Diamond & Specialty Minerals Summary for Nov. 15, 2019
2019-11-15 19:50 ET - Market Summary
by Will Purcell
The diamond and specialty minerals stocks box score on Friday was a mediocre 56-67-177 as the TSX Venture Exchange rose one point to 528 while polished diamond prices were flat. Ken MacNeill and George Read's Star Diamond Corp. (DIAM) was not flat for a change. It tugged free of its 20-cent tether for the first time since spring, ending the day up 9.5 cents to 29 cents on 4.23 million shares.
Star Diamond surprised the market today with news that Rio Tinto, its partner for the past two years on the Fort a la Corne diamond project in central Saskatchewan, has provided notice for the exercise of all four options under the option to joint venture agreement entered into in 2017. Investors were pleased, but Star tersely added that it is reviewing the notice and the report of expenditures provided with the notice and will provide further information following the completion of that review. Those words read like a blend of lawyerese generated when a mouse-like junior is caught off-guard by an unexpected spasm from an elephantine major, not like those offered by a pleased-as-punch promoter thrilled that his major partner is eager to press onward.
Possible reasons for Star's terse -- and perhaps annoyed -- reaction lie within the two-year-old deal. That agreement offered Rio Tinto four separate options. In each of the first three, Rio agreed to complete 10-hole sampling programs on the project or make qualified expenditures of $18.5-million each. In the fourth, it agreed to complete a feasibility study, or spend another $15-million on the project. Rio would earn no interest after the first option but would acquire a 51-per-cent interest after the second, a 55-per-cent share after the third, and after all four options are complete, as it now claims, Rio would hold a 60-per-cent interest in the project.
It now appears -- subject to scrutiny by Star Diamond's accountants and lawyers -- that Rio Tinto has spent at least $70.5-million on the project, allowing it to file notices of completion covering all four options in a quick machinegun burst, not over the several years that investors had expected.
What comes next is key: Upon exercise of the fourth and final option, Rio Tinto is automatically deemed to have elected to form a joint venture on a 60-40 participating basis, under the terms and conditions of the joint venture agreement. From there, the agreement allows Rio Tinto to "continue the then current work program to completion," or to terminate it. If it continues the program, Rio may include any expenditures incurred in the continuing program as part of the first budget presented to the joint venture partners. The joint venture that Rio Tinto has elected to form is described as a participating arrangement with no mention of Star Diamond being carried to construction, or production. If so, Star Diamond would appear to be facing some major expenses much sooner than it had perhaps expected.
Rio Tinto's project manager, Gary Hodgkinson, acknowledged that Rio Tinto has been a big spender on the project, noting that one must spend a lot of money to advance a project in a timely fashion. A lot of expenses pertaining to the big Bauer trench cutter appear to be ineligible for consideration, but Rio Tinto has spent big sums nevertheless on the 10-hole trench cutter program at Star and in preparation for the 20-hole program at Orion South. Further, the company has been a big core driller elsewhere on the project, acquiring a wealth of data -- but also merrily ratcheting its expense tally upward.
What happens from here is uncertain, other than there will be lively discussion between the two companies on various matters, the most likely subjects being budgets for current and coming programs. Mr. Hodgkinson confirms that he is busy planning for at least 10 more vertical trenches, if not more, into Orion South next year and Star will presumably be facing calls to provide 40 per cent of the required cash. Mr. MacNeill passed up an opportunity to comment today, so Star Diamond's plans remain unclear: Will it attempt to meet the coming cash calls, or will it seek an alternate deal or exit arrangement through negotiations with Rio? It should be an interesting winter, either way.
Craig Taylor's Defense Minerals Corp. (DEFN), down one-half cent to 13.5 cents on 38,000 shares, has received assays of up to 3.12 per cent total rare earth oxides (TREO) over 105 metres from one of three new holes completed at its Wicheeda rare earth project, near Prince George in north-central British Columbia. A second hole yielded 2.71 per cent TREO over 106 metres and the third produced 2.43 per cent over 80 metres. Two weeks ago, Defense said it drilled 110 metres averaging 3.26 per cent TREO and 64.2 metres averaging 4.32 per cent.
Mr. Taylor, president and chief executive officer, was "extremely pleased" with the latest results, particularly the best of the three, which was drilled outside of the resource envelope calculated earlier this year, but within the proposed pit shell, so what was previously considered waste should give a good boost to the coming resource update. More assays are yet to come, so Mr. Taylor is eagerly awaiting more good news. The current estimate, prepared early this year, lists 11.37 million tonnes inferred at 1.96 per cent light rare earth elements, primarily cesium, lanthanum and neodymium.
Frank Basa's Canada Cobalt Works Inc. (CCW), down one cent to 40 cents on 216,000 shares, has sold 4.02 million shares at 35 cents, raising $1.4-million. Mr. Basa, president and CEO, set out in September to raise $1-million and he boosted the placement to $1.25-million two weeks ago. Canada Cobalt offered 1.67 million shares at 30 cents in August but when the two-tranche sale closed in mid-September, it had sold 2.43 million shares for nearly $730,000.
The cash is for more work at the Castle cobalt and silver project in Northeastern Ontario, including a second phase of drilling that began in September. In the first phase, completed earlier this year, about one-quarter of the nearly 50 holes yielded grades between 1.05 per cent and 3.7 per cent cobalt over intervals averaging 1.77 metres. The best hit produced 2.28 per cent cobalt, 1.65 per cent nickel and 262 grams of silver per tonne over seven metres, while another managed 1.87 per cent cobalt and 2,260 grams of silver per tonne over 5.5 metres.
Scott McLean's Transition Metals Corp. (XTM), down one cent to 12 cents on 15,000 shares, has acquired the Fostung project, southwest of Sudbury. The company acquired an initial 690 hectares in June by staking. It has now bought another 356 hectares for $25,000 in cash and $25,000 in stock, and a further 67 hectares for $5,000 in cash. Fostung hosts a historical resource of 12.4 million tonnes averaging 0.213 per cent tungsten oxide, based on drilling from the mid-1960s to the mid-1980s.