information recapSubject: Stockwatch: March Resources Corp: March unsheathes wallet, buys Knife
March unsheathes wallet, buys Knife
March Resources Corp (TSX-V:MCF)
Shares Issued 21,472,654
Last Close 7/4/2005 $0.36
Tuesday July 05 2005 - Street Wire
Also Rhonda Corp (TSX-V:RDM) Street Wire
by Will Purcell
David Mears and David Antony's March Resources Corp. could soon be a Nunavut diamond hunter with many new shareholders. The company agreed to buy the Tree-1 claim block from the hapless and suspended Rhonda Corp., in a deal that will give March a minority stake in a large kimberlite pipe that De Beers Canada Corp. is working. The Knife pipe has a modest diamond grade but there are encouraging signs that continue to intrigue the diamond giant.
The deal
March agreed to pay $4.1-million to Rhonda for what could eventually be a 30-per-cent share of the Knife project. Rhonda currently holds a 49-per-cent slice, but De Beers can increase its stake to 70 per cent by spending another $6.4-million on exploration by early in 2008.
Most of March's payment will be in stock. The company will issue 13 million March shares to Rhonda, along with just $200,000 in cash. March's shares were trading near the 30-cent mark in early June, and the two companies agreed to use that price to decide the number of March shares needed to cover the remaining $3.9-million.
Rhonda is likely to pass the March shares along to its own shareholders. That would give them something to trade, as the Alberta Securities Commission (ASC) suspended Rhonda's shares for failing to file its financial reports on time. That was just over a year ago, and Rhonda is still struggling to get its financials completed to the satisfaction of the authorities. The financial and regulatory woes undoubtedly played a part in prompting Rhonda to sell its stake in the Knife pipe.
Rhonda had just over 51 million shares outstanding at last report. That would suggest that existing shareholders would receive a single March share for roughly every four Rhonda shares they owned. Things may not be that simple however, as Rhonda's treasury seems in rough shape, with a working capital deficiency of over $1.5-million at the end of last September. As well, the company had some potentially significant contingent liabilities that could muddy matters further.
Rhonda said that it would distribute the March shares to its "shareholders of record on a date after the closing of the transaction." That suggests the company plans to turn over all the shares to its shareholders, but it does leave the door open to the possibility that Rhonda could add to its roster of shareholders. For instance, Rhonda could theoretically issue shares to settle some existing debts. The company also had well over 10 million options and warrants outstanding at the end of last September, but they carry higher price tags than the 14-cent mark at which Rhonda's shares last traded.
March had nearly 21.5 million shares issued at last report, and the deal for Knife will boost that total to about 34.5 million. That would effectively give Rhonda a 37.7-per-cent stake in March, although the distribution to shareholders will dissipate most effects of such a large block on the control of the company.
President Glen Alston is Rhonda's largest shareholder, with just over three million shares at last report. That holding would presumably translate into roughly 750,000 shares, which would make Mr. Alston a significant shareholder of March. Still, he, would rank well behind Mr. Mears and Mr. Antony, who hold over one million March shares.
The play
The 1,024-hectare Tree-1 claim is significant because of the 10-hectare Knife pipe that De Beers discovered in 2000. The diamond giant worked the area surrounding the Tree-1 property during the 1990s, coming up with a few lacklustre discoveries on its own ground. The Kikerk-1 and Kikerk-2 pipes did not deliver anything worthwhile and De Beers dropped most of its own play several years ago.
Meanwhile, the company noticed some mineral encouragement trailing away from a large property held by Rhonda. De Beers deduced that the source was on just one of Rhonda's claims, and the two companies worked out an arrangement that made De Beers a partner on the Tree-1 claim in 2000. The company drilled three holes that year, and quickly scored kimberlite hits.
The story proved promotable for Rhonda. The company's shares jumped from 30 cents to a crest of $1.35 that fall, just after the partners revealed their Knife pipe carried diamonds. Nearly 400 kilograms of kimberlite produced 217 diamonds, which weighed 0.12 carat in all. That pointed to a microdiamond grade of 0.3 carat per tonne, which was not enough to sustain Rhonda's raging promotion.
Still, the results showed signs of higher-grade zones and Knife continued to intrigue De Beers. One of the holes contained a healthier proportion of the diamonds and most of the larger stones, which pointed to a microdiamond grade of about one carat per tonne. That toutable result came from just 75 kilograms of rock, but it supported hopes that the large pipe might have a better grade in a part of the body.
As a result, the partners went back and drilled six more holes in 2001, coming up with over eight tonnes of kimberlite for macrodiamond recovery. Unfortunately, Rhonda and De Beers got into a fight over Knife, and that kept the results of the 2001 program locked away until the two companies resolved their spat in the summer of 2003.
De Beers processed 7.5 tonnes of the material, coming up with a diamond parcel weighing 0.82 carat. That worked out to about 0.11 carat per tonne, well below what a Nunavut diamond mine would need. The largest diamond weighed 0.22 carat and a second stone weighed 0.08 carat.
Again, there were variations within the sample. About 1.1 tonnes of a brown pyroclastic kimberlite produced 0.24 carat of diamonds, which suggests a grade of about 0.22 carat per tonne. Roughly 1.75 tonnes of a mantle xenolith pyroclastic kimberlite delivered 0.31 carat, pointing to a grade of about 0.18 carat per tonne.
Those recoveries did little for Rhonda's struggling share price, but De Beers continued to show interest in Knife. After its two-year wait, the company eagerly poked 11 more holes into the kimberlite last year, coming up with about 15 tonnes of material.
About one tonne of the rock went for microdiamond recovery, nearly half of it from the brown phase that accounted for a modest portion of the earlier tests. As well, a significant amount of shardy grey rock was in the latest tests. In all, about 680 kilograms of the better material delivered 318 diamonds larger than a 0.104-millimetre cut-off. That worked out to about 470 stones per tonne.
That rate is well below what many other kimberlites delivered, but the size distribution of the parcel is more important. There were 57 diamonds large enough to sit on a 0.30-millimetre mesh. That works out to about 18 per cent of the parcel, while 0.50-millimetre stones accounted for about 8 per cent of the haul. Those proportions offer some encouragement, although the audited numbers have far less appeal than the results for the same samples that Rhonda touted last year. Five of the diamonds clung to a one-millimetre screen and one remained on a two-millimetre screen.
De Beers modelled the diamond grade within Knife coming up with values in excess of one-quarter of a carat per tonne for the top three phases of rock within the big pipe. Knife also grew bigger, as De Beers boosted its size to more than 10 hectares, up from five hectares just a few years earlier. Some estimates now suggest that Knife could contain more than 50 million tonnes of kimberlite.
The players
Like Rhonda's Alston clan, March's directors are Calgary residents. Unlike Mr. Alston and his father, John Alston, who pursued Canadian gems since the early 1990s, March and its directors are newcomers to the hunt for diamonds.
Now in his early 40s, Mr. Antony became a director of March in 2000, back when it was Fifth Era Knowledge Inc., a company involved in the education sector. Things did not go well financially for the company, leading to a 1-for-7 rollback of its shares and a name change to Triton Capital Corp. Shortly after the move, Mr. Mears arrived as a director of Triton. Both Mr. Mears and Mr. Antony had roles in the petroleum sector, and it seemed a good bet that Triton would emerge as a junior involved with oil and gas exploration.
Mr. Antony is a chartered accountant by trade who spent more than 15 years counting beans for several public and private companies. He is the chief financial officer of Newsco Directional and Horizontal Drilling Services Inc. and he had a similar role with Semper Energy Ltd.
Mr. Antony also has some idea of Rhonda's current woes. He was a director and officer of Yes I.C. Technologies Inc., a start-up involved with smart cards that morphed into EarlyRain Inc. in 2000. That was a bad time to go high-tech, and the market drought in the technology sector hammered EarlyRain. The company fell behind in its financial filings and the Alberta Securities Commission (ASC) issued a cease trade order late that spring. The financial climate did not improve, and EarlyRain evaporated.
During the latter half of the 1990s, Mr. Mears was a stockbroker with Scotia McLeod Inc. He moved over to Haywood Securities Inc. in 2000, founding that company's Calgary office. Now in his early 30s, Mr. Mears left Haywood in 2002 and became president of Semper, until Val Vista Energy Ltd. took it over in 2003.
March's two other current directors also have an oil and gas background. Scott Hadley and Tim Campbell joined March's board early last fall. The company is gaining a fifth director through the Rhonda deal. Torrie Chartier began hunting gems in the late 1980s and she worked with Rhonda on Knife since 2001.
March lost three cents on Monday, closing at 36 cents on only 2,000 shares.
© 2005 Canjex Publishing Ltd.
information recap