Article

KWG delays larger sample, plans more drilling

2009-02-24 14:06 EST - Street Wire

by Will Purcell

KWG Resources Inc. hit another snag with a planned mini-bulk sample of its Attawapiskat kimberlites, but it still expects to spend up to $2-million on the property this year, says its president, Frank Smeenk. KWG is topping up its treasury and Mr. Smeenk is again working on spinning off the company's diamond subsidiary, Debuts Diamonds Inc., to its shareholders. If Mr. Smeenk does distribute Debuts' stock this spring, he will have an opportunity to launch the new company with considerably fewer shares than the 267.6 million that its older sibling currently has. Promoting a 50-cent stock is easier than trying to tout a company awash in three-cent shares, but rollbacks are an anathema to shareholders, as the man known as Five-cent Frank is undoubtedly aware.

The plan

KWG planned to use a reverse circulation drill that was working on the nearby De Beers Canada Inc. property for its own mini-bulk sampling plan, but the opportunity vanished when the contractor moved the big rig back to the south a few weeks ago. Mr. Smeenk said KWG tried to get its exploration agreement extended, but negotiations with the Attawapiskat community passed the point where the drillers would be able to do the test and retreat southward before the spring melt.

Instead, KWG and Debuts will resume their search for kimberlites with another round of geophysics this spring, followed by a core drilling program in the summer or fall. KWG found most of its kimberlites in the early 1990s and the last big find, Good Friday, was a 2004 discovery. Since then, rival explorers in Northern Ontario have been finding more pipes using newer techniques, and Mr. Smeenk is expecting KWG will make new finds as well.

Mr. Smeenk said KWG planned to spend at least $1-million, and perhaps $2-million on the 2009 program. In preparation, KWG is sending in about $100,000 worth of fuel and supplies, although the company may hit another snag enroute to its property. The local Indians seem to have a love-hate relationship with De Beers, although it has been more of the latter in recent years. On Feb. 6, protesters set up a roadblock on the road to De Beers's Victor mine, complaining that the Attawapiskat residents were not getting enough benefits from the mine.

De Beers has a similar complaint, thanks to the slumping diamond market -- the company is significantly reducing diamond production at Victor for this year and it may not take much for it to temporarily suspend production. The protesters are letting local traffic through, but KWG will not know if it is a friend or foe until its trucks hit the roadblock.

The encouragement

The Attawapiskat diamond play still derives its promotability from the Victor deposit. De Beers decided that a grade of 0.23 carat per tonne was enough to warrant a $1-billion diamond mine because of an average gem price of about $500 (U.S.) per carat -- at least before the big slide in rough diamond prices hit in the fall. Victor may not be a one-pipe aberration, as the company has been using the big reverse circulation drill to collect larger samples of a few other pipes that could lengthen the life of the mine.

Mr. Smeenk thinks at least one or two of KWG's pipes could provide more feed to the Victor plant as well. The company's diamond counts were typically disappointing promotionally, but there were usually a few larger stones in the mix. Those results appear potentially comparable with Victor, where microdiamonds were few, but large gems were plentiful enough to support the hefty diamond price.

KWG's tiny mini-bulk samples over the past few years continued to support the Victor comparison, but Mr. Smeenk will need some large and expensive samples to prove the point.

KWG lost one-half cent to close at 2.5 cents Monday on 1.26 million shares.

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