EDITORIAL PAGE — The school of hard knocks

A sobering dose of reality hit the Canadian diamond play this past week as disappointing results were released by Kennecott Canada from the DO-27 (Tli Kwi Cho) kimberlite in the Lac de Gras region of the Northwest Territories.

The bulk sampling results were not sufficiently encouraging to justify further work, and the share prices of Kennecott’s junior partners bore the brunt of a massive selloff.

Kettle River closed down $9.20 at $2.55 after the announcement, while Dentonia Resources was off $5.23 at $1.27. Most other diamond issues on Canadian exchanges lost ground, with the one-day selloff wiping an estimated $500 million off the market value of these juniors.

Will all this cool interest in Canadian diamond exploration? Probably yes, for a while. But it will not stop BHP Minerals Canada and partner Dia Met Minerals from pursuing an aggressive development schedule on a project they believe will become North America’s first diamond mine. Engineering and a bankable feasibility study are in progress, with the mine plan involving four diamondiferous pipes.

And Aber Resources is busy preparing to carry out a mini-bulk sample on two newly discovered diamondiferous kimberlites in Lac de Gras. Many juniors have summer programs in progress, and these will continue unabated. But Tli Kwi Cho will serve as a useful reminder of the difficulties of finding an economic pipe. The rarity of diamond mines was made clear in a recent paper, “Diamond Sources and Production: Past, Present and Future,” by Alfred Levinson, John Gurney and Melissa Kirkley, published in the Winter 1992 edition of Gems & Gemology.

The authors point out that as many as 1,000 kimberlite occurrences are known to contain diamonds, as well as seven lamproites. But only 50-60 kimberlites and one lamproite (Argyle) worldwide have ever been economic. Experts point out that the major factors in determining whether a newly discovered kimberlite (or lamproite) pipe will be economically viable are its tonnage (size) and grade (concentration of diamonds), as well as the value (size and quality) of its diamonds. And even in economic kimberlite pipes, gem/cutable diamonds typically are found in small amounts and sizes, and in variable qualities. And that’s why bulk samples are usually taken to determine the grade, size distribution and quality of the contained diamonds. What has become more obvious is that the numbers of microdiamonds and macrodiamonds recovered from exploration drilling provide only part of the information needed to determine the economics of a pipe. A case in point is the BHP-Dia Met 93-J pipe, where core drilling during exploration returned an impressive 155 macrodiamonds (over 0.5 mm) and 259 microdiamonds from 60.5 kg of core.

A subsequent mini-bulk sample of 132 tonnes confirmed a positive grade (3.3 carats per tonne) from the main pipe. But the value per carat was only US$29, after removal of a 4.2 carat diamond of significant value, which suggests the pipe probably has mostly industrial stones.

A mini-bulk sample was never taken from the Tli Kwi Cho pipe, and the decision to proceed directly to a larger sample (5,000 tonnes) contained an element of risk. No doubt it is a setback, but not one that will put the Lac de Gras region on the backburner, or curtail the efforts of those serious about finding and developing diamond mines.