Indicator waits for results, partner

2009-02-27 15:22 EST - Street Wire

by Will Purcell

Bruce Counts's Indicator Minerals Inc. is still waiting for results from the 2008 exploration season at Darby in central Nunavut, but a decision by Teck Cominco Ltd. on whether it will continue as a partner will be of far greater importance when Indicator sets its 2009 plans.

The high cost of getting supplies to the area southwest of Kugaaruk makes the area the financial north pole, and Indicator has been fortunate to have a senior partner to pay the bills. That could change for this year at least, as some acute financial problems are forcing Teck into holding a fire sale.

The plan

Teck Cominco joined the Darby hunt in the spring of 2006 on terms that were quite generous to Mr. Counts and his fledgling Indicator. The then well-heeled major agreed to spend $14-million over four years to earn a 51-per-cent interest in Darby, and it also agreed to carry Indicator's share of all expenses through to production as a loan against future production.

At the time, Teck was sitting on over $3.2-billion in cash and nearly $4-billion in working capital as it was regularly racking up record profits: $613-million in the spring of 2006 alone.

Three years later, the company is facing a working capital deficiency of $5.1-billion and it lost $602-million in the final quarter of 2008. As a result, Teck has been selling off some major assets at a frightening pace.

Most recently, it sold its 50-per-cent share of the two big Hemlo mines for $65-million, and it is unloading its indirect interest in El Brocal for $35-million. Unfortunately, neither transaction makes much of a dent in Teck's current liabilities.

As a result, Teck seems unlikely to be a big spender on Darby, and Mr. Counts seems willing to repay his partner for past generosities. "In times like this, we are all in this together and we are going to be as accomodating to Teck Cominco as we can," said the Vancouver-based geophysicist (who got his diamond start with BHP Billiton Inc. in the early 1990s).

Nevertheless, Indicator would be loathe to have Darby sit idle for a year, and the mere cost of mobilizing supplies to the area a few hundred kilometres southwest of Kugaaruk makes it more efficient to have a big program.

Mr. Counts said it was too early to set a hard number, but he acknowledged that $1-million was a minimum, given the fixed costs. As a result, Indicator is clearly hoping that Teck will be able to spring a few million free to stay in diamonds at Darby.

Mr. Counts is facing some tough decisions of his own. The company's best diamond counts so far arguably came from a 25-kilogram chunk of rock found on its Barrow property, near Kugaaruk.

That was four years ago and Indicator has not been able to find the bedrock source of the kimberlite boulder. A discovery will not come in 2009, as Indicator will leave Barrow fallow this year. Mr. Counts said the easy targets have been tested and Indicator will have to resort to some expensive tools to generate more. For this year, the company will be using its meagre cash supply on Nanuq North, currently its best hope. In its most recent balance sheet, for the quarter ended Aug. 31, 2008, the company reported $1.59-million in cash and $1.05-million in current liabilities.

The encouragement

Teck and Indicator had plenty of success in finding kimberlites on Darby, but diamonds have been more elusive. So far, nine kimberlites have been found, including five that contained microdiamonds. Some of the finds have been promotably large, but none of the diamond counts were worth touting.

None of the finds occurred in 2008, but the partners did find kimberlite boulders in two new areas, and Mr. Counts is eagerly awaiting the gem tallies from those samples. There is cause for optimism, as Diamonds North Resources Ltd. has been getting some large microdiamond counts from some of its Amaruk pipes in the same region.

Indicator gained 1.5 cents to close at 7.5 cents Thursday on 40,000 shares.

Hg