Diamonds North drilling larger Tuktu sample

2008-06-19 15:54 ET - Street Wire

by Will Purcell

Mark Kolebaba's Diamonds North Resources Ltd. is starting a larger test of its best kimberlites on the Amaruk play in central Nunavut. The latest diamond counts produced the largest stones found so far from any of the plays in the area surrounding the hamlet of Kugaaruk. The numbers had Mr. Kolebaba suitably impressed, but investors seemed less enthused.

Diamonds North's shares climbed Tuesday to an intraday high of $1.42, but it ended the day down a nickel at $1.18. The drop came just a day after a 26-cent gain triggered by nickel assays from the same play. Nickel is still a market favourite, although the metal's price has been falling faster than diamond stocks over the past year.

The counts

In its June 17 press release, Diamonds North said it recovered 2,911 diamonds from a 551.95-kilogram batch of kimberlite cuttings drilled up from the Tuktu-2 pipe. That worked out to 5,275 diamonds per tonne, one of the higher microdiamond rates obtained in Canada's North. The result is not a surprise, as a 107-kilogram batch of rock from the upper part of the same hole yielded 607 diamonds, for a rate of 5,670 stones per tonne.

The combined test produced 3,518 diamonds larger than a 0.106-millimetre sieve from 659 kilograms of kimberlite, or about 5,340 stones per tonne. The haul includes 308 diamonds larger than a 0.30-millimetre sieve, and they account for just 8.8 per cent of the haul. Other deposits contain much higher proportions of such stones, leaving questions about the size distribution profile of Tuktu-2.

The test did yield two diamonds larger on a 1.18-millimetre sieve. The largest stones from the district so far had the usually ebullient Mr. Kolebaba in an especially rosy mood. "I do not know another diamond discovery at this stage of exploration, which is showing the same level of potential that our Amaruk project has," he stated

The Tuktu-2 sparkle may be clouding Mr. Kolebaba's memory. The discovery hole into the A-154 South pipe at Diavik yielded 1,296 diamonds from 751 kilograms of rock. That was only 1,725 stones per tonne, but the Diavik partners used a larger cut-off. More importantly, 112 of the stones were longer than one millimetre, and eight of them weighed over 0.20 carat.

Diavik was a rival of BHP Billiton Diamonds Inc., who later employed Mr. Kolebaba as a senior geologist. BHP had hefty diamond counts of its own of course, including the 414 stones gleaned from 60.5 kilograms of Misery kimberlite in 1993. That worked out to 6,840 stones per tonne, and 40 of the Misery diamonds were at least one millimetre in diameter.

The plan

Diamonds North thinks the Tuktu-1, Tuktu-2 and Tuktu-3 discoveries are all one larger pipe. That would bode well for its size potential, but it will have to answer questions about the potential for worthwhile diamond grades and values, despite the gaudy microdiamond counts.

So far, Diamonds North tested 1.05 tonnes of rock from Tuktu-1 and Tuktu-2, recovering 6,918 stones. Only 8 per cent of the gems sat on a 0.30-millimetre sieve and just 10 sat on a 0.85-millimetre sieve. Those 10 diamonds likely weighed roughly 0.15 carat, based on typical recoveries on the 0.85-millimetre and larger sieve sizes.

Diamonds North thinks its share of larger diamonds will improve with larger samples and the reverse circulation drill may be damaging many of the larger stones. The company may need both possibilities to yield the diamond grades demanded by an increasingly skeptical market. Answers could be available within a year, as the company is using a core rig to collect a larger, more reliable sample.

Diamonds North closed down four cents to $1.14 Wednesday on 160,500 shares.