LETTERS TO THE EDITOR — Sarnoff replies: Don’t blame me

It was indeed good of you to tell your readers “Ignore Sarnoff’s diamond warning, exploration activity speaks for itself” (T.N.M., Aug. 2/93). Please permit me to speak for myself.

When Dia Met made its original discovery in 1991, my skepticism was constrained. I really didn’t resent the skyrocket rise in the prices of the companies at or near the “discovery hole.” But now two years have passed. There have been constant promotion and little substance. No diamond mine is under production. No commercially viable diamond find has yet been made. No one knows if there will ever be a diamond mine there, or what quantity and quality might come from such a mine. To date, only minimal results have been released: they do not match the world’s producing diamond mines, either in quantity of carats or number of gemstones.

I believe exploration-development companies are worthy of speculation. Typically, they should trade for pennies or, in the case of Dia Met, a few dollars. That is not the case of the speculations in Lac de Gras, though. The shares have shot up from anywhere between seven to 250 times their value. Some speculations have market caps in the hundreds of millions of dollars. These share values should reflect ongoing production. Instead, they reflect a few hundred carats of diamonds, mainly from the discovery company, with decent, but not great, numbers of gemstones.

My Gold Stocks Advisory issue of July 7 was prepared in mid-June, just before Dia Met released its drill findings. Instead of results that would indicate a commercial diamond mine, the results turned out to be mediocre. The market certainly thought so. Dia Met immediately dropped $9 a share. Your Aug. 2 issue came out just before the DHK results were aired for Kettle River. That stock dropped on Aug. 3 by $2.60 to close at $10.20. Members of that “syndicate” comprising DHK all took hits. Why? Not because of Sarnoff. But because, to say the least, the results were disappointing.

The fate of the Canadian diamond play will not be determined by any analyst or newsletter writer. It will be determined by the abilities of the exploration-development companies to come up with the possibilities of commercially feasible diamond properties. So while the diamond play has brought a renaissance to Canadian mining, I reiterate that if your readers ignore my warning — which was meant only for my subscribers — they do so at their peril.

I thoroughly enjoyed George Stewart’s reminder (“Letters to the Editor,” T.N.M., Aug. 2/93) that I was once “wrong” about silver. Old silver bulls never die — they just buy all the way down. But it seems that in 1993, silver advanced faster and farther than gold. Also, I want to publicly thank Warren Niebling (“Letters to the Editor,” T.N.M., Aug. 2/93) for posing the question, “Is Sarnoff a modern Nostradamus?” I’m not. And when the drill results are in this year and next, investors in promotional diamond stocks may be “shooting themselves in the foot.” But the promoters and insiders will have long since laughed themselves all the way to the bank.

Paul Sarnoff

Editor, Gold Stock Advisory

Burnsville, Minn.