange for Dolphin treasury stock, and a name change was effected. In addition, European institutional investors subscribed to a private placement of 1.5 million shares at $2 each.

Total worldwide production of rough sapphire is estimated at 75 million carats per year. Major deposits occur in Montana, Thailand, Sri Lanka, Australia, Burma, Nigeria, Cambodia, Laos and China.

American Gem controls the mineral rights to more than 20,000 acres in Montana that have gem sapphire potential. Several million carats of sapphires have been produced in the northwestern state since the late 1800s. Unfortunately, most of the stones were not gem quality without further treatment. Nowadays, 95% of all sapphires produced worldwide are routinely heat-treated to enhance their color or clarity.

American Gem is focusing its exploration and development activities on the Dry Cottonwood Creek property, 14 miles southeast of Dear Lodge, Mont. Here, sapphires and gold were concentrated by erosion in alluvial gravels lining old stream beds.

The alluvial deposits lie on a bedrock of rhyolitic crystal tuff. The gravels, which are composed of rhyolitic tuff with minor cobbles of andesite and vesicular basalt, range up to 1.8 metres in thickness. They are overlain by fine, clay-rich sand up to one metre thick, which, in turn, is overlain by organic, rich, sandy silt.

The sapphires and gold are concentrated in erratically distributed channels or “streaks” within the basal gravel.

To evaluate the potential of the property, seven trenches and seven test pits were excavated along a 2-km stretch of the south fork of Dry Cottonwood Creek and one satellite drainage channel.

Concentrates collected from the trenches were sent to Crystal Research in California.

The trenches contained 44 to 478 carats of rough sapphire per cubic metre of gravel, with an average yield of 147 carats per cubic metre. About 10% of the stones recovered were more than 8.1 mm, averaging 5.7 carats. Following heat treatment, 88.2% of the sapphires were of gem clarity.

American Gem expects to begin full-scale production on the Dry Cottonwood Creek property in June. It is currently testing the Eldorado Bar and Gem Mountain properties, both of which have a history of sapphire production. At present, about 80% of the world’s trade in sapphire is conducted through Thailand. American Gem hopes to tap into the demand for cut sapphires in the U.S. and thereby reduce the supply of stones from Thailand.

Output from the property is subject to a net smelter royalty (NSR) held by Repadre Capital (TSE). Late last fall, Repadre paid American Gem $350,000 for a 3% NSR. When the amount paid to Repadre equals $350,000, the NSR will be reduced to 1.5%