September 21, 2006 08:46 am
Ashton, Stornoway quibble about large gems
2006-09-19 15:48 ET - Street Wire
by Will Purcell
Size matters in diamond exploration and counts of large diamonds figure prominently in the latest spat between Ashton Mining of Canada Inc. and its eager suitor, Eira Thomas's Stornoway Diamond Corp. Ashton's board touted the company's haul of one-carat gems when it again urged its minority shareholders to reject Stornoway's bid. The company claims the top three projects in the merged company would come from Ashton's portfolio.
Stornoway promptly countered the assertion, claiming the number of larger diamonds reflected nothing more than the size of Ashton's samples. There seems little doubt that Ashton's Renard project is the jewel, but the results of continued exploration will drive the pecking order of the other plays currently held by Ashton, Stornoway and the third company in the merger plan, Contact Diamond Corp.
The large gem tallies
Renard aside, Ashton believes that its Alberta and Nunavut projects would also rank higher than all the Stornoway and Contact diamond properties, based on their more advanced stages of exploration. Ashton's larger samples allowed it to crow about the 37 one-carat diamonds it has, noting gleefully that Stornoway's tally stands at zero. Most of the large diamonds came from Quebec, where Ashton tested over 700 tonnes of rock in a series of mini-bulk tests. The company is working on a 6,000-tonne bulk sample that should deliver several thousand carats of diamonds.
The mini-bulk tests at Renard delivered 36 of the one-carat diamonds, leaving the company with just a single large diamond from its other projects. That last one-carat gem came from Alberta. In the late 1990s, Ashton did several small mini-bulk tests on five of the best pipes in Alberta, followed by a sixth test in the early 2000s.
The company processed about 160 tonnes of kimberlite in the six tests, recovering a 1.31-carat diamond from K-14. Ashton then tested 479 tonnes of rock from that pipe, but failed to find another one-carat diamond. Although Ashton has just the one large diamond from about 640 tonnes of Alberta kimberlite, several other stones did come close to the one-carat mark.
Ashton also touts its Nunavut hunt as topping any of the projects held by Stornoway or Contact. The company did manage small mini-bulk tests of its best two discoveries, Artemisia and Potentilla. The combined tests weighed less than 20 tonnes and Ashton's largest diamonds were a long way from the one-carat mark.
With a bit of luck, that might change. Vaaldiam Diamond Corp. is now processing 100 tonnes of kimberlite from the Artemisia pipe under an option arrangement.
Ashton's Nunavut play might cough up a one-carat gem, but that would require more luck. The company managed just a 0.08-carat diamond from 12 tonnes of kimberlite in 2002, so getting a one-carat gem from 100 tonnes would be fortunate, unless the earlier test proves unrepresentative.
Although Ashton is correct that Stornoway is still looking for its first one-carat diamond, its assertion ignores four one-carat stones recovered by the more pliable Contact in a test of its 95-2 pipe. If the number of large diamonds is the only measure used to assess a property, Contact's Timiskaming project would rank second, ahead of Alberta.
Without any one-carat gems to call its own, Stornoway was quick to remind Ashton's shareholders that samples taken from its Aviat, Qilalugaq and Churchill plays were far smaller than the healthier portions of rock tested on Ashton's plays. None of the kimberlites at Churchill are at the mini-bulk stage, and Stornoway processed less than 20 tonnes of Aviat kimberlite so far, coming up with a 0.40-carat diamond.
The potential for large diamonds on Stornoway's Aviat project seems good, based on size distribution curves of the microdiamonds gleaned from several of the company's AV kimberlites. A comparable argument applies to the Qilalugaq project, but investors still need a strong dose of geochemical faith to believe larger tests of a Churchill kimberlite would deliver large diamonds at rates comparable with Renard.
Interest in Stornoway's Aviat property pushed the company's shares to nearly $3 a few years ago and kept it close to Ashton's share price in recent months. Preliminary work suggests Aviat has several kimberlite bodies with grades approaching one carat per tonne, but with uncertain value. Although Stornoway has no idea of the diamond value, there are encouraging early signs. The main worry about Aviat is the small size of the kimberlites, which appear to be dikes or small blows.
In a remote corner of central Nunavut, Stornoway needs a large amount of rich rock to support hefty operating costs. Although large gems in pending mini-bulk tests would be promotable, Stornoway's main exploration challenge will be proving Aviat has enough tonnage potential to support a mine.
Still, placing Ashton's Alberta play ahead of Aviat seems a stretch, based on the amount of work completed in recent years. Stornoway continued to throw several millions of dollars at Aviat each year, while Ashton and its partners spent just a minimal amount of cash over the past few years.
It was therefore a bit of a surprise when Ashton renewed its faith in Alberta this summer. The company now plans a return to big budgets and larger tests in the buffalo Hills, a move it denies has anything to do with Stornoway's offer. The company says a revised arrangement with its Alberta partners was a prerequisite to its plan to spend $2-million by the end of next year, and an equal amount in 2008.
The knock against the Alberta play is grade, not tonnage. The large pipes have ample amounts of kimberlite, but they all yielded grades of less than 0.2 carat per tonne. Ashton did come up with 0.55 carat per tonne in one pipe, but the body was small and lies under a thick layer of overburden. With its new program, Ashton hopes to prove it has enough kimberlite to support comparisons with the large tonnage but low-grade play in Saskatchewan.
Until larger tests provide the tangible hints of economic grades, values, or tonnage, Churchill, Nunavut and the lesser plays will rank farther still down the list. That leaves Renard alone as the top prize in the current takeover battle.
Ashton closed unchanged at $1.10 on 257,500 shares Monday. Stornoway closed unchanged at $1 on 93,400 shares.
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Will, You seem to have lost faith in the Churchill play. The small stones found to date appear to be largely on the mark for cuttable shapes and for color. You have expressed reasonable confidence that they can come up with tonnage fairly quickly from blows and possible pipes. What have you seen in the samples to date that causes you concern over any ability to deliver larger stones in quantity. Were the samples not too small to be figuring size distribution curves?
Posted by Douglas @ 2006-09-19 15:19
I haven't seen anything to discourage me yet, although you certainly note my big concern.
Still, there's no reason for Ashton's shareholders to take the leap of faith required to push this play up their priority list. Of course, there's no reason for Stornoway shareholders to suddenly believe Alberta ranks ahead of Churchill.
Hence, more work is needed to assess the merits of these lesser plays.
Posted by Will Purcell @ 2006-09-20