Diadem plans Franklin drilling

2008-07-04 20:14 ET - Street Wire

by Will Purcell

Paul Carroll's Diadem Resources Ltd. faces a bigger challenge than merely finding enough cash for a multimillion-dollar drill program on its Franklin project -- it must first drill through the local bureaucracy. The company knows it has kimberlites and diamonds on the big play northwest of Paulatuk near the Arctic coast, where it has been waiting impatiently to get another crack at its targets for a year.

The challenge

Diadem was one of several companies that flocked to the area after the local natives settled their land claims in the mid-1980s. The lack of formal settlements with Indian groups farther south was one of the big problems for companies exploring and developing the diamond mines at Lac de Gras. Diadem and its rivals expected an easier time on their plays, with just the Inuvialuit Regional Corp. (IRC) to deal with.

Unfortunately, the Inuvialuit seem to have learned the bureaucratic techniques of the third world, adorning their umbrella organization with thick red tape.

To drill, Diadem will have to satisfy the concerns of Paulatuk residents that it will not harm the caribou on its property. The easiest way would be to deal with the communities directly, but that might put one layer of bureaucracy out of work, so the company must rely on the pencil pushers of the IRC to do much of the dealing with the local groups in Paulatuk. Diadem is currently dealing with one of the thickest tentacles of the IRC, the Inuvialuit Land Administration.

Mr. Carroll says the permitting process skews explorers toward specific consultants, who are good, expensive and slow.

The weather is bad also. Winters can be horrific along the Arctic coast. Not much snow falls, but what does spends much of the time moving about horizontally in the frequent blizzards. Work through the heart of winter is unfeasible because of the lack of daylight. The Land of the Midnight Sun is a pleasing moniker, but six months later, its astronomical equivalent is the Land of the Noon Moon.

The encouragement

Diadem has at least 25 targets to drill, including six kimberlite pipes already confirmed to be diamondiferous when De Beers Canada Inc. was working the project in the late 1990s and early 2000s. Most of the bodies got just a cursory look, but the MT-101 body did reach the mini-bulk stage.

An initial 80-kilogram sample produced 131 diamonds. That worked out to 1,650 stones per tonne, but most of the diamonds were tiny. The Franklin partners nevertheless collected a 2.5-tonne batch of kimberlite, but the result seemed predictably disappointing.

Diadem thinks the play did not get a full look and its head geologist thinks diamond counts may be the misleading tool they proved to be in the Archangelsk region of Russia. There, most of the pipes contain few microdiamonds, but three, Verkhotina, Lomonosova and Grib, contain several billion dollars worth of diamonds. To prove any similarity, Diadem will have to drill all the targets to find one good deposit in a cluster of duds.

Despite weather and the mounds of red tape, Mr. Carroll thinks Diadem will be drilling by fall.

Diadem closed down one cent to nine cents Thursday on 20,000 shares.