" at a grade of 0.2 carat per tonne ..."Pele Mountain and Goldcorp plan a diamond Festival
Pele Mountain Resources Inc (TSX-V:GEM)
Shares Issued 43,163,014
Last Close 8/16/2004 $0.25
Tuesday August 17 2004 - Street Wire
by Will Purcell
The Wawa diamond hunt refuses to die. Good salesman Al Shefsky's Pele Mountain Resources Inc. has come up with a new partner on its Festival project, just a few months after De Beers Canada Corp. called it quits on the play. An arrangement with Rob McEwen's Goldcorp Inc., which also includes an option on Pele's Ardeen gold prospect, should bring a new burst of activity to the area just north of Wawa.
The gold part of Pele's new deal is no great surprise, but the move to gems by Goldcorp might seem a bit of one. Goldcorp is hardly synonymous with diamonds, but the company's chief executive officer, Mr. McEwen, has had some prior dealings with gems. In 1991, he was added to the board of Robert Gannicott's Platinova Resources Ltd., where he remained until 2000. Platinova had a number of metal projects on the go on Greenland, and one of Platinova's projects turned into a hot diamond play during the mid-1990s and attracted Aber Diamond Corp. as a partner for a time.
Nothing much ultimately came of the Greenland hunt, but it would seem to have given Mr. McEwen a taste for diamonds, helped along by the fact that Mr. Gannicott's Aber became a sparkling success through its 40-per-cent share of the Diavik diamond mine in Canada's North. The Diavik mine is roughly the equivalent of a 25-million-ounce gold deposit, with production costs of less than $100 (U.S.) per ounce, numbers that would provide a strong enticement for a gold bug.
Goldcorp may not have much diamond experience, but it undoubtedly has a wealth of contacts, and Mr. McEwen has been willing to try new things throughout his career. In 1990 he formally made the jump from the investment industry to the mining sector, although he had been a director of Goldcorp's predecessor companies starting in 1986.
Mr. Shefsky said that he had casually talked about the Festival project with Mr. McEwen about 18 months ago, but that was the end of the matter until "someone down the food chain at Goldcorp approached us about the Ardeen play." During those discussions, it apparently came out that Mr. McEwen would also be interested in doing a diamond deal on the Festival project as well.
The diamond part of the agreement should produce a steady stream of promotable news for Mr. Shefsky. Festival has produced bits of encouragement over the past few years, but the play fell quiet over the past few months, after Pele and De Beers came up with a mini-bulk disappointment earlier this year.
Mr. Shefsky offered the usual spin on a new agreement, terming the arrangement a great deal for both Goldcorp and Pele. Goldcorp's interest in Festival was undoubtedly sweet news for Mr. Shefsky, who also moved on from the investment sector to run his own resource company. Pele had been abandoned by De Beers this spring, just nine months after it had signed an option deal that would have allowed the diamond giant to earn a majority stake in the play by spending $25-million on exploration.
Mr. Shefsky said that the De Beers decision was based upon a rebalancing of its global priorities. That could well be the case, as the company has recently been willing to option some of its own projects out to junior explorers, as its own crews are busy on a number of key fronts. Tahera Diamond Corp. recently signed an agreement covering a De Beers project, and more deals could be in the works.
Mr. Shefsky said that the departure of De Beers was unfortunate and had really hit Pele Mountain hard, disappointing its shareholders and triggering a market slump. The disappointment did take a big toll on Pele's shares. The stock quickly dipped from the 30-cent mark to 20 cents and slipped to a 16-cent low in mid-June, as the Festival play seemed all but dead and poor Mr. Shefsky very glum.
The terms of the Goldcorp agreement are decidedly more modest than the De Beers option. Goldcorp can earn a 50-per-cent stake by spending $2-million by the end of 2006, and another 10 per cent by adding an additional $1-million the following year. Nevertheless, Mr. Shefsky said he would rather have the Goldcorp deal if it meant that the company would stick with Festival for a longer time than De Beers had.
Despite the quick departure of De Beers, it managed to spend more than $1-million on the Festival play, and Mr. Shefsky said that his former partner had "done some great work," although not enough to have given the property a fair shot.
Much of that Festival effort had been directed at completing mini-bulk tests at four sites on the southern portion of the property, including three along the Genesis body. The best of the sites was Genesis-2, where De Beers had produced 46 diamonds that weighed a total of 1.75 carats, from about 90 tonnes of rock. That suggested a grade of about 0.02 carat per tonne.
Most of the diamonds were tiny, although the Festival property once again offered up a promotable larger stone. A few years ago, Mr. Shefsky hung the moniker "Big Goose" on a 0.72-carat stone that had come from Pele's Cristal outcrop, but when Genesis-2 yielded a 0.90-carat diamond, the find went nameless.
Without any larger diamonds in the mix, the remaining three samples offered little help to the flagging promotion. A 55-tonne test at Genesis-1 managed a grade of less than 0.01 carat per tonne, while a bit more than 70 tonnes from Genesis-3 fell well short of even that lowly level. Nearly 50 tonnes of material from the Moet showing also offered little solace, with a grade of 0.003 carat per tonne.
Mr. Shefsky and Pele Mountain may not have been particularly thrilled with the selection of the mini-bulk sample sites. Pele had already completed a significant amount of work in those areas prior to the arrival of De Beers, without finding a great deal of encouragement. Still, Mr. Shefsky says that it is too early to close the book on Genesis, where Pele had produced a toutable grade of about 0.11 carat per tonne from a tiny test in 2002.
Pele Mountain now thinks that the oldest of its diamondiferous material offers the best shot, due to its potential to carry larger diamonds. As well, Mr. Shefsky said that the ultramafic rock appeared to be more favourable for diamonds than the other varieties found to date.
Finding additional sites with the right combination of those qualities will likely be a key part of Goldcorp's work on Festival. Pele and De Beers spent most of their time working along the southwestern fringe of the property, but there are indications that there are a number of additional bodies waiting to be found farther to the north, which remains relatively unexplored.
The Goldcorp deal has given the struggling Wawa diamond play a good boost, but the new partners will likely have to come up with some promotable diamond counts and larger stones before speculators buy into the revived project in a meaningful way. Mr. Shefsky acknowledged that there was a grade barrier that had to be reached, although he said that costs would be low enough that the grade requirement would be far less than what would be required in more remote areas.
Mr. Shefsky said that a grade of 0.1 carat per tonne would be extremely interesting and "given a healthy dollar-per-carat value, you could make a huge operation out there." He added that at a grade of 0.2 carat per tonne, a Wawa mine would potentially be very rich.
Much of that would depend upon the diamond valuations. Mr. Shefsky said that the Wawa diamonds were generally clear and well preserved, suggesting they could carry a significant value. He was hopeful that a favourable site on Festival could deliver values that would be "north of $100 (U.S.) per carat." If so, Mr. Shefsky's grade targets would seem realistic, although any such site would probably have to produce diamonds with a healthier size distribution than has been found in most of the Wawa tests completed so far.
Mr. Shefsky said that he expected regular updates as part of the agreement with Goldcorp, and that should supply a steady flow of news to fuel Pele Mountain's diamond promotion. With Goldcorp required to spend $400,000 this year and $800,000 in 2005, Mr. Shefsky should have much to talk about in the coming months.
At university, the Toronto-based Mr. Shefsky went from economics to law, but he ended up as a stockbroker with C. M. Oliver during the mid-1990s. That was a heady time for resource companies, as the diamond boom was followed by a big metals rush in Labrador.
Mr. Shefsky created Pele Mountain in 1996, and with the prohibitive cost of working in Labrador, he decided to stick much closer to home, picking up a number of gold plays in Northern Ontario, where he apparently had some enjoyable times in his youth.
Pele's first forays also proved enjoyable at first, as Mr. Shefsky's fledgling promotion caught the market's eye, but the gold projects became much tougher to sell in the late 1990s, after gold hit the skids and took the entire resource sector along for the ride.
Mr. Shefsky picked up the Festival play for Pele in 2000, and the project has proven promotable on occasion. Pele's shares soared to a 90-cent peak in 2000, just after the company acquired the Wawa project. Pele's shares managed a 60-cent crest last fall, following the arrival of De Beers and its mini-bulk sampling plans.
Speculators undoubtedly hope that the arrival of Goldcorp will trigger a new surge of interest. Pele added 5.5 cents to end the week, closing at 26.5 cents, but shed 1.5 cents on Monday, closing at 25 cents.
© 2004 Canjex Publishing Ltd.