Vaaldiam Resources strikes pink in Brazil (September 14, 2007)

With pink diamonds commanding some of the highest prices per carat ever paid, there was much back-slapping at the offices of Vaaldiam Resources (VAA-T) after the Toronto junior found two pink diamonds at its Brauna project in Brazil.

Pink diamonds are among the rarest and most treasured of all diamonds. Most of the pink diamonds come from Argyle and that mine is now nearly at the end of its life,” says Ken Johnson, Vaaldiams president and chief executive. “If you find another deposit that produces pink diamonds that’s very special.”

The Argyle mine in Western Australia is owned by Rio Tinto (RTP-N, RIO-L), and produces 95% of the worlds supply. A 3.14-carat Argyle pink diamond fetched US$1.5 million at a Christies auction in New York in 1989.

The four largest stones recovered in Vaaldiams mini-bulk sample of the Brauna 8 dike weighed 0.92 carat, 0.54 carat, 0.32 carat, and 0.30 carat. The largest diamond weighing 0.92 carat was pink. A second pink diamond from the sample appeared to have been broken during processing.

The remaining 97 diamonds in the sample were white. All of the diamonds in the sample including broken diamonds weighed 6.48 carats. They were recovered from 16.87 dry tonnes of kimberlite, indicating a recovered grade of 38.42 carats per hundred tonnes.

Brauna 8 is a vertically oriented kimberlite dike that is 4 metres wide. It forms part of a dike system traced on surface over about 15 km.

Brauna 8 lies about 5 km north of the Brauna 3 pipe, which is currently the focus of a drilling program designed to support a resource calculation.

Vaaldiam will complete bulk sampling at its Brauna project in the first quarter of next year. A feasibility study and resource calculation will be finished in the latter half of 2008 and production should begin by the middle of 2009, Johnson says.

Johnson, a diamond geologist for 25 years who discovered diamond deposits in the Central African Republic and in South Africa, estimates throughput at Brauna would be 500,000 to 600,000 tonnes per year, producing 100,000 to 125,000 carats annually.

He estimates capital costs for the project to be about US$15 million.

If all goes according to plan, Vaaldiams 100%-owned Brauna project will be South Americas first kimberlite deposit to be brought into production.

Meanwhile, Vaaldiams planned merger with Australian company Elkedra Diamonds (EDN-A, EDN-L), also a producer in Brazil, and Great Western Diamonds (GWD-V, GWS), is likely to be completed by the end of October.

If the merger goes ahead, Vaaldiam will own two producing mines outright that have a combined average value of production of US$300 per carat making it South Americas top diamond producer.

Besides initial samples of pink diamonds at Brauna, Vaaldiam has recovered the first batch of stones from its 100%-owned Duas Barras alluvial diamond mine in Brazils Minas Gerais state.

The mine is processing diamondiferous gravels deposited along its 5-km stretch of the Jequitinhonha River, and is expected to produce about 25,000 carats this year. That amount is forecast to grow to 50,000 carats annually starting in 2008.

Vaaldiam says diamonds from Duas Barras will fetch about US$200 per carat leading to an estimated US$7.68 million in gross revenue next year.

Duas Barras is performing beyond our expectations, says Johnson, noting the project had produced 5,000 carats by the end of August and is on track to produce 25,000 carats by the end of the year. It expects to have its first diamond sale in the middle of October.

Duas Barras is also a low-cost producer. In terms of value of the gravel, Johnson says, the gravel is running at a revenue of about US$55 per cubic meter and operating costs are less than US$20 per cubic meter.

Vaaldiam also holds 100% of the Pimenta Bueno property in Brazils western state of Rondonia. Advanced-stage exploration has identified 38 diamondiferous kimberlite pipes.

As for Vaaldiams two pink diamonds at Brauna the Canadian junior hopes its just a sign of more to come.

This doesnt mean we are going to have an abundance of pink diamonds we have to do more testing to see, Johnson says. But the fact that you find pink stones there well, I would guess you are going to find some more. The question is what percentage of the parcels are going to be pink.

In Toronto on the TSX, Vaaldiam shares rose 1.19% or 0.01 a share following the announcement to close at 0.85 apiece.