Randy Turner: Reflections of a diamond industry pioneer

Energy companies have recruited geological talent from the University of Calgary for decades, so it’s no surprise that Randy Turner joined the sector after earning his B.Sc. degree in 1971. It was a wise career choice, with multinationals investing heavily in uranium and mineral exploration at the time. Turner spent two decades with AGIP Mining (owned by an Italian oil company) and Esso Minerals Canada before both bailed from the mining industry along with many of their peers during the tumultuous 1980s. But as it turned out, this mass exodus helped trigger a chain of events that led to a new career for Turner and a new industry for Canada.

Turner turned to the junior mining scene and found early success as president of Trimin Resources, starting with the development and sale of the McIlvenna Bay copper-zinc deposit in Saskatchewan. In 1990, Trimin sold its interest in the Hanson Lake polymetallic deposit in Manitoba to Billiton Resources Canada for $17.5 million. It was a small fortune, given the grim market conditions for juniors at the time.

“That’s when everybody started fighting over the treasury,” Turner says. “We lost (the proxy battle) and the company ended up as a ball-bearing business.”

In the spring of 1991, Turner teamed up with several associates to acquire control of Winspear Resources. “It was a shell with not a lot of cash in it, so we were looking around for a project. That’s when we heard from Cal Everett (a Vancouver financier) that Chevron was planning to divest its database.”

The database, then stored in a downtown Vancouver warehouse, included Canadian properties previously explored by Chevron Minerals, or by various companies that Chevron had acquired over the years, including Gulf Minerals.

“It was an amazing warehouse of data, which we acquired for 200,000 shares and $50,000 in cash,” Turner says.

Turner hired John McDonald and John Fraser to review the data and find a suitable project for Winspear. McDonald was a former colleague who had spent 10 years with Esso Minerals as chief geologist and exploration manager, Western Canada. He was also a founding member of the Mineral Deposit Research Unit, established in 1989 by industry in collaboration with the University of British Columbia. Fraser was a former senior geologist with Calgary-based Bow Valley Industries.

Turner and his colleagues spent much of 1991 looking for plums in the Chevron database. In November of that year, news broke that Dia Met Minerals and partner BHP-Utah Mines (now BHP Billiton [BHP-N, BLT-L]) had recovered 81 small diamonds from drilling at the Point Lake project in the Northwest Territories.

Turner says he knew little about diamonds at this point. “Esso had done some diamond exploration in Ontario with BP-Selco in the 1980s, but it was low key.”

Turner was aware of Charles (Chuck) Fipke, chairman of Dia Met Minerals, as his brother Terry, an exploration geologist, had worked with Fipke in Papua New Guinea. Fipke’s obsession with diamonds was no industry secret, but not everyone was convinced that economic deposits could be found in North America. Skeptics pointed to the fruitless Canadian exploration efforts of De Beers (through Diapros and later Monopros) and various other companies over many decades.

A North American hunt by Superior Oil and Falconbridge in the late 1970s and early ’80s was also perceived as fruitless, despite the efforts of Fipke, who worked on the project, and geologist Hugo Dummett, who managed the program for Superior Oil. Dia Met bought the diamond database after Superior was acquired by Mobil Oil in 1984. Dummett helped negotiate the deal, which provided valuable data for Fipke to continue the quest with fellow geologist Stewart Blusson. Later, in mid-1990, Dummett convinced his new employer BHP to form a joint venture with Dia Met.

Turner says colleague John McDonald had participated in academic research related to the geological setting of diamond deposits and was an “early believer” in the Dia Met/BHP discovery. “He said, ‘this diamond play is for real’.”

McDonald wasn’t alone. Chris Jennings, a South African-born geologist who had worked on the Falconbridge side of the Superior Oil joint venture, was an early believer. And so were industry veterans who had worked on diamond exploration for Selection Trust (Selco), which amalgamated with British Petroleum (BP) in 1984.

The Lac de Gras diamond discovery sparked one of the largest staking rushes in Canadian history. Grenville Thomas and Jennings led the first wave on behalf of Aber Resources (now Harry Winston Diamond [HW-T, HWD-N]), which had extensive northern experience. Winspear followed suit, as both Turner and Fraser knew Thomas from their days in Calgary.

Turner hired Brian Weir and Mike Magrum, based in Yellowknife, to help with the staking, which was a physical process in those days. “It was a hectic time, with choppers and planes coming and going and everyone rushing to get ground.”

Boardroom wheeling-and-dealing also took place at a frenetic pace, Turner recalls. “Companies were continually swapping lands, making deals and entering into joint ventures. And the pace just kept going throughout the year.”

Turner says it was important to “go in early and go in big,” as most juniors had little or no diamond expertise in these early days. The objective was to assemble as many claims as possible, as close as possible, to the Lac de Gras discoveries.

“By late 1992, we had about two million acres, and by late January or early February of ’93, we did the deal for what would later become the Snap Lake project.”

Turning point

If 1992 was the year diamond fever swept Canada, 1993 was the year that Dia Met and BHP convinced skeptics that they had the makings of Canada’s first diamond mine. It was the culmination of 10 years of geological detective work that involved tracing a glacial dispersion train of indicator minerals (pyrope garnets, chromites, etc.) associated with kimberlites from the Mackenzie Valley to Lac de Gras.

Kennecott moved quickly to form joint ventures with Aber and its partner Commonweath Gold (later acquired by Aber) and various other companies, including a syndicate that subsequently merged into DHK Resources. Ashton Mining of Australia and De Beers (through Monopros) were also active players on the scene.

Turner says Jordan Ethans, then with Commonwealth Gold, invited him to consider buying an interest in what later became the Snap Lake property. “He wanted a geologist involved, and that was how we acquired a 40% interest in the joint venture.”

But unlike Dia Met, which had a senior partner with BHP, and Aber, backed by Kennecott diamond experts, Winspear managed its own exploration programs. By this point however, juniors were aware of advanced techniques developed by South African and Russians scientists that allowed explorers to differentiate between barren and diamondiferous kimberlites before drilling by analyzing the chemical composition of associated indicator minerals. Dia Met had used these techniques to good success at Lac de Gras, and also had the advantages of its own lab and diamond database.

“It was John [McDonald] who knew and suggested that we hire Russian geologists for our summer program in 1994,” Turner says. “That’s how we ended up with Nik.”

Nikolai Pokhilenko was then head of the Laboratory of Diamond Deposits at the Diamond Research Institute in Novosibirsk, and a chief research geologist for the Russian diamond company Alrosa. He also led teams credited with the discovery of three diamondiferous kimberlite fields in Yakutia, Siberia.

“He believed Canada had diamond potential and wanted to come here,” Turner says. “He did the original sampling by panning for indicator minerals out in the field with our project manager Walter Melnyk and geologist Joan McCorquodale.”

Winspear discovered its first kimberlite in 1994, followed by another in the spring of 1995. Both contained diamonds, but the pipes were small and deemed uneconomic. The focus shifted to an indicator mineral train traced to Snap Lake, 30 km from the initial discoveries. A geophysical (mag) target was drilled, but was a dud.

“We then started hitting kimberlite dykes,” Turner says. “We kept drilling and found the Snap Lake dyke system in 1996 to 1997.”

The discovery of kimberlite dykes was a novelty at the time, but the presence of macrodiamonds of gem quality caught the attention of respected diamond analysts. Snap Lake was in the race for what was expected to be the third or fourth diamond mine. Dia Met and BHP were already in mine-building mode at Ekati, and Aber and Kennecott had made significant discoveries at what would become the Diavik mine.

“Analysts George Albino and Art Ettlinger were geologists who understood Snap Lake,” Turner says. “John Hainey thought we’d find more pipes there. And I give David James tremendous credit. He was a strong believer in the diamond game.”

Winspear closed a $10-million financing at $3.50 per share as the 1997 Prospectors and Developers Association of Canada convention began in Toronto.

Turner attended the event, where John Felderhof of Bre-X Minerals picked up the Prospector of the Year award. He had worked with Felderhof in the early 1970s, exploring for uranium in Australia. Felderhof was now successful enough to criticize the industry’s “tree-shakers” for trying to “seize” his massive Busang gold find.

“We were criticized by people who thought we were financing too cheap,” Turner says. “That was before Bre-X blew up and our stock fell to fifty cents. Looking back, it was one of my more brilliant moves as it gave us money to weather the storm.”

Once the Bre-X dust settled, Winspear raised additional funds to advance Snap Lake, and also increased its interest to 68% with Aber holding the balance. A surface bulk-sampling program (199.7 tonnes) in 1998 yielded a 228.9-carat parcel of diamonds with an average of US$301 per carat, based on three independent valuations. It was the highest carat value ever reported in Canada’s North. Diamonds recovered from a larger (6,000 tonnes) bulk-sample the following year were valued at US$118 per carat, competitive with diamond valuations for Ekati and Diavik.

A prefeasibility study in the spring of 2000 estimated that a 3,000-tonne-per-day mine could produce 1.8 million carats per year for at least 12 years, with payback of capital costs (estimated at $269 million) in just over two years.

It was inevitable that a major company would be attracted by the study’s robust economics, and indeed, the first indirect overture was made when Turner attended a diamond conference at the Royal Ontario Museum in Toronto. Richard Molyneux, the newly appointed president of De Beers Canada, was among the guests.

“There was a dinner afterward and he (Molyneux) approached me and told a story about how he collected minerals as a kid and that’s how he got into the diamond business,” Turner said. “He told the same story to two of my associates.”

Turner says Molyneux called the next day to ask for a meeting that Friday. Molyneux arrived as scheduled at 2 p.m., with De Beers colleague Tom Beardmore-Gray.

“They arrived without briefcases and Richard told the same story about how he used to collect minerals, so I went to show them my crystals from India. He said they weren’t here to talk about minerals – they were here to take over the company.”

Turner was told he had “until 6 a.m. that day” to accept the $4-per-share offer, which also required Winspear to cancel a proposed $20-million equity financing. The company’s legal team and financial advisers were in place as the deadline loomed.

“I called (De Beers) to let them know we weren’t going to accept the offer,” Turner says. “There was no reaction, not that I expected one.”

The following Monday, Turner’s phone rang at 3 a.m. It was Chaim Even-Zohal, a diamond consultant from Tel Aviv. “He said, ‘Hallelujah’ and that’s how I found that De Beers had issued a press release saying they were taking us over.”

By the time Turner reached the office, the phones were ringing non-stop and the stock was trading over $4, up from its Friday close of $2.10. A call to the Stock Exchange reassured him there was no need for a trading halt. The cash offer announced on June 26, 2000, was for $4.25 per share, open until July 28.

Winspear called in its advisers and decided that the best course was to implement a “value recognition program,” which included new drilling and an updated scoping study based on an expanded resource to support a proposed 6,000-tonne-per-day mine. The company battled for a better deal until late August, when De Beers sweetened its cash offer to $5 per share for a takeover value of $305 million.

“It was a hard decision, like parting with your baby,” Turner says. “So why did we sell? Basically we’re explorers, not developers.”

Before the handover to De Beers, Winspear had a closing-off party at Snap Lake.

“We had a flagpole in the camp and one of the guys took down the company flag and brought it to me with tears in his eyes,” Turner recalls. “It was tough. This was the most incredible team I’ve ever worked with and they did a tremendous job.”

A new mine, a new start

De Beers went on to develop Snap Lake into Canada’s first completely underground mine, based on an annual production rate of 1.4 million carats for at least 20 years. The mine officially opened in July, 2008, but permitting and construction costs had escalated substantially since 2000, pushing capital costs to more than $1 billion. (De Beers later wrote down $965 million of that investment, citing cost overruns, construction challenges and uncertainty over world market conditions.)

“We were invited to the opening and it was amazing to see,” Turner says. “De Beers also gave us some diamonds from the original bulk sample. Looking back, I have to say Richard (Molyneux) and Tom (Beardmore-Gray) were first-class guys.”

Turner and some of his long-time colleagues are still in the diamond game with Canterra Minerals (CTM-V), which has a 28.5% interest in the Buffalo Hills joint venture in northern Alberta. Partner Shore Gold (SGF-T) has a similar interest, with the balance held by Calgary-based oil-and-gas producer EnCana Corp. (ECA-T, ECA-N).

“We think this project still has good potential,” Turner says, noting that EnCana’s predecessor flagged the circular features that were later identified as kimberlites.

Canterra also has gold, base metal and uranium properties in Canada.

Turner is president and CEO of Silver Quest Resources (SQI-V), which is active in an emerging gold district in central B.C. Its assets include a 25% interest in the Davidson Property operated by Richfield Ventures (RVC-V), where an $8.6-million program is planned. The company also has a large land position in the White Gold district of the Yukon.

“Our strategy is the same – to get in early and get a large land position,” Turner says. “The Yukon reminds me of the diamond rush twenty years ago. We see claim posts and choppers and everyone rushing to get land. It’s like the Wild West again.”

-Based in Vancouver, the author is a freelance journalist specializing in mining, and a former editor of The Northern Miner.