Kaiser Blog Comment - Snippets from PDAC

I spent most of the week at the PDAC mining conference in Toronto where nearly 400 juniors exhibited their wares. I prepared a full-blown presentation on the junior diamond exploration sector for my Sunday talk in the Investor Exchange but got yanked off the stage before I got to the juniors at the target drilling stage. Diamonds may not be a hot topic at the moment, but there is a lot going on in this sector that will deliver market moving results in 2006 at all stages of the diamond exploration cycle. I took in the diamond talks on Monday which featured the DO27 project of Peregrine at the beginning and the Star project of Shore at the end.

DO27 looking good
Jennifer Pell did a good job describing the history of Tli Kwi Cho, but was generally cautious about the outlook. She did not dig into the significance of hole #8 reported in late January, and in chatting with a variety of people I was surprised at how few people understand this play. In a nutshell, this hole drilled at an angle from land last summer toward the centre of the main DO27 lobe delivered a micro diamond curve suggesting a grade better than the 100 cpht indicated by the pilot holes next to last year's mini bulk sample RC holes. According to Jennifer the micro diamonds were distributed throughout that hole, which increases the odds that the macro grade in the centre of DO27 will map to the rest of the pipe. It is interesting to note the general skepticism that the 100 cpht grade in the middle of DO27 will map to the rest of this body's 30 million tonne footprint in contrast to the market's confidence that the 17.8 cpht grade in the centre of the Star body will map to the rest of the 240 million tonne Star. Peregrine has 2 LDD rigs at work, but a big issue has become the warm winter in the NWT that has allowed limited movement along the winter ice road. Jennifer also indicated that micro diamond results for 7 core holes from DO18 are expected in the next few weeks, which will determine if Peregrine will keep the LDD rigs on site for summer bulk sampling of the land based DO18 pipe. That this is not a slam dunk was hinted by Jennifer's observation that DO18 has at least 4 phases, which is code for possible grade variability. With regard to the DHK juniors and my parity pricing strategy I picked up an encouraging rumour that the DHK members have agreed to "break up" the DHK syndicate so that each of the partners can deal with their 6.7% interest as they see fit. The present agreement is a convoluted mess with all sorts of paralyzing shotgun clauses. Once the DHK stake holders are independent Eric Friedland can go to work to absorb their stakes into Peregrine which should shrink the 50% discount Kettle River is currently trading at.

Shore Gold plans to hold LDD results until program is complete
George Read's Star presentation was less cautious (still mapping the 17.8 cpht grade to 240 million tonnes) and included shots of the Cantaur and Pense kimberlite juxtaposed to Early Joli Fou. The samples shown exhibited greater coarseness than the Early Joli Fou, so one can see why there is optimism about its carrying capacity. Shore plans to extend its underground program to access the Cantaur and Pense kimberlites whose diamond content is unknown. If the Cantaur or Pense prove significantly diamondiferous it could give Star the bigger scale it needs to make it as a standalone mine. There are no plans to do micro diamond analysis as a prelude, which should postpone good or bad news well into the future. I did have a chance to chat with George, who expressed confidence that the De Beers lawsuit will be sorted out soon. In his presentation he indicated that Shore's preferred FALC program is to conduct an extensive bulk sampling program of the "Orion Corridor" that stretches from 140/141 to the 148 bodies, essentially an expensive brute force evaluation program whose outcome would not be known for several years. From Shore's perspective this makes sense because it has the money and the company will live or die on the basis of Saskatchewan diamonds. George also indicated that Shore would not be publishing the results of the Star LDD program until all of the 10,000 tonnes of kimberlite expected from the 50 hole program have been processed. Shore's two Bauer rigs are currently working on holes 16 and 17. George acknowledged that these LDD holes will encounter grade variability. The outcome of this program will thus be an "engineered" number that will spare the market gut-wrenching responses to individual holes. George's presentation also reiterated Shore's assumption that it could mine and process FALC kimberlite at US $8-10 per tonne, which would make the $25 per tonne rock value so far encountered in the Star vent very robust. I did manage to finally find out the FALC cost generated by De Beers through a desktop scoping study several years ago, a number De Beers and Kensington have kept secret because Kensington management disputed it as overly cautious. The De Beers number for FALC which took into account the tar sands economics came in at $35 per tonne, a number that presumably includes capital cost depreciation (not sure if the Star numbers do the same). There is a huge difference between the De Beers and Shore operating costs, with the halfway mark very close to the current Star rock value. Even if Shore Gold does demonstrate that 43 million carrats worth $135 per carat are present at Star, the actual economic value of such a resource will remain controversial until the prefeasibility study is complete.

The TIG's missing getting control of Camphor by a hair
Another interesting piece of gossip about the diamond sector I picked up was that Harry Dobson and his merry band of Irishmen barely lost a very quiet proxy battle for Camphor at its February 15 AGM. The Dobson and Varshney camps each produced more than 4 million votes, with Varshney winning by a handful. Dobson wants Camphor to merge with Mountain Province in order to enhance the prospect of a buyout of the minority Gahcho Kue stake by either De Beers or somebody else. The Irish Guys should have asked me because I think I own close to what might have been the swing vote. But I can't blame them for not wanting to count on a vote from somebody trying to decide between the lesser of two evils. Do I go for the guys who would come up with merger terms that benefit Mountain Province shareholders, or the entrenched guys who keep diluting my minority stake in Camphor?

Lithic management ready to push Crypto zinc project forward
Despite 14,000 plus delegates I did manage to bump into people not exhibiting at PDAC with whom I wanted to talk. One of them was Russ Cranswick of the Resource Capital Fund group that controls Lithic Resources. Even though zinc is the hottest base metal right now, Lithic and its Crypto zinc project in Utah seem to have slipped into a rut during the past couple months. I had heard that this was because Lithic was negotiating a transaction involving a much larger project, but apparently the deal fell apart in the eleventh hour. In any case, Russ, who had been "avoiding" me, has given me a thumbs up that Lithic will be focusing its efforts on the Crypto project and his immediate task will be to raise up to $500,000 to kick start that project.

Jet Gold may yet drill Set Ga Done this spring
Another non-exhibitor I ran into while checking out the Talisker single malt scotch tasting at Pele Mountain's Royal York suite was Jim Davis of Leeward Capital. Jim is on the prowl for more money for his Nithi Mountain molybdenum project where he thinks he's got the geometry sorted out so that the next $1 million in drilling will deliver the sweet spot that turns Nithi Mountain into future mill feed for Endako. But he has a new problem that is actually good news for Jet Gold, which has been sitting on its working capital in anticipation of a green light for the Set Ga Done project in Myanmar. Jim hinted that the piece of paper needed to spring his drill loose from a dockyard warehouse had landed on the desk of the generals for their final approval. Evidence that this time was different could be seen in Jim's concern that Leeward would have to very soon come up with its 50% share of the drill program. There are a couple months left before the rainy season kicks in, enough to make or break the Set Ga Done gold zone if proper equipment with a competent crew is used. This sounds like a more plausible explanation for Jet Gold's recent stirrings than the gas about which Bob Card has been issuing press releases.

Exceed signals big oil & gas acquisitions not far off
Exceed Capital has finally made an acquisition, a 15% stake in a gas play in northeastern British Columbia. The way the news release reads it sounds like Exceed agreed to participate in 2 wells some time ago. The first one was drilled in February and is undergoing testing. A second well is planned. Funny that Exceed did not announce this deal before the first gas well came in as a success. More importantly Exceed also announced that it was focusing on international oil & gas plays in Australia and the countries ringing the Mediterranean. One application has been submitted and three are ready for submission involving 3 countries. One is likely Australia, with a north African countries such as Tunisia or Libya as other candidates. Libya, which is now in America's good book, would be the more intriguing development. The market will want to see one of these concessions granted before it gets excited about Exceed.

Big structure event for Enexco
During the past couple months I have been accumulating more Intl Enexco and it looks like my patience will finally be rewarded. Enexco has announced a private placement of 2 million units at $0.40, some of which will go toward the 100% owned Contact copper project in Nevada for which the junior is preparing a 43-101 report. In recent weeks there were clues that Enexco might come alive when 250,000 options were set at $0.40 and one of Arnie Armstrong's administrators joined the board. This financing, which was bumped up from 1.5 million units, is a positioning financing. Nobody whom I talked to that knows Armstrong knew anything about Enexco, but there seemed to be unanimity that it was hard to make money through him. Enexco is the last of the "shells" in his stable; all the rest have been handed off to others (ie SKN aka Silvercorp now at $13), of which Ivory Oil is the latest. Ivory is doing an RTO of a Greg Hall oil & gas deal that will inflict a 3:1 rollback on Ivory. Not that this matters because Ivory is trading triple its recent slumber level of $0.12. Enexco is now trading above the bottom-fish buy limit of $0.49 so it is out of bounds for bottom-fishers, but for Spec Value Hunters the stock remains fair game. There is very little published about Enexco's projects at this stage, so one has to go with a gut feel there is more potential to the Contact story at this point in time than was apparent to OTC BB listed Golden Phoenix when it gave up on on this optioned story in favor of a high grade Nevada molybdenum play optioned from Win-Eldrich. With only about 10 million fully diluted after this financing and a stock price of $0.60 Enexco's Contact play has an IPV of $6 million that is still staggeringly cheap compared to most of the rest of the plays. Stay tuned while I dig a little deeper to find out if the oldest and last company in Arnie Armstrong's stable of resource juniors is about to embark on a speculation cycle with a structure that suggests price rather than buckets of paper is the key to a big score.