THE DIAMOND PAGE — LETTERS TO THE EDITOR — The ABCs of

I agree in part with the editorial in the Aug. 16 issue (“Silence is not golden”), which deplored the lack of information available for evaluating the various diamond stock plays. What surprises me is the apparent lack of understanding as to how to arrive at a value for properties which have diamond potential.

This was one of the main features of a one-day seminar at the 1993 convention of the Prospectors and Developers Association of Canada (PDAC). The information currently “held” by the companies is insufficient to form the basis for any valuation of the properties being explored. Evaluating a diamond-bearing deposit is entirely different from evaluating other mineable deposits.

The occurrence of diamonds in host rocks is unlike that of any other commodity that is mined. Every carat is erratic and its placement and relationship to other carats are random. There is no continuity such as is found in gold-bearing veins or stratabound massive sulphide deposits. Finding a few carats in a small sample of host rock gives no assurance that any other part of the remaining host rock will contain any carats. Finding that a chunk of kimberlite is barren is no assurance that the next chunk won’t contain diamonds.

The second important difference is in the value of the commodity. We all know the value of an ounce of gold or any of the other metals, but there is no price per carat listed under the heading “Metal Prices”. The value of an individual diamond can range from $2 to $50,000 per carat. To evaluate a kimberlite on only a few stones could be very misleading. Experience in diamond mining throughout the world has shown that the only way to arrive at a reliable economic evaluation of a kimberlite is to take large bulk samples yielding at least 5,000 to 10,000 carats.

To arrive at the stage where a reliable economic evaluation can be placed on a kimberlite, developers first have to find the kimberlites and sort out the barren ones from those that contain diamonds; they must then select the one that has the most promising potential. That is the correct, current activity of the major players in Canada today. They are still locating the source rocks within their claim boundaries in order to select the best one to sample. The definitive drill holes being reported aid only in identifying which kimberlite pipe has the best potential to be economic. A paper by A.J.A. Janse presented at the PDAC seminar describes the four stages of diamond potential evaluation:

* Stage 1 — The collection of drill core from near surface to determine the presence of micro-diamonds and indicator minerals. This produces a first estimation of diamond potential but does not provide sufficient information for valuation. Most of the current Canadian activity is at this level. * Stage 2 — A small bulk sample of 20 to 100 tonnes is collected and processed. This gives only a first estimate of the value of an occurrence. Few companies have reached this point.

* Stage 3 — The collection of 1,000 tonnes which, if the grade is to be of interest, would contain at least 300 carats. This would give a first estimation of grade and a first estimation of value per carat. Arriving at this stage will take several years.

* Stage 4 — This final stage would involve a “sample” in the range of 10,000 to 20,000 tonnes to obtain at least 5,000 (some say 10,000) carats. It will probably take to the end of the century for developers to arrive at this point.

The fact that there are large numbers of diamond-bearing kimberlite bodies being reported in the Northwest Territories indicates the potential for discovery of an economic deposit. All the major diamond producers have taken large land positions and appear to be prepared to expend the considerable sums necessary to evaluate their holdings.

The potential for the presence of major diamond-bearing bodies in the Canadian Shield is just as good as in Africa, Russia and Australia. All the necessary geologic perimeters are there; what is required is patient exploration. It follows, then, that we need patient shareholders who are willing to wait for the developers to collect the necessary data to arrive at the correct economic evaluation.

Walter Thompson, P.Eng.

Consulting Geologist

Scarborough, Ont.