EDITORIAL PAGE — Silence is not golden

There is something amiss in the diamond exploration game. It relates to the flow of information or, rather, the lack of it. Investors wait months for news of results. When drill results finally are announced, the news is virtually meaningless, at least from the point of view of gauging the merits of the play.

Consider Kennecott’s news on the DHK ground in the Northwest Territories. In total, 55 macrodiamonds and 158 micros were discovered in two holes. DHK Resources President George Stewart judged the results “superlative.” In fact, he sounded bewildered that the market should hammer the stocks on the news. But he did wonder aloud whether including information on weights and sizes might help.

To which we would add, imploringly, “yes, at the very least.” Investors simply cannot judge the value of a kimberlite pipe from the number of micro- and macrodiamonds in a sample taken from that pipe. Without solid information, stock prices are ripe for a drubbing.

It’s like trying to gauge the worth of a gold exploration play by announcing the width of an intersection without giving the grade. What if Corona, back when Hemlo was just emerging as a serious exploration play, had reported that discovery hole No. 76 intersected 10.5 ft. of unknown grade. Would the market have moved up on such news? The notion is absurd. (By the way, the Hemlo discovery hole ran 0.209 oz. gold per ton.)

In a report put out by Pacific International Securities analysts John Kaiser and Andrew Muir, the point is made loud and clear:

“Kennecott has not provided any commentary about the pipes beyond macro and micro counts, which everybody knows can be very misleading.” They go on to note that “the relationship to carat grade and gem value cannot be inferred.” However, Kennecott knows more than it reveals. But is it being deliberately coy? Messrs. Kaiser and Muir guess several reasons might motivate Kennecott to announce only the most superficial of results.

First, that meagre disclosure is justifiable, because neither De Beers nor Dia Met divulges much either. And for Kennecott, too much information might prove costly — it’s possible Kennecott may buy out the DHK companies if results warrant such a move. The better the publicly known prospects (assuming such prospects are positive) for the DHK ground, the dearer the eventual buyout.

They list two other reasons — that being stingy with information cools the speculative aspect of the diamond stock market and prevents people who shouldn’t be speculating from doing so, and that results must be withheld for competitive reasons. Both rationalizations seem rather feeble. The truth is that withholding information contributes to speculation. In fact, with more information, investors rely less on the speculative factor. In short, they’ll be better able to make an informed investment decision. Giving out the barest of information to protect a competitive edge also seems a rather hollow justification.

The end result of this virtual silence is a confused and highly speculative market. And it simply is not fair to investors. What are they to make of it all? In fact, knowing that it is in Kennecott’s financial interest to limit the flow of information, shrewd investors might surmise that because of Kennecott’s miserly ways with information, the DHK ground holds tremendous promise.