Diamonds North to press on at Amaruk

2009-02-25 14:02 EST - Street Wire

by Will Purcell

Mark Kolebaba's Diamonds North Resources Ltd. has taken a big hit following disappointing diamond counts from its Amaruk property in central Nunavut, but the company will press on with another multimillion-dollar drill program this year.

The company has been touting its Tuktu and Qavvik pipe clusters based on their gaudy microdiamond counts, but two mini-bulk samples found just a smattering of smaller macrodiamonds.

As a result, Diamonds North will shift its hunt well to the south and east on Amaruk this summer. The company's backers were bailing in droves today, pushing the stock as low as 10 cents at one point, a far cry from the $2.07 per share paid by one hapless investor just over a year ago.

Meanwhile, the buyers are hoping that Mr. Kolebaba will have better luck elsewhere and there are encouraging signs that the company's new drill program will be working in prime diamond country.

The bust

Mr. Kolebaba is a big believer in geochemistry, and his geologists found plenty of indicator mineral promise in samples of the Tuktu and Qavvik kimberlites. Unfortunately, the collection of garnets did not lead to gaudy diamond grades. Further, Diamonds North made a point of touting the numbers of microdiamonds it recovered, but once again in Canada's North, hefty diamond counts unsupported by plenty of larger stones has led to a macrodiamond disappointment.

In fact, the sample grades were minuscule at best, despite being inflated significantly by the use of a small cut-off screen. At Tuktu, Diamonds North recovered 1.60 carats from the 480 gems gleaned from 21.4 tonnes of kimberlite, or about 0.075 carat per tonne.

Only 36 of those diamonds were large enough to sit on a 0.85-millimetre sieve, the minimum cut-off used in a typical small mini-bulk test, and those stones likely weighed about 0.5 carat. That would suggest a sample grade of barely 0.02 carat per tonne.

The situation was similar with Qavvik, where 13.2 tonnes of kimberlite yielded 96 stones weighing a total of 0.2375 carat, or about 0.018 carat per tonne. Only 16 of the gems sat on the 0.85-millimetre screen, but they accounted for the bulk of the weight. As a result, both Qavvik and Tuktu likely averaged just a bit over 0.02 carat per tonne for diamonds larger than a typical mini-bulk cut-off.

The plan

Undaunted, Mr. Kolebaba and Diamonds North plan to press ahead on the sprawling Amaruk property. The company proposes to drill up to 100 new targets this year, comparable with its busiest years in the remote region.

The only real switch will be a shift away from the northwestern corner of the property, which produced both the Tuktu and Amaruk clusters, to the relatively undrilled southern and eastern parts of the play.

That will bring the company's crews much closer to the community of Kugaaruk than they have been working previously, which will help lower the exploration costs. As well, Diamonds North has perfected the use of the inexpensive reverse circulation drills that can quickly test geophysical targets in the short summer season.

Diamonds North already has hundreds of anomalies outlined and prioritized, and there are some hopeful signs that suggest some kimberlite finds in the area could have a better shot at delivering gems.

A rival company, Indicator Minerals Inc., pulled 176 diamonds from 25 kilograms of kimberlite boulders on its Barrow property, and the size distribution pattern was encouragingly coarse when compared with the Amaruk samples.

So far, Indicator has not found the bedrock source of the boulders, and the eastern portion of Amaruk completely surrounds the Barrow property. As a result, Mr. Kolebaba could quickly revive his Amaruk play with some new kimberlite finds.

Diamonds North lost 14 cents to close at 12 cents Tuesday on 7.0 million shares.

Hg