WP on MTX
Metalex starts mini-bulk test
2006-04-13 19:38 ET - Street Wire
by Will Purcell
Chuck Fipke and Dr. Peter Gregory's diamond explorer is busy on an intriguing project in the Kyle Lake area of Northern Ontario. Metalex Ventures Ltd. discovered the T1 pipe a year ago and the company continues to deliver encouraging sets of diamond counts. The growing microdiamond parcel leaves questions unanswered, but the numbers offer enough promise to prompt a mini-bulk test of the pipe.
That program will provide the first sign of the grade and diamond size distribution at T1, but Dr. Gregory, Metalex's president since 2003, seems suitably enthused with the preliminary data. Also optimistic and more willing to put up cash for the play is the company's chairman, Mr. Fipke, touted by many as the father of Canadian diamond exploration.
Mushrooms 'R' Us
Mr. Fipke bought 1.43 million of Metalex's 70-cent flow-through shares earlier this year, accounting for one million dollars of the $5.82-million private placement. Mr. Fipke now holds 2.8 million Metalex shares, and three of his private companies hold 1.47 million more. In all, the former founder of Dia Met Minerals Ltd. now holds nearly 4.3 million Metalex shares, about 10 per cent of the nearly 42 million outstanding.
There were 37 other buyers in that private placement, but us mushrooms are not to know who most of them are. We do know that six of the investors were pro group buyers, but they picked up just 300,000 shares in all. Mr. Fipke was the only insider to participate. Unfortunately for investors interested in the company's larger backers, 31 privileged buyers remain cloaked behind a veil of secrecy laid down by regulators, purportedly for privacy concerns, which trump public disclosure.
Dr. Gregory was reticent to peel back that shield, although even he offered more than the rules require. The Kelowna-based geologist said a couple of buyers shelled out over $1-million in the latest placement. He declined to reveal all the bigger buyers, but he did say one was Goodman and Co. He added that most of the others were institutional investors as well. (Only individuals benefit from the regulators' privacy posture. They will slowly cough up the names of non-individuals if officially requested -- but very slowly.)
At last report, Goodman and its subsidiaries were already believers in Metalex, as it held 3.5 million shares last fall. Several other limited partnerships and mutual funds held lesser positions in the company, led by Front Street Capital Corp. Front Street also has a substantial investment in Arctic Star Diamond Corp., which is a partner on the Kyle play.
Mr. Fipke's stake in the company is undoubtedly reassuring to investors, but Metalex's other directors were less willing to back up their faith with cash. Lorie Waisberg owned 10,000 shares at last report, but Dr. Gregory, Katherine MacDonald and Patrice Nazareno apparently held not a single share.
Mr. Fipke also has a piece of the Kyle play through his Kel-Ex Development Ltd., which holds a 10-per-cent carried interest in the project. Arctic Star owns about 7.65 per cent of the project, with the other 82.35 per cent held by Metalex.
New numbers
Metalex and its partners processed another 190.49 kilograms of T1 kimberlite in its latest test. The rock produced 243 diamonds, including 200 that sat on a 0.106-millimetre sieve. That latter number works out to 1,050 diamonds per tonne, which is the best result so far.
The size distribution of the parcel also was encouraging at first glance. The parcel contained 58 stones larger than a 0.30-millimetre mesh. They account for 29 per cent of the haul. The 29 gems recovered on a 0.425-millimetre sieve provided 14.5 per cent of the parcel. Those proportions compare favourably with all the tallies produced by rival plays over the past few years.
A closer look at the numbers outlines an unusual trend in the data, prompting questions about the accuracy of those calculations. The stone counts on the individual sieves typically increase toward the smallest sizes, but the T1 tallies hit a maximum on the 0.15-millimetre sieve.
Further, that trend was apparent in the earlier tests. Metalex processed 48 kilograms of kimberlite in its first batch of kimberlite, recovering 35 diamonds, including 32 that clung to a 0.106-millimetre mesh. That worked out to just under 700 stones per tonne. Once again, the maximum tallies came from the 0.15-millimetre sieve. Over 40 per cent of the diamonds sat on a 0.30-millimetre mesh and 22 per cent remained on a 0.425-millimetre screen.
The partners processed more samples last year, resulting in a similar trend. In all, Metalex now has 531 diamonds from 1.76 tonnes of kimberlite, including 458 stones larger than a 0.106-millimetre mesh. That works out to 260 stones per tonne. About 40 per cent of the stones sat on a 0.30-millimetre sieve and nearly half of those remained on a 0.425-millimetre screen.
An inefficient recovery of the tiniest diamonds would be a logical reason for the lower numbers in the smallest sieves. Dr. Gregory acknowledged the pattern was unusual and he suggested an audit would settle the matter. Still, the recoveries of the larger diamonds does allow for some comparison with other plays.
Metalex now has 185 diamonds that sat on a 0.30-millimetre mesh and 35 of them clung to a 0.60-millimetre screen. That works out to 18.5 per cent of the haul. The 13 gems larger than a 0.85-millimetre sieve accounted for 7.0 per cent of the 185-stone parcel.
The AV-1 pipe on Melville Peninsula has one of the coarsest size distribution curves in recent years. The kimberlite delivered 754 diamonds larger than a 0.30-millimetre sieve, gleaned from 2.18 tonnes of kimberlite. Of those, 23.8 per cent remained on a 0.60-millimetre mesh and 10.2 per cent sat on a 0.85-millimetre sieve. Those numbers suggest T1 may not have a diamond size distribution curve matching the AV-1 pipe, and the diamond counts are significantly lower in T1 as well.
The encouragement
Still, there are risks in microdiamond conclusions. Lacklustre microdiamond counts led to a big delay with the Victor pipe that De Beers is turning into Ontario's first diamond mine. The body produced modest microdiamond tallies and the diamond giant waited a decade before trying larger tests.
Victor proved its mettle in a big bulk sample and De Beers now thinks the body has an average grade of about 0.23 carat per tonne. The real story is the diamond value, as a coarse size distribution and some exceptional quality characteristics result in an average value of more than $400 (U.S.) per carat. That gives the estimated six million carats a gross value above $2.4-billion (U.S.).
It is premature to speculate about grade at T1 and far too early to offer any guesses about the diamond value in Metalex's pipe. Still, Dr. Gregory is optimistic the body will show similarities with Victor, just 80 kilometres to the east. "You can dream," he said, adding that the limited diamond parcel from the pipe "looks for all the world like Victor."
Those dreams have Metalex drilling up a mini-bulk test that it touts as a 200-tonne test. The program carries a $5-million cost, as the kimberlite lies about 180 metres deep, adding to the drilling costs. As well, the remote location adds to the expenses, as helicopters and fixed wing aircraft are the only means of moving the equipment and rock to and from the site.
Dr. Gregory said the 16-hole program would likely go deeper than originally planned, as the incremental cost of drilling was minimal. If so, that could leave the company with about 300 tonnes of kimberlite and a better idea of the shape of the pipe at depth.
If T1 has an average grade of about one-quarter of a carat per tonne, the test would still fall well short of 100 carats. That would provide just limited data about value at best. Still, Metalex should have enough information to decide if a large bulk test is warranted.
If Dr. Gregory's diamond dream comes true, T1 would have a diamond value comparable with Victor and a better grade, making the project worthy of a standalone mine. With stellar numbers, the company could easily attract a diamond major to take on the project. If the economics proved marginal, the play could still be of interest to De Beers, once Victor is running. Even if T1 failed to support its own mine, it could prove worthwhile to truck the kimberlite to Victor.
The thick limestone covering T1 is an added complication. "You can strip it, but it's $80-million," said Dr. Gregory, who suggested an underground mine would prove cheaper. That suggests break-even costs of about $120 per tonne. If so, Metalex would likely need a better grade than Victor to make a mine.
Metalex lost a penny Wednesday, closing at 82 cents on 77,000 shares.