UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 20-F
2004 ANNUAL REPORT
[ ] REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES
EXCHANGE ACT OF 1934
OR
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2004
OR
[ ] TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
OR
[ ] SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 Date of event requiring this shell company report.
COMMISSION FILE NUMBER: 0-24980
KENSINGTON RESOURCES LTD.
- --------------------------------------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
NOT APPLICABLE
- --------------------------------------------------------------------------------
(TRANSLATION OF REGISTRANT'S NAME INTO ENGLISH)
YUKON TERRITORY, CANADA
- --------------------------------------------------------------------------------
(JURISDICTION OF INCORPORATION OR ORGANIZATION)
SUITE 2100 - 650 WEST GEORGIA STREET, BRITISH COLUMBIA, CANADA, V6B 4N9
- --------------------------------------------------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
SECURITIES REGISTERED OR TO BE REGISTERED PURSUANT TO SECTION 12 (b) OF THE ACT.
TITLE OF EACH CLASS NAME ON EACH EXCHANGE ON WHICH REGISTERED
------------------- -----------------------------------------
NONE N/A
Securities Registered or to be Registered Pursuant to Section 12(g) of the Act.
COMMON SHARES WITHOUT PAR VALUE
- --------------------------------------------------------------------------------
(TITLE OF CLASS)
Securities For Which There is a Reporting Obligation Pursuant to Section
15(d) of the Act.
NONE
- --------------------------------------------------------------------------------
(TITLE OF CLASS)
INDICATE THE NUMBER OF OUTSTANDING SHARES OF EACH OF THE ISSUER'S CLASSES OF
CAPITAL OR COMMON STOCK AS OF THE CLOSE OF THE PERIOD COVERED BY THE ANNUAL
REPORT.
60,645,713 COMMON SHARES
- --------------------------------------------------------------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES [ ] NO [X]
Indicate by check mark which financial statement item the registrant has elected
to follow.
ITEM 17 [X] ITEM 18 [ ]
If this is an annual report, indicate by check mark whether the registrant is a
shell company (as defined in Rule 12b-2 of the Exchange Act). [ ] Yes [X] No
(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST
FIVE YEARS)
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of the securities under a
plan confirmed by a court. [ ] Yes [ ] No
TABLE OF CONTENTS
Glossary of Terms.............................................................ii
Glossary of Technical Terms...................................................iv
PART 1.........................................................................1
Item 1 - Identity Of Directors, Senior Management and Advisers.................1
Item 2 - Offer Statistics and Expected Timetable...............................1
Item 3 - Key Information.......................................................1
A. Selected Financial Data..............................................1
B. Capitalization and Indebtedness......................................2
C. Reasons for the Offer and Use of Proceeds............................3
D. Risk Factors.........................................................3
Item 4 - Information on the Company............................................5
A. History and Development of the Company..............................5
B. Business Overview....................................................7
C. Organizational Structure.............................................8
D. Property, Plants and Equipment.......................................9
Property Description and Location..........................................10
Interpretations and Conclusions............................................76
Item 5 - Operating and Financial Review and Prospects.........................78
Overview...................................................................78
A. Operating Results...................................................80
B. Liquidity and Capital Resources.....................................86
C. Research and Development, Patents and Licences, etc.................87
D. Trend Information...................................................87
E. Off-Balance sheet Arrangements......................................87
F. Tabular Disclosure of Contractual Obligations.......................87
ITEM 6 - Directors, Senior Management and Employees...........................87
A. Directors and Senior Management.....................................87
B. Director and Executive Compensation.................................89
C. Board Practices.....................................................91
D. Employees...........................................................92
Item 7 - Major Shareholders and Related Party Transactions....................95
A. Major Shareholders..................................................95
B. Share Ownership.....................................................95
C. Related Party Transactions..........................................95
D. Interests of Experts and Counsel....................................96
Item 8 - Financial Information................................................96
Financial Statements and Other Financial Information.......................96
Legal Proceedings..........................................................96
Dividend Policy............................................................96
Significant Changes........................................................96
Item 9 - The Offer and Listing................................................96
Item 10 - Additional Information..............................................98
A. Share Capital.......................................................98
B. Memorandum and Articles of Association..............................98
C. Material Contracts.................................................101
D. Exchange Controls..................................................101
E. Taxation...........................................................103
F. Dividends and Paying Agents........................................109
G. Statement by Experts...............................................109
H. Documents on Display...............................................109
I. Subsidiary Information.............................................110
Item 11 - Quantitative and Qualitative Disclosures About Market Risk.........110
Item 12 - Description of Securities Other than Equity Securities.............110
PART II......................................................................110
Item 13 - Defaults, Dividend Arrearages and Delinquencies....................110
Item 14 - Material Modifications to the Rights of Security Holders and
Use of Proceeds..................................................110
Item 15 - Controls and Procedures............................................110
Item 16A - Audit Committee Financial Expert..................................111
Item 16B - Code of Ethics....................................................111
Item 16C - Principal Accountant Fees and Services............................111
Item 16D - Exemptions from the Listing Standards for Audit Committees........112
Item 16E - Purchases of Equity Securities by the Issuer and Affiliated
Purchasers......................................................112
PART III.....................................................................112
Item 17 - Financial Statements...............................................112
Item 18 - Financial Statements...............................................112
Item 19 - Exhibits...........................................................112
SIGNATURE PAGE...............................................................114
Unless otherwise specified, all monetary amounts are expressed in Canadian
dollars. A reference to "Kensington," the "Company," "we" or "us" means the
registrant.
The following table sets forth certain standard conversions from the
International System of Units (metric units) to the Standard Imperial Units:
Conversion Table
Metric Imperial
------ --------
1.0 millimetre (mm) = 0.039 inches (in)
1.0 metre (m) = 3.28 feet (ft)
1.0 kilometre (km) = 0.621 miles (mi)
1.0 hectare (ha) = 2.471 acres (ac)
1.0 gram (g) = 0.032 troy ounces (oz)
1.0 metric tonne (t) = 1.102 short tons (ton)
1.0 g/t = 0.029 oz/ton
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report contains forward-looking statements, concerning the
operations and planned future acquisitions and other matters of Kensington
Resources Ltd. (the "Company"). Any statements that involve discussions with
respect to predictions, expectations, belief, plans, projections, objectives,
assumptions or future events or performance (often but not always using phrases
such as "expects", or "does not expect", "is expected", "anticipates" or "does
not anticipate", "plans", "estimates" or "intends", or stating that certain
actions, events or results "may", could", "might", or "will" be taken to occur
or be achieved) are not statements of historical fact and may be "forward
looking statements" and are intended to identify forward-looking statements,
which include statements relating to, among other things, the ability of the
Company to continue to successfully compete in its market. Such forward-looking
statements are based on the beliefs of the Company's management as well as on
assumptions made by and information currently available to the Company at the
time such statements were made. Forward looking statements are subject to a
variety of risks and uncertainties which could cause actual events or results to
differ from those reflected in the forward looking statements, including,
without limitation, the failure to obtain adequate financing on a timely basis
and other risks and uncertainties. Actual results could differ materially from
those projected in the forward-looking statements as a result of the matters set
forth or incorporated in this Annual Report generally and certain economic and
business factors, some of which may be beyond the control of the Company. Some
of the important risks and uncertainties that could affect forward looking
statements are described further in this document under the headings "Risk
Factors", "History and Development of the Company", "Business Overview",
"Property, Plants and Equipment" and "Operating and Financial Review and
Prospects".
i
GLOSSARY OF TERMS
In this Annual Report, unless there is something in the subject matter
inconsistent therewith, the following terms shall have the respective meanings
set out below, words importing the singular number shall include the plural and
vice versa and words importing any gender shall include all genders. Technical
diamond exploration and mining terms are defined in the Glossary of Technical
Terms.
"Act" means the Business Corporations Act (Yukon Territory), as now in effect
and as it may be amended, superseded or replaced from time to time, prior to the
Effective Date.
"Affiliate" has the meaning attributed to that term in the Act.
"Amalgamated Kensington" means the corporation created under the Act by the
amalgamation of Kensington and Shore Gold Subco pursuant to the Plan of
Arrangement.
"Arrangement" means an arrangement under Section 195 of the Act on the terms and
conditions set forth in the Combination Agreement and the Plan of Arrangement
and any amendment or variation thereto made in accordance with the terms of the
Combination Agreement, Article 5 of the Plan of Arrangement or made at the
direction of the Court (with the consent of the parties, acting reasonably) in
the Final Order.
"Arrangement Resolution" means the special resolution of the Kensington
Securityholders to approve the Arrangement.
"Articles of Arrangement" means the articles of arrangement of Kensington in
respect of the Arrangement that are required by the Act to be sent to the
Registrar after the Final Order is granted.
"Cameco" means Cameco Corporation.
"Combination Agreement" means the amended and restated combination agreement
made on September 19, 2005 and effective August 14, 2005 between Shore Gold and
Kensington, as may be further amended from time to time.
"Court" means the Supreme Court of the Yukon Territory.
"De Beers" means De Beers Consolidated Mines Ltd. of South Africa.
"De Beers Canada" means De Beers Canada Inc., a wholly-owned subsidiary of De
Beers.
"Dissent Rights" means the rights of dissent in respect of the Arrangement
described in Section 3.1 of the Plan of Arrangement.
"Effective Date" means the date upon which a copy of the Final Order, together
with the Articles of Arrangement, are accepted for filing by the Registrar under
the Act giving effect to the Arrangement.
"Effective Time" means 12:01 a.m. (Central Standard Time) on the Effective Date.
"FALC-JV" refers to the unincorporated joint venture among Kensington, De Beers
Canada, Cameco and UEM for the exploration and development of the Fort a la
Corne Property in Saskatchewan.
"FALC JVA" means the Fort a la Corne Joint Venture Agreement dated January 1,
1995 between Cameco, UEM, Monopros Limited (a predecessor to De Beers Canada)
and Kensington.
"FALC Project" means the Fort a la Corne diamond exploration and development
project that is the subject of the FALC-JV.
ii
"Final Order" means the final order of the Court approving the Arrangement as
such order may be amended by the Court (with the consent of the parties, acting
reasonably) at any time prior to the Effective Date or, if appealed, then,
unless such appeal is withdrawn or denied, as affirmed or as amended (with the
consent of the parties, acting reasonably) on appeal.
"Interim Order" means the interim order of the Court in respect of the
Arrangement dated September 20, 2005.
"Kensington Broker Warrants" means the outstanding broker warrants each of which
entitles the holder thereof to acquire one Kensington Share and one-half of a
warrant to purchase one Kensington Share (collectively, the "Kensington
Underlying Warrants") upon the valid exercise of such warrants in accordance
with the terms thereof.
"Kensington Options" means the rights (whether or not vested) to purchase
Kensington Shares which are from time to time outstanding under the Kensington
Stock Option Plan.
"Kensington Securityholders" means the Registered Securityholders, the
beneficial owners of Kensington Shares, Kensington Warrants and the holders of
Kensington Options.
"Kensington Stock Option Plan" means the stock option plan effective as of June
13, 2005 pursuant to which participants have been granted Kensington Options.
"Kensington Underlying Warrants" has the meaning ascribed to such term in the
definition of Kensington Broker Warrants.
"Kensington Warrants" means the outstanding warrants of Kensington, each of
which entitles the holder thereof to acquire one Kensington Share upon the valid
exercise of such warrant in accordance with the terms thereof including the
Kensington Underlying Warrants issued prior to the Effective Time.
"Kensington Warrant Indenture" means the common share purchase warrant indenture
between Kensington and Computershare Trust Company of Canada dated May 6, 2005
pursuant to which 4,999,999 Kensington Warrants were issued on May 6, 2005,
42,000 Kensington Underlying Warrants were issued on September 2, 2005 and an
additional 258,000 Kensington Underlying Warrants are issuable.
"Meeting" means the special meeting of the Kensington Securityholders (including
any adjournment or postponement of that meeting) to be called and held in
accordance with the Interim Order to consider the Arrangement Resolution.
"Plan of Arrangement" means the plan of arrangement and any amendments or
variations thereto made in accordance with Section 6.1 of the Combination
Agreement, Article 5 of the Plan of Arrangement or made at the direction of the
Court (with the consent of the parties, acting reasonably) in the Final Order.
"Registered Securityholder" means a registered holder of Kensington Shares or
Kensington Warrants.
"Shore Gold" means Shore Gold Inc., a company existing under the federal laws of
Canada.
"Shore Gold Subco" means 38802 Yukon Inc., a wholly-owned subsidiary of Shore
Gold.
"Special Committee" means the committee of independent directors of Kensington
established by the Kensington Board.
"Support Agreements" means the agreements dated August 14, 2005 between Shore
Gold and each of the directors of Kensington, respectively, in relation to the
transactions contemplated in the Combination Agreement.
"Tax Act" means the Income Tax Act (Canada), as amended.
"TSX" means the Toronto Stock Exchange.
"UEM" means UEM Inc., a private corporation owned equally by Cameco and Cogema
Resources Inc.
iii
GLOSSARY OF TECHNICAL TERMS
In this Annual Report, unless there is something in the subject matter
inconsistent therewith, the following technical terms shall have the respective
meanings set out below, words importing the singular number shall include the
plural and vice versa and words importing any gender shall include all genders.
"cpht" is an abbreviation for carats per hundred tonnes.
"ct." is an abbreviation for carat.
"caustic dissolution" refers to the process which efficiently produces a
concentrate from which diamonds can readily be extracted during microscopic
examination. The process uses diamond's property of high resistance to caustic
soda (NaOH). Use of this method eliminates diamond size reduction and losses
that often occur during extraction procedures that rely on crushing and
attrition milling. Very few minerals survive the harsh attack by caustic soda,
therefore weight reductions commonly exceed 99% of the initial sample weight.
"ground magnetic survey" magnetic methods detect rocks or mineral concentrations
possessing anomalous magnetic properties by recording static fluctuations in the
Earth's magnetic field; ground magnetic surveys are conducted in the field by a
one or two man team carrying appropriate instrumentation in order to measure
magnetic anomalies with enhanced resolution.
"GSC" is an abbreviation for the Geological Survey of Canada.
"ha" is an abbreviation for hectares.
"HQ" is a designation for one of several standard diameters of core drilling
typically used in mineral exploration; HQ refers to core that has a 2.5 inches
(63.5 mm) diameter.
"kg" is an abbreviation for kilograms.
"km" is an abbreviation for kilometers.
"kimberlite" refers to volatile-rich, potassic ultrabasic rocks with highly
variable textures and mineralogic compositions that are one of the primary hosts
for diamond deposits.
"LDDH" is an abbreviation for large diameter drill holes.
"m" is an abbreviation for metres.
"mm" is an abbreviation for millimetres.
"macrodiamonds" is defined by FALC-JV to be diamonds that exceed 1 mm in at
least one dimension.
"microdiamonds" is defined by FALC-JV to be diamonds that do not exceed 1 mm in
any dimension.
"minibulk sample" means a large mass sample, generally in the range of 1 to 100
tonnes.
"NQ" is a designation for one of several diameters of core drilling typically
used in mineral exploration. NQ refers to a core that has a 7.875 inches (47.6
mm) diameter
iv
PART 1
ITEM 1 - IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
Not applicable. See "Item 6. Directors, Senior Management and Employees" for
directors and senior management.
ITEM 2 - OFFER STATISTICS AND EXPECTED TIMETABLE
Not applicable.
ITEM 3 - KEY INFORMATION
A. Selected Financial Data
Table 1 sets forth our selected consolidated financial data for the five years
ended December 31, 2004 prepared in accordance with Canadian generally accepted
accounting principles ("Canadian GAAP"). The table also summarizes certain
corresponding information prepared in accordance with United States generally
accepted accounting principles ("U.S. GAAP"). The material differences between
Canadian GAAP and U.S. GAAP that would affect the measurement of the Company's
financial results and position are set forth in Note 13 of our Consolidated
Financial Statements included in this annual report. This selected financial
data should be read in conjunction with our Consolidated Financial Statements
and the notes thereto. All currencies in the table are expressed in Canadian
dollars.
-------------------------------------------------------------------------------------------------------------
Year ended Year ended Year ended Year ended Year ended
December 31, December 31, December 31, December 31, December 31,
2004 2003 2002 2001 2000
$CDN $CDN $CDN $CDN $CDN
-------------------------------------------------------------------------------------------------------------
Interest income 95,583 21,058 22,374 34,170 11,912
-------------------------------------------------------------------------------------------------------------
Net sales or operating
revenues
Canadian GAAP - - - - -
US GAAP - - - - -
-------------------------------------------------------------------------------------------------------------
Net income (loss) from
continuing operations
Canadian GAAP (443,193) (1,015,103) (695,026) (525,645) (442,912)
US GAAP (3,714,117) (3,195,393) (2,270,590) (2,237,256) (1,467,117)
-------------------------------------------------------------------------------------------------------------
Net income (loss) from
discontinued operations
Canadian GAAP - - - - -
US GAAP - - - - -
-------------------------------------------------------------------------------------------------------------
Income (loss) per share
from operations
Canadian GAAP (0.01) (0.02) (0.02) (0.01) (0.01)
US GAAP (0.06) (0.06) (0.05) (0.06) (0.05)
-------------------------------------------------------------------------------------------------------------
Total assets
Canadian GAAP 21,298,397 12,779,823 8,843,245 7,104,791 5,693,030
US GAAP 7,536,167 2,334,267 459,029 250,389 568,539
-------------------------------------------------------------------------------------------------------------
Net assets
Canadian GAAP 19,034,424 12,126,960 8,663,121 6,572,447 5,151,827
-------------------------------------------------------------------------------------------------------------
1
-------------------------------------------------------------------------------------------------------------
Year ended Year ended Year ended Year ended Year ended
December 31, December 31, December 31, December 31, December 31,
2004 2003 2002 2001 2000
$CDN $CDN $CDN $CDN $CDN
-------------------------------------------------------------------------------------------------------------
US GAAP 5,272,194 1,681,404 278,905 (281,955) 27,336
-------------------------------------------------------------------------------------------------------------
Long-term debt - - - - -
-------------------------------------------------------------------------------------------------------------
Capital stock 33,450,717 26,543,215 22,127,809 19,342,109 17,121,844
-------------------------------------------------------------------------------------------------------------
Cash dividends declared - - - - -
=============================================================================================================
Weighted average number 59,528,895 50,276,560 45,718,457 40,082,897 32,267,958
of common shares
outstanding
-------------------------------------------------------------------------------------------------------------
Foreign Exchange Rates
- ----------------------
Unless otherwise specified, all monetary amounts are expressed in Canadian
dollars. The noon buying rates in New York City for cable transfers in foreign
currencies as certified for customs purposes by the Federal Reserve Bank of New
York for the conversion of Canadian dollars into United States dollars on
October 24, 2005 was 1.00 CDN dollar = 0.8413 US dollars.
The high and low exchange rates for Canadian dollars, expressed in U.S. dollars,
for each month from January 1, 2005 to September 30, 2005 were as follows:
U.S. DOLLARS PER $1.00 (CDN.)
Monthly
- ----------------------------------------------------------------------------------------------------------
January February March April May June July August Sept
2005 2005 2005 2005 2005 2005 2005 2005 2005
- ----------------------------------------------------------------------------------------------------------
High .8368 .8173 .8347 .8286 .8091 .8173 .8316 .8430 .8601
- ----------------------------------------------------------------------------------------------------------
Low .8016 .7944 .8001 .7923 .7851 .7915 .8008 .8126 .8368
- ----------------------------------------------------------------------------------------------------------
Since June 1, 1970, the Government of Canada has permitted a floating exchange
rate to determine the value of the Canadian dollar against the U.S. dollar. The
high and low exchange rates, the average rates (average of the exchange rates on
the last day of each month during the period) and the end of the period rates
for Canadian dollars, expressed in U.S. dollars, from January 1, 2000 to
December 31, 2004 were as follows:
- ---------------------------------------------------------------------------------------------------------
Years ended December 31
----------------------------------------------------------------------------------
2004 2003 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------
High .8532 .7747 .6653 .6418 .6714
- ---------------------------------------------------------------------------------------------------------
Low .7138 .6327 .6175 .6227 .6316
- ---------------------------------------------------------------------------------------------------------
Average .7701 .7163 .63724 .6306 .6498
- ---------------------------------------------------------------------------------------------------------
End of Period .8303 .7727 .6344 .6287 .6340
- ---------------------------------------------------------------------------------------------------------
B. Capitalization and Indebtedness
Not applicable
2
C. Reasons for the Offer and Use of Proceeds
Not applicable.
D. Risk Factors
The following is a brief discussion of those distinctive or special
characteristics of the Company's operations and industry which may have a
material impact on, or constitute risk factors in respect of, the Company's
future financial performance. Kensington, and thus the securities of Kensington,
should be considered a highly speculative investment. In addition to the other
information presented in this Annual Report, the following risk factors should
be given special consideration when evaluating Kensington's securities.
General Nature of Business
Resource exploration and development is a speculative business, characterized by
a number of significant risks including, among other things, unprofitable
efforts resulting not only from the failure to discover mineral deposits but
from finding mineral deposits which, though present, are insufficient in
quantity and quality to return a profit from production.
History of losses, likelihood of future losses and dependence on additional
financing
We have not been profitable in the past. The aggregate of our net losses
(accumulated deficit) of CDN $17,614,973 as at June 30, 2005, has been financed
by private placements and the exercise of stock options and warrants. We may not
be profitable in the future.
The continued development and improvement of our business will require
substantial amounts of additional financing. If we are unable to secure such
financing on acceptable terms and on a timely basis, our financial results may
be adversely affected.
In addition, our future prospects must be considered in light of the risks,
expenses and difficulties frequently encountered in the exploration and
development of mineral properties. Our auditors have included an explanatory
paragraph regarding our ability to obtain financing to complete exploration and
development of our mining concessions in the notes to the financial statements
for the year ended December 31, 2004. The financial statements have been
prepared on a going concern basis, however, indicating that the concern is not a
probability, but a possibility.
Kensington's Business is Subject to Exploration and Development Risks
Kensington's Fort a la Corne Property is in the exploration stage of development
and no known reserves or resources have been discovered on the property. There
is no certainty that expenditures made by Kensington or its FALC-JV partners in
the exploration of the property will result in discoveries of diamonds in
commercial quantities or that the property will be developed. Most exploration
projects do not result in the discovery of diamonds and no assurance can be
given that any particular level of recovery of diamonds will in fact be realized
or that any identified resource will ever qualify as a commercially mineable (or
viable) resource which can be legally and economically exploited. Estimates of
reserves, mineral deposits and production costs can also be affected by such
factors as environmental permit regulations and requirements, weather,
environmental factors, unforeseen technical difficulties, unusual or unexpected
geological formations and work interruptions. In addition, the grade of diamonds
ultimately discovered may differ from that indicated by drilling results. There
can be no assurance that diamonds recovered in small-scale tests will be
duplicated in large-scale tests under on-site conditions or in production scale.
Kensington's Property Does Not Have Any Known Reserves
Kensington's property, the Fort a la Corne Property, is in the exploration
stage, meaning that Kensington has not determined whether the property contains
mineral reserves that are economically recoverable. Failure to discover
economically recoverable reserves will require Kensington to write-off costs
capitalized in its financial statements, which at December 31, 2004 totaled
$13,780,530 and $14,874,868 at June 30, 2005.
3
Title Matters
While the Company has investigated title to all of its mineral properties and,
to the best of its knowledge, title to all of its properties and properties in
which it has the right to acquire or earn an interest are in good standing, this
should not be construed as a guarantee of title. The properties may be subject
to prior unregistered agreements or transfers and title may be affected by
undetected defects.
Aboriginal rights may be claimed on Crown properties or other types of tenure
with respect to which mineral rights have been conferred. The Company is not
aware of any aboriginal land claims having been asserted or any legal actions
relating to native issues having been instituted with respect to any of the
mineral properties in which the Company has an interest. The Company is aware of
the mutual benefits afforded by co-operative relationships with indigenous
people in conducting exploration activity and is supportive of measures
established to achieve such co-operation.
Fluctuating Diamond Prices
The market for rough diamonds is subject to strong influence from the world's
largest diamond producing company, De Beers Consolidated Mines Ltd. ("De Beers")
of South Africa and from The Diamond Trading Co., (formerly known as the
"Central Selling Organization"), a marketing agency controlled by De Beers. The
price of diamonds has been gradually rising over the last 50 years, but future
prices cannot be predicted.
Compliance with Environmental and Government Regulation
The current and anticipated future operations of the Company, including
development activities and commencement of production on its properties, require
permits from various federal, territorial and local governmental authorities and
such operations are and will be governed by laws and regulations governing
prospecting, development, mining, production, exports, taxes, labour standards,
occupational health, waste disposal, toxic substances, land use, environmental
protection, mine safety and other matters. Companies engaged in the development
and operation of mines and related facilities generally experience increased
costs, and delays in production and other schedules as a result of the need to
comply with applicable laws, regulations and permits. The Company's exploration
activities and its potential mining and processing operations in Canada are
subject to various Federal and Provincial laws governing land use, the
protection of the environment, prospecting, development, production, exports,
taxes, labour standards, occupational health, waste disposal, toxic substances,
mine safety and other matters.
Such operations and exploration activities are also subject to substantial
regulation under these laws by governmental agencies and may require that the
Company obtain permits from various governmental agencies. The Company believes
it is in substantial compliance with all material laws and regulations which
currently apply to its activities. There can be no assurance, however, that all
permits which the Company may require for construction of mining facilities and
conduct of mining operations will be obtainable on reasonable terms or that such
laws and regulations, or that new legislation or modifications to existing
legislation, would not have an adverse effect on any exploration or mining
project which the Company might undertake.
Failure to comply with applicable laws, regulations and permit requirements may
result in enforcement actions thereunder, including orders issued by regulatory
or judicial authorities causing operations to cease or be curtailed, and may
include corrective measures requiring capital expenditures, installation of
additional equipment or remedial actions. Parties engaged in mining operations
may be required to compensate those suffering loss or damage by reason of the
mining activities and may have civil or criminal fines or penalties imposed for
violation of applicable laws or regulations. Amendments to current laws,
regulations and permits governing operations and activities of mining companies,
or more stringent implementation thereof, could have a material adverse impact
on the Company and cause increases in capital expenditures or production costs
or reduction in levels of production at producing properties or require
abandonment or delays in the development of new mining properties.
To the best of the Company's knowledge, the Company is operating in compliance
with all applicable environmental regulations. The Company has not made any
material expenditure for environmental compliance to date. However, there can be
no assurance that environmental laws will not give rise to significant financial
obligations in the future and that such obligations could have a material
adverse affect on the Company's financial performance.
4
Joint Venture Partner
The Company and the success of the Fort a la Corne Property is dependent on the
efforts and expertise of joint venture partner De Beers Canada and its parent,
De Beers. De Beers Canada is the project operator and is responsible for the
design, conduct and the verification and quality assurance of analytical
results. The Company is dependent on De Beers Canada for accurate information
about the Fort a la Corne Property and the progress of exploration and
development.
Operating Hazards and Risks
Diamond exploration involves many risks which even a combination of experience,
knowledge and careful evaluation may not be able to overcome. Operations in
which the Company has a direct or indirect interest will be subject to all the
operating hazards and risks normally incidental to exploration, development and
production of resources, any of which could result in work stoppages, damage to
property and possible environmental damage.
Competition
The resource industry is intensely competitive in all of its phases, and the
Company competes with many companies possessing greater financial resources and
technical facilities than itself. Competition could adversely affect the
Company's ability to acquire suitable new producing properties or prospects for
exploration in the future.
Inability to Meet Cost Contribution Requirements
The Company may, in the future, be unable to meet its share of costs incurred
under agreements to which it is a party and the Company may, as a result, be
subject to loss or dilution of its rights to acquire interests in the properties
subject to such agreements.
Financing Risks
The Company's current operations do not generate any cash flow. If the Company
seeks additional equity financing, the issuance of additional shares will dilute
the interests of the Company's current shareholders. The Company has
successfully raised funds in recent years through share and warrant issuances.
Failure to obtain such additional financing could result in delay or indefinite
postponement of new exploration and a reduction in administrative expenses.
ITEM 4 - INFORMATION ON THE COMPANY
A. History and Development of the Company
Kensington Resources Ltd. was formed under the Company Act (British Columbia) on
November 3, 1993 by the amalgamation (the "Amalgamation") of Rattler Resource
Ltd. ("Rattler") and Reimer Resources Ltd. ("Reimer"). At the time of the
Amalgamation, both Rattler and Reimer were reporting issuers in British
Columbia. Rattler was incorporated pursuant to the laws of British Columbia on
July 4, 1986. Reimer was incorporated pursuant to the laws of British Columbia
on October 8, 1986 under the name Payton Ventures Inc. On February 17, 1989, it
changed its name from Payton Ventures Inc. to Reimer Overhead Doors Ltd. On
April 1, 1993, it changed its name from Reimer Overhead Doors Ltd. to Reimer
Resources Ltd.
On December 6, 1993, the Company continued into the Yukon, pursuant to the
provisions of the Business Corporations Act (Yukon). The Company is also
extra-provincially registered to carry on business in the Provinces of British
Columbia and Saskatchewan.
On June 29, 2001, the shareholders of the Company approved the adoption of a
Shareholder Rights Plan to protect the Company's shareholders from unfair,
abusive or coercive take-over strategies, including the acquisition of control
of the Company through a take-over bid that does not treat all shareholders
equally or fairly. In order to facilitate the adoption of the Shareholders
Rights Plan, the shareholders approved a resolution increasing the authorized
share capital of the Company from 100 million common shares to an unlimited
number of common shares. This Shareholder Rights Plan expired on June 29, 2004.
5
In the third quarter of Kensington's 2004 fiscal year, the Kensington Board
adopted a Shareholder Rights Plan (the "Rights Plan") to protect Kensington's
shareholders from unfair, abusive or coercive take-over strategies, including
the acquisition of control of Kensington through a take-over bid that may not
treat all shareholders equally or fairly. The terms of the Rights Plan are
identical to Kensington's previous shareholder rights plan which expired on June
29, 2004. The shareholders of Kensington ratified the adoption of the Rights
Plan at the Special Meeting held on April 4, 2005.
To implement the Rights Plan, the Kensington Board authorized the issue of one
right (a "Right") in respect of each Kensington Share outstanding to holders of
record on the date that Computershare Trust Company of Canada executed the
agreement implementing the Rights Plan. Initially, the Rights attach to and
trade with the Kensington Shares and are represented by certificates
representing common shares.
On the occurrence of certain triggering events, including the acquisition by a
person or group of persons of 20% or more of the votes attached to all
outstanding voting shares of Kensington in a transaction not approved by the
Kensington Board, the Rights will separate from the Kensington Shares and will
entitle holders (other than the acquiring person or group persons) to acquire
Kensington Shares at a 50% discount to the prevailing market price of the
shares. The Rights are not triggered by purchases of voting shares made pursuant
to a "Permitted Bid" made to all holders of Kensington Shares on identical
terms. A Permitted Bid must be made by way of a take-over bid circular prepared
in compliance with applicable securities laws and must comply with certain other
conditions set out in the agreement signed to implement the Rights Plan.
Kensington's head office is located at Suite 2100, 650 West Georgia Street,
Vancouver, British Columbia, Canada, V6B 4N9, telephone (604) 682-0020 and its
exploration office is located at Suite 220, 728 Spadina Crescent East,
Saskatoon, Saskatchewan, Canada, S7K 4H7, telephone (306) 664-7552. Kensington's
registered office is located at 3081 Third Avenue, Whitehorse, Yukon, Canada,
Y1A 4Z7, telephone (867) 668-4405.
Intention to Merge
On August 15, 2005, Kensington announced an intention to merge with Shore Gold
Inc. ("Shore Gold"). Kensington and Shore Gold have agreed, subject to the
satisfaction of certain conditions, to a combination of their businesses to
create a combined mineral resources company which will have a greater interest
in and development potential for one of the world's largest diamond-bearing
kimberlite fields at Fort a la Corne, Saskatchewan.
Combined, Kensington and Shore Gold will have a 100% interest in the Star
Kimberlite project and a 42.245% interest in 63 kimberlite bodies of the FALC
Project.
Benefits of the Combination
The Kensington Board believes that the Kensington Securityholders will benefit
as a result of becoming securityholders of the combined Kensington and Shore
Gold as a result of the following factors, among others:
o Premium to Trading Price - The exchange ratio of 0.64 of a Shore Gold
Share for each Kensington Share implies a premium of 35% based on the
respective 30-day average closing share prices of Shore Gold and
Kensington prior to August 14, 2005.
o Complementary Prospects - The combination of Shore Gold's 100%
interest in the Star Kimberlite and Kensington's 42.245% interest in
the adjacent FALC Project will bring together interests in one of the
world's largest diamond-bearing kimberlite fields with demonstrated
macrodiamond and large stone potential.
o Strong Financial Position - The combined Kensington and Shore Gold
will have a cash position of approximately $175 million ($220 million
fully diluted), with no debt, to aggressively pursue its exploration
and development plans.
o Enhanced Presence - The combined Kensington and Shore Gold will be a
leading Canadian diamond exploration company, with enhanced profile
both domestically and internationally.
o Synergy Potential - There is the potential for significant development
synergies and operational economies of scale.
6
o Access to Capital - The combined Kensington and Shore Gold is expected
to have a market capitalization of over $780 million (based on the
closing price of Shore Gold Shares on September 28, 2005), increased
trading liquidity, and a larger, more diverse shareholder base, all of
which are expected to provide it with better access to capital.
o Support from Strategic Partners - The combined Kensington and Shore
Gold's FALC-JV interest will continue to benefit from the expertise,
resources and technical skills of De Beers, the global leader in the
diamond industry. Newmont Mining Corp., a significant shareholder of
Shore Gold, is highly supportive of the Arrangement and has confirmed
its desire to maintain a 9.9% interest in the combined Kensington and
Shore Gold.
o Strength of Management - Mr. Kenneth MacNeill will continue to be the
President and Chief Executive Officer and will lead an integrated
management team. Mr. James R. Rothwell, a director of Kensington
(former President of BHP Diamonds Inc.), will be non-executive
Chairman of the combined board of directors.
The Kensington Board, after taking into consideration, among other things, the
recommendation of the Special Committee and the fairness opinion of BMO Nesbitt
Burns, unanimously concluded that the Arrangement is fair to, and in the best
interests of, Kensington and the Kensington Securityholders and authorized
submission of the Arrangement to the Kensington Securityholders and to the Court
for approval. The Kensington Board unanimously recommended that the Kensington
Securityholders vote in favour of the Arrangement.
On October 21, 2005, the Kensington Securityholders voted overwhelmingly to
approve the Arrangement with Shore Gold. The Arrangement was approved by 99.2%
of the votes cast at the Meeting. The completion of the Arrangement remains
conditional upon the receipt of all necessary regulatory and court approvals.
The application for court approval will be held on October 28, 2005 and it is
anticipated that the closing of the Arrangement will also occur on October 28,
2005.
The Arrangement
The Arrangement provides for the acquisition by Shore Gold of all of the issued
and outstanding Kensington Shares in consideration for the issuance of 0.64
Shore Gold Shares for each Kensington Share. Pursuant to the Arrangement,
Kensington and 38802 Yukon Inc. ("Shore Gold Subco") will amalgamate and this
amalgamated company will be a wholly-owned subsidiary of Shore Gold.
In addition, each outstanding Kensington Option will be transferred to Shore
Gold and each holder will receive an option to purchase that number of Shore
Gold Shares determined by multiplying the number of Kensington Shares subject to
each such Kensington Option by 0.64 at an exercise price per Shore Gold Share
equal to the exercise price per Kensington Share of each such Kensington Option
divided by 0.64. Each such option will otherwise be governed by the terms of
Shore Gold's stock option plan, subject to certain amendments. Each outstanding
Kensington Warrant will be transferred to Shore Gold and each holder will
receive a warrant to purchase 0.64 Shore Gold Shares at a price per share equal
to the exercise price under the Kensington Warrant.
B. Business Overview
Kensington has an interest in one principal property: the Fort a la Corne
Property, Saskatchewan. The Fort a la Corne Property is in the exploration stage
and does not generate any revenues. Kensington's business is not affected by
intangibles such as licences, patents and trademarks, nor is it affected by
seasonal changes. Kensington is not aware of any aspect of its business which
may be affected in the current financial year by renegotiation or termination of
contracts.
Pursuant to a purchase agreement executed March 15, 1995 and made effective as
of January 1, 1995 between Kensington, Uranerz Exploration and Mining Ltd.
("Uranerz"), Cameco Corporation ("Cameco") and Monopros Limited ("Monopros"), a
wholly owned subsidiary of De Beers, Kensington was granted an option to earn a
25% participating interest in the FALC JVA agreement dated January 1, 1992
entered into among Uranerz, Cameco and Monopros. The FALC JVA was amended and
restated as of January 1, 1995 to include Kensington's purchase of the 25%
interest in the Fort a la Corne Project. In order to earn a 25% interest in the
Fort a la Corne Project, Kensington agreed to fund $3.4 million in exploration
expenditures over a 36-month period commencing on January 1, 1995. Kensington
completed its 25% earn-in obligations during the year ended December 31, 1997.
Since that time, Uranerz became UEM Inc. ("UEM"), a private corporation owned
equally by Cameco and Cogema Resources Inc. Monopros became De Beers Canada at
the beginning of 2001. De Beers Canada is currently the operator of the FALC-JV.
7
The Fort a la Corne Project is a joint venture among Kensington,, De Beers
Canada, Cameco and UEM. Cameco and Cogema Resources Inc. hold UEM's North
American interests. Neither UEM nor Cameco elected to fund exploration in 1997
to 2000, although Cameco did fund to their percentage interest in the FALC JV
for programs from 2000 to 2005. UEM retains a 10% free carried interest in the
project. De Beers Canada replaced Uranerz as operator of the FALC-JV in December
1998. As of October 21, 2005, participating interests in the FALC-JV were as
follows:
Kensington 42.245%
De Beers Canada 42.245%
Cameco 5.510%
UEM 10.000%
Although there is a joint venture relationship between the partners to the FALC
JV, there is no joint venture entity. This joint venture relationship entails an
agreement between the parties relating to annual budgets, with dissenting
parties losing a proportionate share. The Company's proportionate share of
deferred costs totaling $14,874,868 is recorded in the financial statements of
the Company at June 30, 2005.
The following is a summary of major developments at the Fort a la Corne Project:
o In August of 1988, spurred by rumors of kimberlite discoveries near
Prince Albert, the presence of kimberlite-type intrusions in and
around the Fort a la Corne Provincial Forest were interpreted by
Uranerz using published aeromagnetic maps of the area compiled by the
Geological Survey of Canada.
o In June of 1989, the Fort a la Corne joint-venture project was created
between Uranerz and Cameco; Uranerz remained as project operator until
1998. Kimberlite was successfully intersected in each of 7 drillholes
targeted on geophysical anomalies.
o De Beers Canada joined the FALC-JV in 1992 under a three-year
earning-in period, after which time, the three partners each held a
33?% equity in the project. De Beers Canada satisfied earn-in
requirements by the end of 1994.
o Kensington was invited to join the FALC-JV in 1995 under a three-year
earning-in period, after which time the four partners each held a 25%
equity in the project. Kensington satisfied earn-in requirements by
the end of 1997.
o Cameco acquired Uranerz during the third quarter of 1998. Cameco
assumed the 10% carried participating interest held by Uranerz and
became interim operator of the project.
o De Beers Canada became operator of the project effective December
1998.
o Kensington and De Beers Canada actively funded exploration while the
participating interests of Uranerz and Cameco were reduced due to
periods of non-funding from 1997 to 1999.
o During 2001, the FALC-JV sold a block of 4 claims located near
Weirdale (1024 ha in area) that contain 2 drilled kimberlite bodies.
o During 2002, the FALC-JV sold a block of 12 claims near Foxford (1088
ha) that contain 2 drilled kimberlite bodies, and a block of 5 claims
located northeast of Birchbark Lake (320 ha) that contains a single
drilled kimberlite body to Shore Gold.
o All FALC-JV partners funded exploration and evaluation programs during
2001 to 2004 except for UEM.
C. Organizational Structure
The Company has no subsidiaries.
8
D. Property, Plants and Equipment
The following information is extracted in part, from a technical report titled
"Summary of Exploration and Evaluation of the Fort a la Corne Kimberlite Field,
East-Central Saskatchewan" dated September 8, 2005 prepared by Brent Jellicoe,
P.Geo,. Brent Jellicoe is Kensington's Chief Geologist and is a Qualified Person
in accordance with National Instrument 43-101 - Standards of Disclosure for
Mineral Projects. A copy of the technical report is available on the SEDAR
website at www.sedar.com.
9
Property Description and Location
The Fort a la Corne Project is located in central Saskatchewan (see Figure 1
below). A legally surveyed claim block covering much of the main trend of
kimberlites lies approximately 65 km east of Prince Albert and extends northward
from the Saskatchewan River to a few kilometers north of Shipman. An additional
smaller claim (also legally surveyed) covers magnetic anomalies near Snowden,
located approximately 120 km northeast of Prince Albert.
Claims which fall within the surveyed (southern) portion of the province are
defined in terms of legal sections or subdivisions. Road allowances, typically
20 m in width, fall between sections and are separate legal entities. In
November 2001, Saskatchewan Energy and Mines (now Saskatchewan Industry and
Resources or "SIR") amended the description of mineral claims in the surveyed
portion of the province to allocate road allowances to adjacent claim holders so
that claim coverage can be seamless. The FALC-JV land holdings are spread across
portions of township blocks from T.49 to T.52 and R.18 to R.21. Approximately
70% of the claims are within the boundaries of the Fort a la Corne Provincial
Forest Reserve (Government of Saskatchewan crown lands) and the remainder is
under private landholders surface rights, but without freehold mineral rights.
Surface access to private land is by negotiation usually resulting in the
payment of an access fee. A map indicating kimberlite outlines and the FALC-JV's
land holdings is shown in Figure 1. A total of 63 kimberlite bodies are held by
the FALC-JV at this time.
In agricultural areas, surface access must be negotiated with individual
landholders, and requires the approval of the Rural Municipality (in this case,
the RM of Torch River, with offices in White Fox, Saskatchewan). The Rural
Municipalities commonly impose heavy vehicle restrictions (road bans) during
spring thaw (2-3 weeks). Permits for all exploration field activities are
administered by Saskatchewan Environment and Resource Management ("SERM"), in
this case from their Prince Albert office. No part of the project lands are
subject to specific environmental liabilities above or beyond those
responsibilities assumed under permitting of exploration programs.
As of September 1, 2005, land holdings held under the joint-venture agreement
included 121 claims totaling 22,544 hectares that are divided into four groups
for assessment purposes. The property status for the FALC-JV land holdings is
shown in Table 1. All claims were acquired during the period 1988-1990 and are
subject to assessment rates proscribed for claims older than 10 years. All
disposition groups are protected until at least 2009, with the main claims of
interest in group FalC (E) protected until at least 2021. Assessment credits for
Group 44961 (known as FalC East) were not applied for in 2002 for the 2001
expenditures given consideration of the new Saskatchewan Mining legislation that
puts a maximum on the number of years to hold an exploration disposition (21
years total, from 2002 onwards). Assessment reports were prepared for
exploration work conducted in 2002 and 2003 and credits were received and
applied to the appropriate claim groups. Suitability of application for
assessment credits will be reviewed by the FALC-JV partners on a yearly basis.
Table 1: FALC-JV Property Status as of September 1, 2005
-------------------------------------------------------------------------------------
Claim Group Area(Ha) Annual Assessment Year Protected To
-------------------------------------------------------------------------------------
44961 FALC East 9,984 $238,784 2015/16
-------------------------------------------------------------------------------------
45031 Snowden 2,176 $54,400 2009
-------------------------------------------------------------------------------------
45130 FALC Southwest 5,328 $128,632 2020
-------------------------------------------------------------------------------------
45131 FALC Northwest 5,056 $111,008 2014/15/16
-------------------------------------------------------------------------------------
Total: 22,544 $527,824
-------------------------------------------------------------------------------------
Figure 1: Map showing FALC-JV Land Boundaries and Kimberlite Outlines
10
Historical Landmarks for the Fort a la Corne Diamond Project
In August of 1988, spurred by rumours of kimberlite discoveries near Prince
Albert, the presence of kimberlite-type intrusions in and around the Fort a la
Corne Provincial Forest were interpreted by Uranerz Exploration and Mining Ltd.
using published aeromagnetic maps of the area compiled by the Geological Survey
of Canada (GSC).
11
In June of 1989, the FALC-JV was created between Uranerz Exploration and Mining
Ltd. and Cameco; Uranerz remained as project operator until 1998. Kimberlite was
successfully intersected in each of 7 drillholes targeted on geophysical
anomalies.
De Beers Canada joined the FALC-JV in 1992 under a three-year earning-in period,
after which time, the three partners each held a 33?% equity in the project. De
Beers Canada satisfied earn-in requirements by the end of 1994.
Kensington, a junior exploration company involved in the search for diamonds in
Saskatchewan, was invited to the FALC-JV in 1995 under a three-year earning-in
period, after which time the four partners each held a 25% equity in the
project. Kensington satisfied earn-in requirements by the end of 1997.
Cameco acquired Uranerz Exploration and Mining Ltd. during the third quarter of
1998. Cameco assumed the 10% carried participating interest held by Uranerz and
became interim operator of the project.
De Beers Canada became operator of the project effective December 1998.
Review of available data in a desktop study executed during 1999-2000 delineated
the four most high-priority targets (140/141,122,148,150).
Kensington and De Beers Canada have actively funded exploration throughout their
involvement in the project, while the participating interests of Uranerz and
Cameco have been reduced due to periods of non-funding from 1992 to 1999 (not
including periods of time when new FALC-JV partners were earning-in).
During 2001, the FALC-JV sold a block of 4 claims located near Weirdale (1024 ha
in area) which contain 2 drilled kimberlite bodies.
During 2002, the FALC-JV sold a block of 12 claims near Foxford (1088 ha), which
contain 2 drilled kimberlite bodies, and a block of 5 claims located northeast
of Birchbark Lake (320 ha) which contains a single drilled kimberlite body to
Shore Gold
All FALC-JV partners funded exploration and evaluation programs during 2001 -
2004 except for UEM (carried interest).
In late 2004 strategic refocusing resulted in the development of an Advanced
Exploration and Evaluation program (AE&E) to advance the project to
pre-feasibility within a three year timeframe based on identification and
evaluation of 70 million carats from high-grade zones in the central cluster of
kimberlites.
Accessibility, Climate, Local Resources, Infrastructure and Physiography
The property lies 65 km northeast of the City of Prince Albert (population
42,000) which is served by road, rail and scheduled air links. The closest
settlements are a series of villages located along Provincial Highway 55, which
link Prince Albert and the town of Nipawin. The highway roughly marks the
northern margin of an agricultural belt which extends to the White Fox River in
the south. This region is close to the northern limit of arable agriculture in
this segment of the province. The nearest point of juncture for power and phone
lines is 25 km north towards the town of Smeaton.
A network of logging roads and 4-wheel drive trails provides access within the
forested areas. The best of these sand roads are open all year and are
maintained by area logging companies and by the FALC-JV during field operations.
Provincial Highway 55 traverses the Snowden claims and also is a main trunk road
from which gravel grid roads surround the northern claims situated under
cultivated land.
The Fort a la Corne Forest and this portion of the Northern Provincial Forest
fall within the boreal transition eco-region which defines the gradation from
the grasslands and aspen groves of the south to the true boreal forest of the
north. The forests are mature, with a predominance of jack pine. Aspen, alder,
white and black spruce, poplar and tamarack are found in local stands. The
average elevation of the area is 450 m above sea level, with local relief of
less than 50 m in narrow creek valleys. The immediate area of the main
exploration/evaluation focus around kimberlite 140/141 has local relief of less
than 20 m and is predominantly flat with subtle hills.
12
Climate data has recently been compiled by the University of Saskatchewan
Geography Department as part of the Atlas of Saskatchewan Project (1999). The
climate of the Prince Albert region is described as humid continental, with cool
summers (Koppen temperature and precipitation classification). The annual mean
temperature (100 year average) is 0.8(degree)C. Monthly mean temperatures vary
from -19(degree)C (January) to +17(degree)C (July). The average annual number of
hot days (30(degree)C or higher) is 6. The average annual number of very cold
days (-30(degree)C or lower) is 29. The annual mean precipitation is 406 mm,
with precipitation (0.2 mm or greater) in 21 days per year, on average.
The uranium and gold mining operations of northern Saskatchewan are serviced in
part by Prince Albert area businesses, and industries draw skilled labour from
this area. Electrical power is generated nearby (the E.B. Campbell Hydro
Generating Station on the Saskatchewan River east of Nipawin) and a
telecommunications infrastructure is in place.
History
The Fort a la Corne area had not previously been explored for the occurrence of
kimberlites, although there are reports of a prospector having found as many as
five diamonds in the Melfort-Nipawin area prior to the Second World War. The
story however, remains unsubstantiated as the diamonds were reportedly lost in a
fire. A prospector hoping to follow-up on this report requested a permit from
the provincial government in 1948 for exclusive diamond prospecting within
Saskatchewan; this venture was abandoned because the government was only willing
to grant a permit area of 259 km(2).
The next report of diamond related activity in the area was in 1961 when several
stones were reportedly discovered in gravel downstream from Sturgeon Lake
(northwest of Prince Albert). Nothing of any substance developed. At around the
same time, a subsidiary of De Beers was reportedly conducting a regional
exploration program throughout southern Saskatchewan. A full description of
exploration activities leading up to the discovery of diamondiferous kimberlites
in the Fort a la Corne area is given in Lehnert-Thiel et al. (1992). To date, no
formal mineral resource or mineral reserve estimates for diamonds have been made
in the Fort a la Corne area.
Other than several aggregate deposits, no economic occurrences of minerals, oil
or gas have been discovered in the project area. Zones of banded iron formation
in the Precambrian basement near Choiceland (some 30 km to the east and
northeast of the joint venture properties) were investigated in 1955 by IREX and
IPSCO. The IREX-Zone (155 Mt grading 28% Fe) and the IPSCO-Zone (55 Mt grading
27% to 29% Fe) were found to be uneconomic. A third body, the Kelsey Lake Zone
investigated in 1975 (390 Mt at 34% Fe), was also found to be uneconomic. These
deposits lie approximately 600 m below surface and were found to consist of
inter-layered bands of magnetite and hematite dipping 65 to 70 degrees to the
east.
Oil and gas exploration wells have been drilled throughout the area, but none of
them currently produces hydrocarbons. Groundwater exploration holes, water well,
and oil and gas exploration holes are the main sources of information on the
sub-Quaternary geology within the project area. Notably, none of these holes was
ever reported to have encountered kimberlite.
Geological information about the area is available from groundwater testholes
and oil and gas exploration wells. Geological maps of Quaternary deposits and
other Phanerozoic units are available at a scale of 1:250,000. Information on
the Precambrian basement within the project area is largely restricted to
inferences gathered from airborne magnetic surveys. Data from a 1969 GSC
airborne magnetic survey is available on 1:253,440 scale map sheets.
Activities by Competitors in the Fort a la Corne Area
Spurred by the public interest generated both by the results obtained from the
Fort a la Corne Project and by the activities of the large number of companies
actively exploring for diamonds across much of Canada, an area in excess of 100
km north-south x 80 km east-west, centered on the FALC-JV dispositions, is
almost completely staked by more than 20 different companies. (NTS map sheets
63L, 73G, H, I, and J). Since 1989, the entire area has been closely scrutinized
by several companies utilizing the results and interpretations of geophysical
surveys that infrequently culminated with small-scale, local drilling programs.
In most cases, no new kimberlites were discovered, although significant
discoveries were made by two companies, Shore Gold Inc. and Forest Gate
Resources, which are discussed briefly below.
13
Up to 2005, some limited drilling had been completed in the immediate vicinity
of the Fort a la Corne Kimberlite Field as well as further to the north
(Smeaton, Wapawekka, and Candle Lake), although much of the work was of a
speculative and promotional nature. These activities indicated the presence of
three kimberlites north of the Fort a la Corne area and two kimberlites
(anomalies 137 and 139) in the former Crown Reserve along the southeast margin
of the joint-venture land holdings. Shore Gold continues to maintain an interest
in these southern-most bodies, and has extensively drilled the Star Kimberlite
Body (anomaly #139) including core drilling and one 24 inch diameter, reverse
circulation drillhole. On the basis of extensive work to produce a geological
model for the Star Kimberlite by the GSC, the Saskatchewan Geological Survey,
Dr. John Bowles of Mineral Science Ltd., and consultants with ACA Howe, Shore
Gold planned and initiated a bulk sample program to sample up to 30,000 tonnes
of kimberlite for diamond recovery. A 4.5 metre diameter shaft was excavated
during 2003 and 2004, and work continues on sampling the vertical and horizontal
extent of kimberlite near the interpreted main vent of the Star Kimberlite
project. The shaft extends to a depth of 250 m and extensive horizontal drifting
and limited underground delineation drilling are ongoing. Kimberlite samples are
processed through a 10 tonne per hour Dense Media Separation ("DMS") facility,
with final diamond recovery arising from DMS concentrate through a procedure
combining x-ray sorting, grease table technology, and hand-picking. An
additional 10,000 tonnes of kimberlite was excavated during 2005 to provide an
additional 1,500 carats to the 4,000+ carats already recovered to date. An
extensive drillhole program was initiated during the summer of 2005 with two
rigs drilling PQ (3-inch) coreholes in a 100 to 200 metre grid across the body.
Large diameter drillholes targeted on a subset of the coreholes will provide
representative samples from the central part of the body. These samples will be
run through the processing plant onsite and diamond results will be integrated
with subsurface correlation in the geological model to develop a National
Instrument 43-101 and Canadian Institute of Mining, Metallurgy and Petroleum
compliant Indicated Resource for the Star Kimberlite.
In addition to the Weirdale, Foxford, and Birchbark Lake claims recently
purchased from the FALC-JV, Shore Gold has progressively increased its land
holdings at the southern margin of the Fort a la Corne area since 1995. Its most
recent staking acquisitions were 3 small claims (60 ha) located at the junction
of the North and South Saskatchewan Rivers. Shore Gold currently holds 138
claims for a total of 23,952 ha. Under an earn-in agreement with Shore Gold,
Skeena Resources drilled two NQ coreholes into two different kimberlites within
the Weirdale cluster. Both holes intersected kimberlite and core samples were
submitted for diamond recovery. The evaluation program did not continue due to
low diamond recoveries and because Skeena Resources withdrew from the earn-in
agreement.
Forest Gate Resources Inc. ("Forest Gate") drilled a small geophysical anomaly
east of the FALC-JV landholdings approximately 2 kilometres from kimberlite body
119 during the 2nd quarter of 2003. Its first NQ drillhole intersected
kimberlite, but the hole was lost after intersecting some 26 m of kimberlite.
Subsequent attempts to intersect kimberlite by NQ and HQ coreholes were defeated
due to bad ground conditions in the glacial overburden causing the holes to be
lost above kimberlite. FGRI resumed investigation of the Dizzy Kimberlite in
November 2003. Five NQ holes were targeted on the central part of the magnetic
anomaly, all within some 50 m of the discovery hole. Details and results of the
drilling program have not yet been released by Forest Gate. Core drilling
continued on the property during 2004 and 2005 and a second kimberlite (Duke)
was discovered during June 2005 located on its south boundary with Shore Gold.
Additional drilling during the summer of 2005 re-tested ground adjacent to the
eastern boundary of the FALC-JV property in the vicinity of Kimberlite 121 and
119. An unknown thickness of resedimented kimberlite hosted within the
Cretaceous mudstones was intersected. Also in 2005, Forest Gate announced it had
acquired 100% ownership of a disposition totaling some 768 hectares located on
the central-western border of the main cluster of FALC-JV kimberlites and
adjacent to the western margin of Kimberlite 122.
Geological Setting
The project area lies near the northeastern rim of the Interior Platform of
North America. The platform is covered by a series of sedimentary rocks over
Precambrian basement in a 600 to 1,200 km wide belt between the Rocky Mountains
to the west, and the Canadian Shield, which crops out towards the northeast.
Little is known of the metamorphic basement underlying the kimberlite area
except for information gathered during 1950's and 1960's era exploration work at
the nearby Choiceland banded iron formation deposit.
14
Diamond recovery from kimberlite samples of the tested bodies indicate
approximately 70% of the kimberlites are diamond-bearing, and 50% are
macrodiamond-bearing (based on recovery of stones greater than 1.0 mm in one
dimension). These figures indicate Fort a la Corne to be the largest
macrodiamond-bearing kimberlite field in the world. The main group of
kimberlites is located within the Fort a la Corne Provincial Forest and forms a
north-northwest elongated cluster approximately 32 km in length, extending from
the Saskatchewan River to Highway 55 near Shipman. Smaller outlying kimberlite
clusters occur near Weirdale in the west, near Foxford in the north and near
Snowden in the northeast. A main grouping of very large kimberlite bodies occurs
in the southern part of the trend.
The footprint sizes of 69 kimberlite bodies originally held by the FALC-JV were
estimated from geophysical models to fall in the 2.7 to 184.0 hectare range. The
mass of kimberlite at each body was also estimated, using a conservative density
value of 2.5 gm/cc, and was reported to range from 3 to 675 million tonnes. From
the same report, the cumulative surface area of the kimberlite bodies contained
within the FALC-JV was estimated to be 2,818 hectares, and the total mass of
these kimberlites was estimated to be 9 billion tonnes. More recently, the 140
and 141 kimberlite bodies were shown to be part of a single large structure with
an estimated footprint of 250 hectares and greater than 500 million tonnes of
kimberlite, based on a density value of approximately 2.2 gm/cc.
Exploration
Exploration activities in the field have been conducted every year since 1989,
with the exception of 1998, and have included local and regional geophysical
surveys, drilling, and sampling for the recovery of macrodiamonds,
microdiamonds, and indicator minerals.
Geophysical Exploration
A total of 88 magnetic targets were obtained from 15,500 line-kilometres of
airborne magnetic survey. Seventy-one anomalies were interpreted as
kimberlite-type signatures. Extensive ground magnetic surveys were utilized to
refine the area and estimated thickness of each of the anomalies and in many
cases further work was done subsequent to discovery drilling of the kimberlite
bodies. While the geophysical emphasis has been on magnetics and gravity,
several other methods including CSAMT, seismic, and GEOTEM have been tested.
Drilling and Diamond Recovery Summaries
A total of 349 drillholes have been completed to the end of 2004-2005 program
using various methods to produce core or chips from boreholes ranging from small
to very large diameters (64 to 914 mm). By 1997, 69 of the original 71 (98.6%)
targets in the project area had been tested by drilling. The FALC-JV currently
retains 63 kimberlite bodies after selling several lower priority satellite
kimberlite clusters. Exploration and evaluation activities have included: grade
estimate studies, diamond valuations, diamond breakage studies, tracer studies,
core and chip logging, microscopic petrography, sedimentary and volcanological
studies, stratigraphic studies, radiometric age dating, zonation studies,
downhole geophysical logging, caliper logging, lithogeochemistry,
micropaleontology studies, magnetic susceptibility measurements, specific
gravity measurements, and drillhole location surveys. A historical accounting of
exploration activities and results from 1988 to 1997 is available in Jellicoe et
al. (1998) and Lehnert-Thiel et al. (1992). At least 5,600 tonnes of kimberlite
have been tested for macrodiamond content and thousands of samples for complete
diamond recovery were completed using caustic fusion or jigging procedures and
continue to be run to present-day. Almost half of this mass of kimberlite has
come from Kimberlite 140/141. While substantial and extensive programs of
geophysical surveys, drilling, sampling, and previously noted lines of
investigation have been completed over 69 kimberlite bodies, this work only
provided the means to initially prioritize the targets for more detailed work
from 2000 onwards. A summary of exploration work during the period 1987 to 1999
is available in a technical report titled "Summary of Exploration and Evaluation
of the Fort a la Corne Kimberlite Field, East-Central Saskatchewan" dated
September 2005. This report is available digitally on SEDAR as well as on the
Kensington Resources Ltd. website.
During 1999 and the early part of 2000, an in-depth evaluation and synthesis of
all available information for each kimberlite body was conducted separately by
De Beers Canada and Kensington staff. Based on these studies, De Beers Canada
identified 17 kimberlites as having sufficient information on which to
prioritize their diamond resource potential. From this list, 5 targets were
selected for continued evaluation of diamond content and value.
15
2000 Exploration and Sampling Program
A full review of all diamond recovery, including 1999 work, was completed by
MINRED in early 2000. This prioritization was based on body size, depth, grade,
and diamond size frequency distribution. Two kimberlites were chosen for further
work (large diameter drilling). Three 609 mm holes were placed into body 122 and
two were placed into 141. A total of 487 macrodiamonds weighing 38.37 cts were
recovered from the entire exercise.
Evaluation of the Fort a la Corne kimberlite bodies during 2000 and early 2001
utilized a synthesis of diamond recoveries, previous diamond valuations, and
estimated body size to prioritize the bodies with the most potential for
economic diamond deposits. Results of the desktop studies conducted in 1999 and
2000 are summarized in Table 2. Despite incomplete testing and difficulties in
rationalizing diamond recoveries from a variety of drilling and processing
methods, exploration was then focused on five high-priority bodies (Table 3).
Table 2: Kimberlite and Diamond Information Utilized in 2000 Prioritzation Study
---------------------------------------------------------------------------------------------------------------------
Body Size of Body Total Micro- Sample wt Total Total Macro Total Sample Average Sample
diamonds (kg) Microdiamond diamonds carats weight Stone size Grade
weight tonnes) (carats) cpht
(octacarats*)
---------------------------------------------------------------------------------------------------------------------
101 15.8 1 210.0 6,450 Not sampled
---------------------------------------------------------------------------------------------------------------------
116 27.3 0 17.0 0 0 0.000 27.8 0.0
---------------------------------------------------------------------------------------------------------------------
118 76.0 81 410.4 2,692,565 2 0.020 8.8 0.010 0.2
---------------------------------------------------------------------------------------------------------------------
119 23.7 7 267.6 71,750 0 0.000 34.9 0.0
---------------------------------------------------------------------------------------------------------------------
120 134.1 655 884.0 9,895,830 149 5.746 205.7 0.039 2.8
---------------------------------------------------------------------------------------------------------------------
121 34.8 357 776.5 9,196,102 63 2.340 60.6 0.037 3.9
---------------------------------------------------------------------------------------------------------------------
122 108.0 211 622.0 6,436,950 77 5.820 87.4 0.076 6.7
---------------------------------------------------------------------------------------------------------------------
123 24.4 153 300.3 29,207,503 7 0.132 18.3 0.019 0.7
---------------------------------------------------------------------------------------------------------------------
126 21.6 0 73.0 0 1 0.130 38.5 0.130 0.3
---------------------------------------------------------------------------------------------------------------------
133 17.0 42 152.0 87,400 1 0.045 42.7 0.045 0.1
---------------------------------------------------------------------------------------------------------------------
134 17.0 11 84.9 74,345 1 0.010 3.2 0.010 0.3
---------------------------------------------------------------------------------------------------------------------
135 41.0 1 52.8 18,597 Not sampled
---------------------------------------------------------------------------------------------------------------------
140 143.6 391 1122.6 12,410,200 39 2.010 77.6 0.052 2.6
---------------------------------------------------------------------------------------------------------------------
141 106.8 102 574.2 4,175,600 18 0.925 34.8 0.051 2.7
---------------------------------------------------------------------------------------------------------------------
144 32.0 2 68.8 11,250 Not sampled
---------------------------------------------------------------------------------------------------------------------
145 42.7 490 985.4 22,711,356 32 0.908 52.7 0.028 1.7
---------------------------------------------------------------------------------------------------------------------
147 135.4 658 207.0 12,113,910 114 4.180 78.3 0.037 5.3
---------------------------------------------------------------------------------------------------------------------
148 184.0 374 262.0 3,711,050 70 2.369 121.4 0.034 2.0
---------------------------------------------------------------------------------------------------------------------
150 67.2 162 473.0 9,894,000 37 2.885 117.1 0.078 2.5
---------------------------------------------------------------------------------------------------------------------
151 No data 4 0.460 5.5 0.115 8.3
---------------------------------------------------------------------------------------------------------------------
152 24.8 47 166.0 697,500 0 0.000 0.4 0.0
---------------------------------------------------------------------------------------------------------------------
154 32.0 4 100.0 95,345 Not sampled
---------------------------------------------------------------------------------------------------------------------
155 18.0 12 105.6 1,093,587 7 0.080 4.3 0.011 1.9
---------------------------------------------------------------------------------------------------------------------
156 6.9 11 140.8 209,621 0 0.000 5.8 0.0
---------------------------------------------------------------------------------------------------------------------
157 2.7 3 58.7 19,185 Not sampled
---------------------------------------------------------------------------------------------------------------------
159 10.0 2 52.8 4,233 Not sampled
---------------------------------------------------------------------------------------------------------------------
162 55.5 33 234.0 262,950 3 0.120 17.9 0.040 0.7
---------------------------------------------------------------------------------------------------------------------
166 15.0 19 88.0 177,821 3 0.042 3.0 0.014 1.4
---------------------------------------------------------------------------------------------------------------------
167 69.5 30 252.0 50,000 8 0.315 15.4 0.039 2.0
---------------------------------------------------------------------------------------------------------------------
168 31.9 1 20.0 1,450 5 0.215 30.6 0.043 0.7
---------------------------------------------------------------------------------------------------------------------
169 78.5 128 626.4 4,581,540 47 4.075 74.0 0.087 5.5
---------------------------------------------------------------------------------------------------------------------
170 25.0 36 93.6 573,415 7 0.099 5.1 0.014 1.9
---------------------------------------------------------------------------------------------------------------------
16
---------------------------------------------------------------------------------------------------------------------
Body Size of Body Total Micro- Sample wt Total Total Macro Total Sample Average Sample
diamonds (kg) Microdiamond diamonds carats weight Stone size Grade
weight tonnes) (carats) cpht
(octacarats*)
---------------------------------------------------------------------------------------------------------------------
174 37.8 112 296.8 9,632,700 2 0.035 11.7 0.018 0.3
---------------------------------------------------------------------------------------------------------------------
175 36.8 47 251.6 343,500 5 0.290 10.1 0.058 2.9
---------------------------------------------------------------------------------------------------------------------
176 26.0 172 258.7 15,993,385 17 0.966 49.3 0.057 2.0
---------------------------------------------------------------------------------------------------------------------
181 13.0 2 339.6 17,750 0 0.000 30.7 0.0
---------------------------------------------------------------------------------------------------------------------
218 22.0 5 143.0 8,400 2 0.180 17.8 0.090 1.0
---------------------------------------------------------------------------------------------------------------------
219 42.4 47 192.2 1,927,950 4 0.185 39.9 0.046 0.5
---------------------------------------------------------------------------------------------------------------------
220 23.7 409 199.4 13,195,244 69 3.133 69.7 0.045 4.5
---------------------------------------------------------------------------------------------------------------------
221 7.2 73 264.4 7,658,734 21 0.341 5.5 0.016 6.2
---------------------------------------------------------------------------------------------------------------------
223 4.7 10 60.5 227,442 2 0.123 2.2 0.062 5.6
---------------------------------------------------------------------------------------------------------------------
269 8.3 3 8.3 9,884 Not sampled
---------------------------------------------------------------------------------------------------------------------
326 43.4 0 18.0 0 2 0.060 20.2 0.030 0.3
---------------------------------------------------------------------------------------------------------------------
601 86.2 24 100.1 108,158 1 0.008 4.8 0.008 0.2
---------------------------------------------------------------------------------------------------------------------
602 68.3 4 234.0 36,200 0 0.000 3.0 0.0
---------------------------------------------------------------------------------------------------------------------
603 19.3 1 18.0 4,850 1 0.270 36.2 0.270 0.7
---------------------------------------------------------------------------------------------------------------------
606 43.8 21 213.0 229,550 0 0.000 3.9 0.0
---------------------------------------------------------------------------------------------------------------------
611 1.8 1 57.3 1,000 0 0.000 2.9 0.0
---------------------------------------------------------------------------------------------------------------------
614 24.0 1 139.0 900 17 1.425 26.7 0.084 5.3
---------------------------------------------------------------------------------------------------------------------
615 12.2 3 68.6 4,632 Not sampled
---------------------------------------------------------------------------------------------------------------------
* = 1 octacarat is equivalent to 1x10-8 carat
The primary objective of the 2000 program was to obtain large minibulk samples
from two prioritized bodies. Results from this program are shown in Table 4. The
drilling program was structured to enable maximum recovery of macrodiamonds in
order to provide a first-order, average value (US$/carat) of the stones in each
body.
Table 3: Prioritized Kimberlite Bodies
- ----------------------------------------------------------------------------------------------------------------
Modeled Macro-diamond De Beers
Est. Mass # of Minibulk Mass Average Grade Forecast
Kimberlite Body Area (millions of Drill (tonnes) Micro-diamond (cpht) Commercial
(Ha) tonnes) Holes (stones/tonne) Grade (cpht)
- ----------------------------------------------------------------------------------------------------------------
122 108 540 11 388 340 5.2 16
- ----------------------------------------------------------------------------------------------------------------
140 144 537 8 74 377 4.4 5-19
- ----------------------------------------------------------------------------------------------------------------
141 107 395 5 271 180 4.8 19
- ----------------------------------------------------------------------------------------------------------------
147 135 497 5 73 3,180 7.2 15
- ----------------------------------------------------------------------------------------------------------------
148 184 675 12 121 1,425 2.2 10
- ----------------------------------------------------------------------------------------------------------------
150/151 112 336 6 120 340 4.8 16
- ----------------------------------------------------------------------------------------------------------------
17
Table 4: Macrodiamond Recoveries from 2000 Drillholes
- ----------------------------------------------------------------------------------------------------------------
Kimberlite Minibulk Sample
Intersection Mass Number Grade
Drillhole (metres) (kilograms) Of Stones Carats (cpht) Large Stone Recovery
- ----------------------------------------------------------------------------------------------------------------
122-09 155.7 129.153 63 4.235 3.3 1 stone >0.5 carats
- ----------------------------------------------------------------------------------------------------------------
122-10 146.0 118.092 57 5.105 4.3 1 stone >0.5 carats
- ----------------------------------------------------------------------------------------------------------------
122-11 102.8 81.078 92 7.970 9.7 4 stones >0.5 carats
- ----------------------------------------------------------------------------------------------------------------
Subtotal 404.5 328.324 212 17.310 5.3
- ----------------------------------------------------------------------------------------------------------------
141-04 168.1 138.590 169 12.840 9.3 2 stones >0.5 carats;
2 stones >1.0 carat
- ----------------------------------------------------------------------------------------------------------------
141-05 144.5 113.260 106 8.220 47.2 4 stones >0.5 carats
- ----------------------------------------------------------------------------------------------------------------
Subtotal 312.6 251.850 275 21.060 8.4
- ----------------------------------------------------------------------------------------------------------------
2000 Total 717.1 580.175 487 38.370
- ----------------------------------------------------------------------------------------------------------------
Past stone valuations were considered rough estimates only due to very small
parcel sizes and a lack of larger stones. Due to these factors, average diamond
values per body were often understated, despite a large fraction of gem-quality
stones. Concern for these problems by Kensington and De Beers Canada have led to
the use of two methods to understand the quality of diamond at Fort a la Corne.
De Beers formulates modeled values based on integration of average sieve
fractions for commercial-sized stones with the diamond size distributions and
grade forecasts. In concert with this approach, individual stone values and
average body values are currently being assessed by an independent diamond
consultant with specific expertise in this area. All forecast grades and modeled
values are evaluated during revenue modeling for the prioritized bodies.
2001 Exploration and Sampling Program
The 2001 kimberlite evaluation program was a combined drilling program of core
and large diameter, reverse circulation holes that were followed by macrodiamond
recovery from the acquired kimberlite bulk samples. Following the initial
macrodiamond recoveries, and subsequent revenue modeling by MINRED in 2000 and
early 2001, it was noted that at the middle and upper end of ore value
estimates, the 141 kimberlite had the potential to be economic, when compared to
the 1996 Fluor Daniel Wright Scoping Study.
A program was designed to collect sufficient diamonds to reduce the uncertainty
surrounding the diamond value estimates for body 141. MINRED suggested that 100
cts (total recovery) should be sufficient to achieve this aim. Some discussion
was held to determine the best method to collect these stones as well as to test
or investigate a larger part of the kimberlite.
Added to this was the possibility that both kimberlites 141 and 140 were in fact
part of the same body. Barbara Scott Smith concluded this in 1994 after viewing
core data from both kimberlites. While diamond size frequency plots for the two
bodies looked quite different, it was felt that this difference may have been a
reflection of sample bias. Removing some questionable drill hole diamond size
frequency data from plots of kimberlite 140 flattened the curve to resemble the
relatively coarse size frequency distribution of kimberlite 141.
MINRED stated they would require 100 carats from kimberlite 141 to enable them
to model a diamond value with a higher degree of confidence. Calculated from the
2000 kimberlite intersections and results, eight large diameter drill holes
would be necessary to recover the additional 80 cts required. Some work was
proposed on kimberlite 150 as this was the third prioritized target from the
MINRED 2000 review; two large diameter drill holes were planned for 150. As the
2000 large diameter drillhole program produced high volumes of kimberlite
sample, diamonds larger than one carat, and minimal breakage, the 24 inch
reverse flood method was again chosen as the preferred drilling technique.
The high cost of large diameter drilling, along with the poorly understood but
possibly complex kimberlite geology of kimberlite 141 prompted a proposed
program of core drilling to ensure planned large diameter drillholes were
correctly sited. Up to eight PQ sized holes were originally proposed but upon
receiving drill quotes from contractors, and discussing petrographic
requirements with the De Beers' petrographic consultant, Barbara Scott Smith, it
was decided that up to 16 NQ sized (47.6 mm) core holes could be installed for
the same cost and benefit.
18
A core hole was therefore planned for each proposed large diameter site to gain
some geological control before the larger diameter work. This left a further 6
core holes available for geology-only investigations. Large diameter drill holes
were planned in the expectation that reasonable intersections of kimberlite
could be obtained around the 2000 sites. All drill holes were sighted on a UTM
grid established over the kimberlites and field staff were prepared to relocate
large diameter sites based on corehole intersections. The final program
therefore called for 16 core holes (14 planned on kimberlites 140/141 and 2 on
kimberlite 150) and 10 x 24 inch drill holes (8 holes into kimberlite 141, 2
holes into kimberlite 150).
Drilling of sixteen NQ (1.875 inch diameter) cores, predominantly from the 141
body, permitted geological evaluation of the kimberlites and was a means to spot
the locations of the large diameter drillholes. Large diameter drilling is used
for acquisition of bulk samples for macrodiamond recovery and stone valuation.
Sixteen NQ (47.6 mm) diameter drill holes were completed, comprising 13 holes on
kimberlite 141, one hole into kimberlite 140 and two core holes into kimberlite
150. A summary of corehole statistics is summarized in Table 5.
In general, coreholes were constructed with the use of three bits of different
size. Surface holes were installed using a mud circulation system and an HW
tricone milled tooth bit (130.2 mm diameter). At around 30 m, the HW tricone was
replaced with a NW tricone bit (98.4 mm) and again mud was used for circulation.
This was used until around 93-96 m when an NQ core bit replaced the tricone and
coring commenced. Core drilling was generally conducted with either fresh water
or at least low viscosity mud. Casing was generally installed to around 80 m
although on occasion this dropped so additional lengths had to be added.
Two exceptionally thick intersections of kimberlite were sampled. The first was
in hole 141-09 (Table 6) where 257.8 m of kimberlite were intersected. This hole
was located on the modeled margin of kimberlite 141. The second deep
intersection was seen in hole 141-13. Kimberlite was intersected between 111 m
and the bottom of the hole at 450 m. The hole was terminated in kimberlite. It
is believed that both holes are located near or within the main feeder vent of
the 141 body.
Table 5: Core Intersection Summary
- -----------------------------------------------------------------------------------------
Drillhole Top of Kimberlite Bottom of Kimberlite Kimberlite Thickness (m)
(m) (m)
- -----------------------------------------------------------------------------------------
141-06 103.5 246.0 142.5
- -----------------------------------------------------------------------------------------
141-07 109.5 238.5 129.0
- -----------------------------------------------------------------------------------------
141-08 109.5 273.5 164.0
- -----------------------------------------------------------------------------------------
141-09 105.0 362.8 257.8
- -----------------------------------------------------------------------------------------
141-10 101.5 254.9 153.4
- -----------------------------------------------------------------------------------------
141-11 102.5 192.0 89.5
- -----------------------------------------------------------------------------------------
141-12 112.5 266.5 154.0
- -----------------------------------------------------------------------------------------
141-13 111.16 450+ 338.84
- -----------------------------------------------------------------------------------------
141-14 105.01 207.8 102.79
- -----------------------------------------------------------------------------------------
141-15 115.3 233.6 118.3
- -----------------------------------------------------------------------------------------
141-16 105.8 221.1 115.3
- -----------------------------------------------------------------------------------------
141-17 114 250.8 136.8
- -----------------------------------------------------------------------------------------
141-18 110.95 201 90.05
- -----------------------------------------------------------------------------------------
140-09 116 229.5 113.5
- -----------------------------------------------------------------------------------------
150-06 97.4 282.6 185.2
- -----------------------------------------------------------------------------------------
150-07 95.6 236.4 140.8
- -----------------------------------------------------------------------------------------
Total: 2,431.78
- -----------------------------------------------------------------------------------------
19
The main objective of the 2001 program was to obtain sufficient macrodiamonds to
provide approximately 60 additional carats for valuation in order to increase
the confidence level of reported modeled values and revenue for the 141
kimberlite. Also, the shape, size, diamond distribution, and internal
architecture of the body will be estimated using the 3D capabilities of GEMCOM,
a computer program that plots drillhole and diamond recovery information.
A combined kimberlite intersection of 1,327.2 metres facilitated excavation of a
total of 889.8 tonnes of kimberlite of which 471 tonnes of wet chips greater
than 1.5 mm in size were retained for diamond recovery. Of these totals, 120.96
tonnes were excavated from the kimberlite 150 body with 60.37 tonnes of wet,
coarser chips saved for processing. A total of 768.85 tonnes of wet chips were
excavated from kimberlite 141. Theoretical (excavated) kimberlite masses shown
in Table 6 were calculated using continual borehole diameter information from
downhole caliper surveys. Some sample information listed here was revised from
previous news releases.
Table 6: Summary of Minibulk Sampling
-------------------------------------------------------------------------------------------------
Drillhole Number Kimberlite Theoretical Mass Kimberlite Total Depth of Hole
Intersection (tonnes) (metres)
(metres)
-------------------------------------------------------------------------------------------------
141-20 145.5 95.586 255.2
-------------------------------------------------------------------------------------------------
141-21 142.2 93.399 245.0
-------------------------------------------------------------------------------------------------
141-22 119.0 84.129 231.0
-------------------------------------------------------------------------------------------------
141-23 160.8 104.589 267.0
-------------------------------------------------------------------------------------------------
141-24 115.7 76.940 231.0
-------------------------------------------------------------------------------------------------
141-25 101.3 66.681 206.6
-------------------------------------------------------------------------------------------------
141-26 126.1 82.472 236.2
-------------------------------------------------------------------------------------------------
141-27 115.6 76.463 219.5
-------------------------------------------------------------------------------------------------
141-28 135.2 88.589 244.7
-------------------------------------------------------------------------------------------------
150-08 165.9 120.958 262.0
-------------------------------------------------------------------------------------------------
Total: 1,327.2 889.8 2,398.2
-------------------------------------------------------------------------------------------------
Initial processing of 117 samples (each representing approximately 12 metres of
kimberlite intersection) was conducted at the De Beers Dense Media Separation
(DMS) facility at Grande Prairie between September 19, 2001 and October 20,
2001. The total headfeed weight of drained kimberlite was 413.134 tonnes for the
bulk sample from kimberlite 141 and 57.988 tonnes for the kimberlite 150
minibulk sample. Reduction of material for diamond recovery by concentration of
heavy minerals (and diamonds) resulted in a 99.2% decrease in mass.
Consequently, only 3,773 kilograms of +1.5 mm material were shipped to De
Beers's facilities in South Africa for final diamond recovery and sorting (Table
7). Ten audit samples and 5 repeat samples were run during processing.
Table 7: Summary of 2001 Initial Processing by Dense Media Separation
- ------------------------------------------------------------------------------------------------------
Drillholes Number of Dense Media Heavy Mineral Concentrate Concentrate % of
Samples Headfeed Mass Weight Headfeed
(tonnes) (kilograms) Mass
- ------------------------------------------------------------------------------------------------------
141-20 to 28 103 413.134 2,852.08 0.7
- ------------------------------------------------------------------------------------------------------
150-08 14 57.988 920.90 1.6
- ------------------------------------------------------------------------------------------------------
Program Total: 117 471.122 3,772.98 0.8
- ------------------------------------------------------------------------------------------------------
20
141 Macrodiamond Recovery and Grade Estimates
A total of 769 tonnes of kimberlite were excavated in 2001 from kimberlite 141
utilizing large diameter drillholes. Final diamond recovery from 3,773 kilograms
of heavy mineral concentrate, derived from the dense media separation process,
gave recovery of a total of 466 stones with a cumulative mass of 45.59 carats.
Of this total, 431 macrodiamonds (greater than 1.5 mm in size) weighing 42.455
carats were recovered and added to the existing kimberlite 141 inventory of 248
stones weighing 21.22 carats recovered from program samples acquired in 2000.
Notably, a single stone weighing 3.335 carats was recovered from the 141
samples. The average sample grade (total program carats divided by total sample
tonnes) was 0.055 carats per tonne or 5.5 carats per hundred tonne; this
compares with 18 cpht from forecast grades, which are expected to better reflect
the average grade over the entire kimberlite rather than localized (area and
stratigraphic) deficiencies or abundances due to extreme nugget effects known to
be common to heterogeneous diamond deposits. Diamond recovery for the samples
from kimberlite 150 yielded 35 stones weighing 3.135 carats were recovered from
kimberlite 150. Fewer carats than initially anticipated were recovered from the
2001 program resulting in lower minibulk sample grades and less stones in the
greater than 0.5 carat range (particularly, in comparison to 2000 samples for
kimberlite 141). Some reasons for this discrepancy include:
Poor drilling completion in 3 of 10 holes resulting in inability to sample the
bottom-most kimberlite strata that were expected to yield significant numbers of
stones;
Change in lower treatment size cut-off from 1.0 mm to 1.5 mm in 2001, which
resulted in fewer stones and less carats recovered;
Re-calculation of kimberlite density from 2.5 to 2.21, based on several hundreds
of sample measurements; this re-calculation impacts on the sample grade
calculation; and
Complexity in kimberlite lithotype encountered by drilling that may reflect
variations in diamond distribution.
Microdiamond Recovery
Representative core samples from drillholes 141-09 and 141-12 were selected for
total diamond recovery using caustic dissolution methods in De Beers's
facilities. A total of 424 microdiamonds were recovered from this procedure with
a cumulative weight of 0.143 carats. Data derived from this exercise were
incorporated in the forecast grades estimates for parts of kimberlite 141.
Table 8 shows sample grades for the eleven 610 mm diameter boreholes drilled in
2000 and 2001 that range up to 41.5 cpht and cumulatively average 5.5 cpht.
Notably, the high-end sample grade includes the 3.335-carat stone recovered from
a 2001 sample. Individual minibulk sample grades are not considered
representative of the average grade of the kimberlite. Rather ,the range of
values likely brackets the actual grade of specific kimberlite phases or units,
of which there may be several within a given drillhole. Grade estimates derived
from statistical modeling of diamond size distributions for kimberlite 141
ranged from 5 to 12 cpht. These estimates are extrapolations for stones greater
than 1.5 mm in size and pertain only to the central portion of kimberlite 141
where testing was conducted during 2000 and 2001.
Table 8: Minibulk Sample Grades for 2000 and 2001 Drillholes in Kimberlite 141
-----------------------------------------------------------------------------------------------
Preliminary Estimate
Year Range of Minibulk Average Borehole of Number of
Drillhole Drilled Sample Grade (cpht) Sample Grade (cpht) Kimberlite Phases
-----------------------------------------------------------------------------------------------
141-20 2001 0 - 41.5 6.6 3
-----------------------------------------------------------------------------------------------
141-21 2001 0 - 16.1 6.4 4
-----------------------------------------------------------------------------------------------
141-22 2001 0 - 17.7 7.2 2
-----------------------------------------------------------------------------------------------
141-23 2001 0 - 11.4 5.5 2
-----------------------------------------------------------------------------------------------
141-24 2001 0 - 21.3 5.2 3
-----------------------------------------------------------------------------------------------
21
-----------------------------------------------------------------------------------------------
Preliminary Estimate
Year Range of Minibulk Average Borehole of Number of
Drillhole Drilled Sample Grade (cpht) Sample Grade (cpht) Kimberlite Phases
-----------------------------------------------------------------------------------------------
141-25 2001 0 - 9.7 2.7 2
-----------------------------------------------------------------------------------------------
141-26 2001 0 - 17.2 5.5 at least 2
-----------------------------------------------------------------------------------------------
141-27 2001 0 - 6.9 2.1 2
-----------------------------------------------------------------------------------------------
141-28 2001 0 - 13.9 4.2 3
-----------------------------------------------------------------------------------------------
141-04 2000 0 - 34.3 8.4 4
-----------------------------------------------------------------------------------------------
141-05 2000 0 - 19.7 7.1 4
-----------------------------------------------------------------------------------------------
Interpretive Results for 2001 Drilling and Sampling Program
De Beers Canada, the operator of the project, oversaw preparation of an
evaluation report authored by managers and geoscientists in Mineral Resource
Services (MRS), a department of De Beers located in Johannesburg, South Africa.
The report, for which preliminary results were supplied during July 2002, was
finalized in November 2002 based on currently available information and was
modeled by De Beers using proprietary techniques. Macrodiamond recoveries for
2000 and 2001 were carried out at De Beers' facilities located in Canada and
South Africa. The total microdiamond inventory that was recovered in early 2002
and utilized in the current grade forecasts was recovered both from Lakefield
Laboratory in Canada and the De Beers' laboratories in Kimberley, South Africa.
Services and interpretations rendered to the FALC-JV by De Beers were not
independent or "at arms-length" due to their involvement in the project as a
partner.
141 Modeled Diamond Values and Preliminary Assessment of Revenue
Actual average parcel diamond values for the 2001 stones were posted at
US$52.60/carat, reflecting a substantial increase from US$33.67/carat for the
2000 stones. De Beers notes that since the valuation of the 2000 diamond parcel,
the rough market has undergone a negative shift, a trend that only recently is
showing signs of a reversal. For the purpose of modeling diamond value, the 2000
and 2001 parcels were not valued as a single parcel; rather they were combined
on paper only, keeping the diamonds separate for later layout exercises that
will be used to determine if the recovered diamonds differ in a gross sense
across the 140/141 kimberlite body as drilled to date.
Modeled dollar per carat values in diamond exploration takes into account the
expected diamond size distribution from any potential, future production
scenario. An average dollar/carat value is based on diamond values extrapolated
upwards to include recoveries modeled in the larger diamond sieve sizes. A model
for 141 was fitted around the actual dollar per carat per sieve class recoveries
leading to average values for all of the applicable diamond sieve categories.
Combination of the modeled revenue curve and diamond size distribution yielded
updated dollar per carat value estimates. This gave modeled values for 141
macrodiamonds that ranging from US$20 to US$220/carat. In light of the
difference between modeled parcel and actual values, De Beers suggested that for
small diamond samples, the actual parcel value is highly variable and the actual
dollar per carat value for a potential producer is usually understated.
Modeled values were combined with grade estimates and dollar per tonne values
were calculated for the modeled size distributions. Hence, as a preliminary
assessment of revenue based on value and grade estimates, De Beers indicated a
range from US$1 to US $26/tonne. Confidence limits of 80% for the modeled values
and a preliminary assessment of revenue reflect variability in diamond size
distribution and diamond value, but not of grade. However, Kensington considers
all estimates, particularly those of grade, with low confidence in respect of
newly-defined geological complexity (at least 4 phases of kimberlite) and with
respect to variations in diamond size distribution in the 141 and 140 bodies,
overall small diamond parcel sizes, and low levels of sampling across the
breadth of the body (nugget-effect).
22
Valuation of the 2000/2001 diamonds was conducted during November 2002 by WWW
International Diamond Consultants ("WWW"). WWW indicated an overall average
value, based on its open market price book, of 15-20% higher than that listed by
De Beers for the same diamond parcels. The De Beers valuations were made
utilizing the DTC June 2002 price book. The single large stone measuring 3.335
carats that was recovered from large diameter drillhole 141-20 was given a value
of US$450/carat, compared to US$390/carat value attributed by De Beers. WWW also
pointed out the technical difficulties of putting a realistic market value on a
relatively small geological sample.
2001 Macrodiamond Breakage Study
A total of 441 macrodiamonds from kimberlites 141 and 150 were examined for
fresh, unetched surfaces that are considered the result of man-made breakage
caused by drilling or diamond recovery procedures. Of the 33 stones examined
from kimberlite 150, thirteen were significantly broken with estimated loss of
diamond ranging from 50% to greater than 75%. Two stones were "fragments", which
are defined as diamonds that have no original faces intact, thus obscuring
determination of the size of the original stone, and three stones were "minor"
to "very minor" fragments with estimated diamond loss of greater than 50% of the
stone; this strongly suggests shattering of larger diamonds. In total, 39.4% of
the diamonds from kimberlite 150 were broken to some degree. All stones
recovered from kimberlite 150 were captured in round diamond sieves having
openings of 2.845 mm or smaller. The increased breakage is due to the relatively
harder and higher density rock in kimberlite 150 compared to softer, more
altered kimberlites as seen in bodies 141 and 122.
Seventy-six macrodiamonds of the 407 examined from kimberlite 141 samples were
damaged to some degree. Of the total number from kimberlite 141, approximately
3% (12 stones) were "fragments" and 4% (17 stones) were classed as "minor" to
"very minor" pieces that strongly suggest shattering of a larger diamond. The
remaining 47 broken stones constituted 10.8% of the diamonds resulting in a
cumulative macrodiamond breakage of 18.7%. This figure is marginally higher than
the 17% breakage observed in the investigation of samples from body 141 in 2000
but was considered an acceptable low level of breakage by De Beers for a large
diameter drill program. Of the 98 stones captured by a 2.464+ mm round diamond
sieve, although 11 stones had estimates of greater than 25% loss due to
breakage, most of the largest stones captured by 3.454+ mm sieves did not have
significant breakage. Loss of "fragments" and "minor" pieces to the discarded,
undersize fraction of the excavated kimberlite (greater than 1.5 mm) cannot be
adequately quantified and shattering of larger diamonds may still be an issue
beyond simple estimation of loss from recovered stones. Estimation of the actual
amount of diamond lost from broken pieces is not factored in the grade
calculations or grade forecasts, which are based on size distribution of the
recovered stones.
2002 Exploration and Sampling Program
The budget for this program was pegged at $5.2 million based on recommendations
put forward by geoscientists of the De Beers Mineral Resource Services Group
(MRS) following evaluation of draft interpretations of results from the combined
2000 and 2001 programs. A two-stage drilling program (coring and minibulk
sampling) was focused on improving the understanding of geology, diamond
distribution, and diamond values within the combined 140/141 body with the goal
of ultimately proving a resource tonnage. Minibulk samples were acquired from
three very large diameter, reverse-circulation drillholes (914.4 mm or 36 inch),
which were targeted on the central part of the northwest eruptive centre. These
drillholes were targeted to provide additional stones to improve confidence
levels in diamond valuations for this part of the body. In addition, five
favourable locations were chosen from the sparsely-tested southeastern and
central portions of the combined 140/141 body for minibulk sampling using large
diameter (609 mm or 24 inch) reverse circulation drilling.
The program gave emphasis to the following:
(i) A 2 Phase Drilling Program composed of 25 NQ coreholes (1.875 inch
diameter), three - 36 inch diameter RC boreholes, and five - 24 inch
diameter RC boreholes;
(ii) Geophysical Studies: Ground Magnetic and Gravity Surveys, and a
Magneto-Telluric Survey;
(iii) De Beers Evaluation by MRS: Grade Forecasts, Valuation, and Revenue
Calculations;
(iv) Geotechnical Studies - Test structural integrity of bedrock and
kimberlite;
(v) GEMCOM Modeling of the Kimberlite and Economic Parameters; and
(vi) Conceptual Modeling Exercise: an in-house study conducted by AMEC
engineering with assistance from the FALC-JV partners, to define
thresholds for continued economic evaluation of the kimberlites. This
is an internal report that is not specifically applicable to a single
body.
23
Large diameter, air-assist, mud-flood, reverse circulation drilling (LDDH) was
conducted by Layne-Christensen Drilling. Three cased 36-inch LDDH were targeted
in a tight cluster around corehole 141-29 and LDDH 140-04 which returned
significant grades and larger stones in 2000. The remainder of the LDDH program
included five 24-inch boreholes strategically placed in locations of favourable
corehole intervals with indications of higher diamond prospectivity. The eight
large diameter drillholes will provide additional carats to increase the level
of confidence in grade forecasts, valuations and revenue modeling by De Beers.
Ground geophysical surveys completed in the summer of 2002 on the 140/141 body
and surrounding areas suggest the possibility of thicker kimberlite than
originally expected in areas extending from and close to the combined body. One
such adjacent area was shown by coincident gravity and magnetic anomalies as a
large extension (approx. 600 x 600 metres) westwards from the southern part of
kimberlite body 140. In addition, an intense gravity anomaly coincident with a
weak magnetic dipole occurs off the western flank of 141. Another gravity
anomaly of similar magnitude and size (approx. 600 x 600 metres) exists
approximately 800 metres to the southeast of body 140. These anomalies fit in
well with the linear northwest trend apparent in the main kimberlite cluster.
FALC-JV geophysicists are evaluating these anomalies to ascertain whether they
are prospective for new areas of kimberlite.
Core Drilling Program
A total of 25 NQ coreholes (diameter of 1.875 inches or 47.6 mm) were completed
on kimberlite 141/140. Drillhole 141-36 intersected 171.0 metres of kimberlite,
and corehole 140-21 produced 264.2 metres (approx. 865 feet) of kimberlite and
was terminated while still in kimberlite due to poor drilling conditions. The
coarseness of kimberlite and thicker interval may indicate that this hole is on
or near the vent of kimberlite 141/140 and is considered highly prospective for
diamonds due to indicator mineral abundance, coarse grain size, and presence of
mantle xenoliths. Both kimberlite bodies are currently understood by geological
modeling to form a single body. Preliminary evaluation of the core from the
south-central portion of the 140/141 body indicates a new area of
stratigraphically distinct upper kimberlite which exhibits characteristics that
are considered prospective for diamond grade. Boreholes 141-18 and 141-37 were
both terminated in kimberlite due to lost steel downhole, and borehole 140-20
was shut down in kimberlite due to drilling difficulties. Table 9 summarizes the
core drilling program.
Table 9: Summary of Core Drilling Program
---------------------------------------------------------------------------------------
Drillhole Top of Bottom of Kimberlite Total Drill
Number Kimberlite Kimberlite Thickness Depth
(metres) (metres) (metres) (metres)
---------------------------------------------------------------------------------------
140-10 110.0 242.0 132.0 250.8
---------------------------------------------------------------------------------------
140-11 102.0 167.0 65.0 201.0
---------------------------------------------------------------------------------------
140-12 102.0 242.9 140.9 247.5
---------------------------------------------------------------------------------------
140-13 110.0 236.6 126.6 243.0
---------------------------------------------------------------------------------------
140-14 109.0 244.3 135.3 249.0
---------------------------------------------------------------------------------------
140-15 102.0 336.5 234.5 342.0
---------------------------------------------------------------------------------------
140-16 99.7 237.3 137.6 243.0
---------------------------------------------------------------------------------------
140-17 104.1 258.2 154.1 261.0
---------------------------------------------------------------------------------------
140-18 99.8 120.0 20.2 120.0
---------------------------------------------------------------------------------------
140-19 104.1 218.1 114.0 231.0
---------------------------------------------------------------------------------------
140-20 99.5 221.0 121.5 221.0
---------------------------------------------------------------------------------------
140-21 105.3 369.5 264.2 369.5
---------------------------------------------------------------------------------------
140-22 107.8 185.0 77.2 198.0
---------------------------------------------------------------------------------------
140-23 125.0 180.9 55.9 192.0
---------------------------------------------------------------------------------------
140-24 110.7 214.8 104.1 225.0
---------------------------------------------------------------------------------------
140-25 108.2 189.6 81.4 195.0
---------------------------------------------------------------------------------------
140-26 110.7 218.5 107.8 225.0
---------------------------------------------------------------------------------------
140-27 118.7 207.4 88.7 219.0
---------------------------------------------------------------------------------------
141-29 105.8 273.0 167.2 279.0
---------------------------------------------------------------------------------------
141-34 101.4 238.1 136.7 246.0
---------------------------------------------------------------------------------------
24
---------------------------------------------------------------------------------------
Drillhole Top of Bottom of Kimberlite Total Drill
Number Kimberlite Kimberlite Thickness Depth
(metres) (metres) (metres) (metres)
---------------------------------------------------------------------------------------
141-35 109.0 215.0 106.0 222.0
---------------------------------------------------------------------------------------
141-36 102.5 273.5 171.0 280.0
---------------------------------------------------------------------------------------
141-37 104.8 124.0 19.2 124.0
---------------------------------------------------------------------------------------
141-37 104.8 255.1 150.3 261.0
---------------------------------------------------------------------------------------
141-38 106.2 218.5 112.3 231.0
---------------------------------------------------------------------------------------
Totals: 3,023.7 5,875.8
---------------------------------------------------------------------------------------
Reverse Circulation Drilling and Kimberlite Sample Tonnages for 2002
Three very large diameter drillholes (914.4 mm or 36 inch) were targeted on the
central part of the northwest eruptive centre in order to maximize recovery of
diamonds to improve confidence levels for diamond valuations in this part of the
body. Each of the three drillholes were spotted within 15 metres of a centrally
located NQ corehole (141-29) that was drilled in 2002 to permit better
understanding of this kimberlite intersection, which provided the best
macrodiamond recoveries in 2000 (large diameter drillhole 141-04).
Subsequent to core drilling, several of the most prospective kimberlite
intersections were identified for minibulk sampling by large diameter (609 mm or
24 inch) reverse circulation, mud-flood with air-assist drilling methods, which
were conducted from September 29 to November 22. A total of 1,271.9 tonnes of
kimberlite were excavated from the boreholes and then screened onsite for
disposal of fines less than 1.5 mm in size. Drilling and sampling information
for all eight large diameter boreholes is shown in Table 10.
Table 10: Preliminary Kimberlite Intersections and Sample Tonnages for 2002 Program
- ----------------------------------------------------------------------------------------------------------------
Range of Average
RCmud(1) Kimberlite Excavated Sample Minibulk Borehole Sample
Drillhole Thickness Mass Mass Total Total Sample Grade Grade
Number (m) (tonnes) (tonnes) Stones Carats (cpht) (cpht)
- ----------------------------------------------------------------------------------------------------------------
141-30 914.4 141-29 161.6 14 264.6 233.82 104.09
- ----------------------------------------------------------------------------------------------------------------
141-31 914.4 141-29 166.8 14 269.8 241.39 95.88
- ----------------------------------------------------------------------------------------------------------------
141-32 914.4 141-29 165.8 28(4) 268.8 253.78 96.59
- ----------------------------------------------------------------------------------------------------------------
141-33 609 141-09 252.6 23 359.0 176.48 100.83
- ----------------------------------------------------------------------------------------------------------------
140-28(5) 609 140-21 111.8 10 217.1 72.16 57.65
- ----------------------------------------------------------------------------------------------------------------
140-29 609 140-16 131.2 12 230.8 84.87 58.22
- ----------------------------------------------------------------------------------------------------------------
140-30 609 140-17 150.0 13 259.0 100.10 63.82
- ----------------------------------------------------------------------------------------------------------------
140-31 906 ~80 metres from 166.4 15 274.7 109.24 69.93
140-21
- ----------------------------------------------------------------------------------------------------------------
Totals: 1,306.3 129 2,143.8 1,271.87 647.01
- ----------------------------------------------------------------------------------------------------------------
1. RCmud refers to Reverse Circulation, mud-flood with air-assist drilling
methods
2. Information for the core drilling program was reported in a news release by
Kensington dated Oct. 15, 2002
3. Typically 12 metre sample interval
4. 6 metre sample interval utilized to improve resolution
5. Drillhole terminated prematurely at a depth of 217.1 metres due to downhole
problems
25
The initial stage of diamond recovery was conducted at a DMS plant with 5
tonnes/hour capacity that treated material in the size range of 1.5 mm to 12.5
mm after preparations to remove clayey fines and crushing of greater than 12.5
mm oversize material. The plant is located in Grande Prairie and is operated by
De Beers Canada. Preliminary data indicates separation procedures produced
approximately 1.5 tonnes of diamond-bearing heavy mineral concentrate from the
eight large diameter drillholes. Final diamond recovery is underway at
high-security facilities operated by De Beers in Johannesburg, South Africa.
2002 Results of Macrodiamond Recovery
On March 28, 2003, the Company reported the initiation of final diamond recovery
for minibulk samples from the 2002 program. Approximately 1.5 tonnes of DMS
heavy mineral concentrate samples containing macrodiamonds were separated from
1,272 tonnes of kimberlite excavated by three 914 mm (36 inch) and five 610 mm
(24 inch) diameter drillholes targeted on the 140/141 composite kimberlite body.
The Company conducted on-site due-diligence auditing and monitoring of the final
diamond recovery procedures by Brent C. Jellicoe, P.Geo., the Company's
Qualified Person, and Anthony Bloomer of Venmyn Rand (Pty) Ltd. of Johannesburg,
South Africa, an independent firm of mining and minerals management advisors.
Final diamond recovery for the Fort a la Corne drillholes was conducted at the
newly renovated De Beers' Group Exploration Macro-diamond Laboratory (GEMDL),
located in Johannesburg, South Africa. Laboratory renovations completed during
2003 focused on increasing the levels of efficiency and security in the
facility, while in compliance with ISO 17025 accreditation standards.
The final macrodiamond recovery values were reported to the FALC-JV partners in
July of 2003. A summary of all recoveries is shown in the Table 11 followed by a
summary of large stone recovery by drillhole in Table 12. Recovered
macrodiamonds were subjected to characterization studies including;
luminescence, magnetic susceptibility, and photography. The stones were then
cleaned, re-weighed, and re-sized before valuation in Charter House, London
England, a De Beers facility. The stones were then sent back to KMDL for a
Breakage Study.
Table 11: Summary of Final Macrodiamond Recovery Results and Grades for 2002 Program
- ----------------------------------------------------------------------------------------------------------------
Range of Average
RCmud(1) Kimberlite Excavated Sample Minibulk Borehole Sample
Drillhole Thickness Mass Mass Total Total Sample Grade Grade
Number (m) (tonnes) (tonnes) Stones Carats (cpht) (cpht)
- ----------------------------------------------------------------------------------------------------------------
141-30 161.6 233.82 104.09 155 14.77 0 - 15.6 6.317
- ----------------------------------------------------------------------------------------------------------------
141-31 166.8 241.39 95.88 153 16.62 0- 22.1 6.885
- ----------------------------------------------------------------------------------------------------------------
141-32 165.8 253.78 96.59 144 16.93 0 - 17.6 6.671
- ----------------------------------------------------------------------------------------------------------------
Subtotal 494.2 729.99 296.56 452 48.32
36"LDDH
- ----------------------------------------------------------------------------------------------------------------
141-33 252.6 176.48 100.83 45 16.795 0 - 114.4 9.516
- ----------------------------------------------------------------------------------------------------------------
140-28(2) 111.8 72.16 57.65 15 1.22 0 - 8.2 1.691
- ----------------------------------------------------------------------------------------------------------------
140-29 131.2 84.87 58.22 72 14.45 1.6 - 58.1 17.026
- ----------------------------------------------------------------------------------------------------------------
140-30 150.0 100.10 63.82 55 9.49 0 - 46.7 9.490
- ----------------------------------------------------------------------------------------------------------------
140-31 166.4 109.24 69.93 29 3.125 0 - 16.6 2.861
- ----------------------------------------------------------------------------------------------------------------
Subtotal 812.0 542.87 350.45 216 45.09
24" LDDH
================================================================================================================
Other(3) 1 0.35
- ----------------------------------------------------------------------------------------------------------------
Totals: 1,306.3 1,271.87 647.01 669 93.760
================================================================================================================
1. RCmud refers to Reverse Circulation, mud-flood with air-assist drilling
methods
2. Drillhole terminated prematurely at a depth of 217.1 m due to downhole
problems
3. Recovery from composite granulometry samples and Gravel Purge after
processing
26
A total of 54 macrodiamonds larger than 0.25 carats were recovered from the
samples. These stones had a combined weight of 42.03 carats. Only 5
macrodiamonds weighing 0.645 carats were recovered from concentrate cage
cleanups, DMS Audits, and composite granulometry samples. This is less than 1%
of the total stone recovery.
Table 12: Summary of Large Stone Recovery for 2002 Program
- ----------------------------------------------------------------------------------------------------------------------
Drillhole >0.25 and <0.5 ct. >05. and <0.75 ct. >0.75 and <1.0 ct. >1.0 carat
Number
RCmud(1) -----------------------------------------------------------------------------------------------------
Drillhole Number of Number of Number of Number of Number of Number of Number of Number of
Number Stones Carats Stones Carats Stones Carats Stones Carats
- ----------------------------------------------------------------------------------------------------------------------
141-30 8 2.910 0 0 0 0 0 0
- ----------------------------------------------------------------------------------------------------------------------
141-31 8 2.985 1 0.695 1 0.860 0 0
- ----------------------------------------------------------------------------------------------------------------------
141-32 7 2.320 4 2.230 0 0 1 1.045
- ----------------------------------------------------------------------------------------------------------------------
141-33 4 1.340 1 0.630 1 0.855 1 10.230
- ----------------------------------------------------------------------------------------------------------------------
140-28(2) 0 0 0 0 0 0 0 0
- ----------------------------------------------------------------------------------------------------------------------
140-29 5 1.490 0 0 0 0 4 8.145
- ----------------------------------------------------------------------------------------------------------------------
140-30 3 0.825 0 0 1 0.895 1 3.610
- ----------------------------------------------------------------------------------------------------------------------
140-31 1 0.325 1 0.515 0 0 0 0
- ----------------------------------------------------------------------------------------------------------------------
Other(3) 1 0.35 0 0 0 0 0 0
======================================================================================================================
Totals: 37 12.545 7 4.070 3 2.610 7 23.030
- ----------------------------------------------------------------------------------------------------------------------
1. RCmud refers to Reverse Circulation, mud-flood with air-assist drilling
methods
2. Drillhole terminated prematurely at a depth of 217.1 m due to downhole
problems
3. Recovery from composite granulometry samples and Gravel Purge after
processing
2002 Results of Macrodiamond Breakage Study
Macrodiamond breakage studies indicate potential diamond loss due to adverse
drilling methods and recovery procedures. Recent breaks in a diamond caused by
mechanical damage can often be discriminated from those formed by natural
causes. A total of 644 diamonds recovered from the Fort a la Corne kimberlite
bodies 140 and 141 during 2002 were examined for fresh breakage by the Harry
Oppenheimer House (HOH) Geology team. Only breakage with unetched (i.e. "fresh")
surfaces were considered. "Chipped" stones, or those that have less than 5% of
the original diamond removed through fresh breakage, are considered "whole".
"Significantly broken" is defined as more than 5% of the original diamond lost
due to fresh (man-made) breakage. "Major" particles refer to the breakage of
diamonds to the extent where more than 50%, but less than 95% of the original
diamond is remaining A "minor" fragment constitutes less than half of the
original diamond. The presence of minor fragments, especially very minor or
"less than 25% remaining and fragment", strongly suggests the shattering of
stones. A fragment is defined as a diamond that has no original faces remaining,
rendering it impossible to determine the original size of the stone.
Some 22% of the total 644 diamonds examined from kimberlite 140/141 samples were
damaged to some degree. Approximately 10.4% were chipped and are considered
"whole". Seventy diamonds or 10.87% are major particles with greater than 50% of
the stone remaining. Only three diamonds or 0.47% are "minor" fragments that
have less 50% remaining. This indicates that shattering of larger stones was
minimal in 2002, and much lower than the 3-4% seen in 2001. However, loss of
"fragments" and "minor" pieces to the discarded, undersize fraction of the
excavated kimberlite (less than 1.5 mm) cannot be adequately quantified and
shattering of larger diamonds may still be an issue beyond simple estimation of
loss from recovered stones. Total diamond breakage (not including "chipped"
stones) is 11.34%, which is significantly lower than total breakage seen in 2000
and 2001. In 2002, Kimberlite 141 displayed a higher level of breakage (13.66%)
than body 140 (4.35%). However, due to the small number of stones recovered from
each drillhole from 140, comparison on a percentage basis should be made with
considerable caution. Estimation of the actual amount of diamond lost from
broken pieces is not factored in the grade calculations or grade forecasts,
which are based on size distribution of the recovered stones only.
27
2002 Raw Valuations of Macrodiamonds
Macrodiamonds recovered from the 2002 drill program were valued in August 2003
using the De Beers July 2003 price book. Macrodiamonds from the 2000 and 2001
programs were updated to this price book at the same time. Table 13 summarizes
the raw macrodiamond values. The full spread of values per sieve size were
utilized to calculate modeled values, which are reported in the De Beers'
Mineral Resource Management (MRM) Report summarized later in this overview.
Table 13: Raw Stone Values Based on the De Beers' July 2003 Price Book
- -----------------------------------------------------------------------------------------------------------------------
2000 2001 2002
- -----------------------------------------------------------------------------------------------------------------------
Carats Value Av/Pr Carats Value Av/Pr Carats Value Av/Pr
(US$/ct) (US$/ct) (US$/ct) (US$/ct) (US$/ct) (US$/ct)
- -----------------------------------------------------------------------------------------------------------------------
21.6 806.62 37.34 42.08 2,733.38 64.96 90.96 3,371.12 37.06
- -----------------------------------------------------------------------------------------------------------------------
2002 Results of Microdiamond Recoveries
Representative core samples from drillholes 140-16 and 140-17 were selected for
total diamond recovery using caustic dissolution methods at Lakefield Research
in Ontario. Residues from the caustic procedures conducted at Lakefield were
shipped to the De Beers' Kimberley Acid laboratory in South Africa for final
picking and imaging. The coreholes intersected previously untested kimberlite
phases including thick intervals of xenolith-rich breccia, coarse olivine
pyroclastic kimberlite, and matrix-supported kimberlite located in the south and
central part of the combined 140/141 kimberlite body. Recoveries of a total of
446 microdiamonds (206 stones from 140-016 and 240 stones from 140-17) were
combined with the existing diamond dataset and incorporated into the 2002 grade
modeling exercise conducted by De Beers.
Samples were also collected from corehole 140-12 for the dual purpose of
increasing the microdiamond inventory in the southern part of the 140/141
kimberlite, and to test diamond recovery procedures at the SRC. Thirty-one
microdiamonds were recovered from the 41.54 kg sampled from the "speckled beds";
this calculates to 74.6 stones per 100kg. Eighty microdiamonds were recovered
from the 40.92 kg sampled from the "kimberlite breccia beds"; this calculates to
195.9 stones per 100kg. Comparable stone concentration numbers are as follows,
Kimberlite Breccia in 140-16: 162.5 stones/100kg
Kimberlite Breccia in 140-17: 120.3 stones/100kg
Speckled beds in 140-16: 72 to 128 stones/100kg
Speckled beds in 140-17: 88 to 102 stones/100kg
Range for "Coarse" Megagraded bed: 5 to 194, but averaging about
75 stones/100kg
Range for "Fine" Megagraded bed: 5 to 175, but averaging about
50 stones/100kg
It is very important to keep in mind that it is the size distribution of the
stones that is most important, not the stone concentration. Five stones were
large enough to be recovered on the +212 micron screen and one stone was
recovered on a +1180 micron screen; this single large stone weighed 9.52 mg or
0.0476 carats and is considered a macrodiamond; the three axes of the stone
measure 2.14 x 1.78 x 1.70 mm. Proper allocation of diamonds to specific
kimberlite phases by De Beers in the 140/141 body remains contentious until the
geology of this complex body is better resolved.
A PQ corehole was drilled proximal to the three 36 inch diameter drillholes near
the centre of the 141 deeper-going zone. This core was slabbed and then
representatively sampled for diamond recovery using caustic dissolution at
Lakefield Research Laboratory. All diamonds and residues from processing were
forwarded to the De Beers Kimberley Microdiamond Laboratory in South Africa
("KMDL") for routine weighing, shape classification, and normal due diligence. A
total of 396 stones were recovered from the 636.9 kg of kimberlite sample. These
stones were added to the diamond inventory for the megagraded beds of 141 and
form part of the diamond dataset utilized for grade forecasting by De Beers.
28
2002 Grade Forecasts, Modeled Values, and Modeled Revenue Estimates
The MRM department of De Beers Consolidated Mines has carried out annual reviews
of the Fort a la Corne project since 1999 that include resource estimation work
as well as recommendations for prioritization of the kimberlite bodies. MRM
prepared an update for kimberlite 140/141 incorporating all relevant historical
microdiamond and macrodiamond diamond recovery data as well as geological
information current to the Spring of 2003. This report was received in final
format during September 2003.
In 2002, the 140/141 body was classified at the "deposit" level for all
variables considered including geology, grade, revenue, and sampling data. The
2002 Fort a la Corne MRM review utilized data to differentiate the kimberlite
into coarse and fine zones based on diamond size frequency. Grade forecasts for
these zones ranged from 7 to 12 cpht and corresponding revenues of
US$20-220/tonne.
Based on these findings, MRM recommended a program of large diameter drilling in
the vicinity of holes 141-04 and 141-05 aimed at increasing the macrodiamond
parcel for revenue modeling. A cluster of three 36 inch diameter holes were
drilled within close proximity of 141-04 and a total of 48.24 carats were
recovered. In addition, MRM recommended improving understanding of the
geological model for the kimberlite through core drilling that would also
provide opportunities for identification of coarser grained zones. Based on
kimberlite intersections in these coreholes, five 24" diameter drillholes were
drilled in locations extending from the 141 central area to the 140 central
area. Of these holes, one was targeted to investigate the "fine-grained vent"
intersected at corehole 141-33, and the others to test the assumed extension of
the mega-graded bed. A total of 45.09 carats were recovered from these
drillholes.
2002 Grade Forecasts
The relatively sparse data, particularly when separated into the different
geological units, implies that global estimates per geological subdivision are
the only meaningful calculations possible. A grade-size plot was derived from
the combination of micro- and macro-diamond data for each of the five geological
units. Size frequency distributions were plotted from this data leading to
calculation of grade estimates that were then both incorporated into revenue
models. A sixth unit was created by division of the mega-graded bed into fine
and coarse size frequency distributions.
The coarsest diamond size distributions were seen in the Mega-graded-coarse,
Kimberlite Breccia and Fine-grained Vent units, although the distribution of the
latter unit appears anomalously coarse due to the presence of a 10.23 carat
stone. The Mega-graded bed-coarse shows the most consistency across the micro-
and macro-diamond size ranges reflecting the larger number of recovered stones
of all sizes, particularly with the addition of the diamonds from the three 36
inch diameter holes. The other kimberlite units show varying numbers of stone
counts, but all are substantially less than the coarse mega-graded bed and
highlight the uncertainty associated with grade results generated in this
report. Stone counts utilized in the size frequency distributions and grade
forecast results are shown in Table 14.
2002 Revenue Models
Raw values of the macrodiamonds were determined by the DTC in London, England
based on the July 2003 price book. Valuation data was electronically compiled
into six geological/size distribution units as previously described. Actual and
forecast grade data is shown in Table 15 with revenue per geological unit in
dollars per carat.
29
Table 14: Total Microdiamond and Macrodiamond Stone Counts and Weights
------------------------------------------------------------------------------------------------------
Tonnes1 Stone Counts Carats
Geological Unit of Kimberlite
------------------------------------------------------------------------------------------------------
Micro-diamond Macro-diamond Total >1.5 mm
------------------------------------------------------------------------------------------------------
Mega-graded-coarse 1,048.9 311 888 95.8 88.6
------------------------------------------------------------------------------------------------------
Mega-graded-fine 371.1 226 86 10.9 10.0
------------------------------------------------------------------------------------------------------
Mega-graded-repeated 254.9 180 155 13.6 12.7
------------------------------------------------------------------------------------------------------
Fine Kimberlite (Vent) 176.5 171 43 16.5 16.5
------------------------------------------------------------------------------------------------------
Speckled kimberlite 93.9 126 45 4.6 4.3
------------------------------------------------------------------------------------------------------
Kimberlite Breccia 74.0 183 67 14.3 13.7
------------------------------------------------------------------------------------------------------
1. Some barren samples have been excluded for grade calculation purposes
Table 15: 2002 Evaluation Program - Actual and Modeled Grade and Revenue Data with
Comparison to 2001 Program
- --------------------------------------------------------------------------------------------------------------------
Geological Unit Grade in cpht (>1.5 mm) Revenue in US$/carat (>1.5 mm)
- --------------------------------------------------------------------------------------------------------------------
Actual 2001 2002 2002 2001 2002
Sample Forecast Forecast Raw Values Forecast Forecast
- --------------------------------------------------------------------------------------------------------------------
Mega-graded-coarse 8.4 12 12 32.9 115 97
- --------------------------------------------------------------------------------------------------------------------
Mega-graded-fine 2.7 5 7 17.2 38 71
- --------------------------------------------------------------------------------------------------------------------
Mega-graded-repeated 5.0 - 8 22.2 - 75
- --------------------------------------------------------------------------------------------------------------------
Fine Kimberlite (Vent) 9.3 - 5 33.7 - 93
- --------------------------------------------------------------------------------------------------------------------
Speckled kimberlite 4.5 - 9 40.0 - 67
- --------------------------------------------------------------------------------------------------------------------
Kimberlite Breccia 18.6 - 15 53.6 - 97
- --------------------------------------------------------------------------------------------------------------------
Each of these sub-parcels was plotted in log-space showing average sieve size
against dollar per carat. Some 150 carats of macrodiamonds were available for
revenue modeling, but the number per sub-parcel was considerably smaller. As
would be expected, the extremely small parcels showed no consistent trends or
obvious differentiation. The decision was made to electronically combine the
complete data and the model into a single dollar per carat per sieve class. A
geologically-based revenue split could be made in the future if sufficiently
more stones are added to each dataset.
Plotted in log-space, the combined data showed a degree of consistency from a
revenue perspective in the smaller sieve classes below +13 diamond sieve (4.521
mm). Very few carats exist in the larger size classes (only 15% by weight of the
total parcel) and considerable modeling of assortment (model, quality, and
colour) is required. Existing data from De Beers' group operations, combined
with the assortment profile of the smaller diamonds was used to extrapolate the
revenue curve up to the +23 diamond sieve (10.312 mm). The resultant dollar per
carat per sieve class table has subsequently been applied to the six modeled
size frequency distributions. Variations in diamond coarseness of the units lead
to six distinct overall dollar per carat figures at a bottom cut-off of 1.5 mm
and at SSV on the DTC July 2003 price book.
2002 Deposit Risk
Attempting to define confidence limits or upside and/or downside potential on
deposit level resource data is problematic. By definition deposit level
resources imply considerable risk and hence broad confidence limits. The
estimation of the microdiamond-macrodiamond relationship and hence grade
estimation from limited data is, to some degree, a subjective process.
30
Furthermore, it is likely that the emplacement model of the Fort a la Corne
deposits will have some bearing on the microdiamond -macrodiamond relationship.
The microdiamond content (and size distribution) can vary as a function of
emplacement, under-recovery of microdiamonds from wind action during the
sub-aerial pyroclastic event(s), and gravity sorting, which will result in
different ratios of macrocrysts, phenocrysts and interstitial material. These
processes can cause either dilution or concentration of micro diamond potential.
The impact of dilution or concentration of microdiamonds can affect the grade
estimation process. In addition, any physical "sorting" within the microdiamond
size ranges will affect the size frequency distribution and hence revenue
estimation.
The deposit risk can be summarized into four main areas:
o internal geology, the lateral and vertical extent (i.e. volume) of
each geological identified unit,
o the grade of each geological unit,
o the size distribution of each geological unit, and
o the assortment (US$/carat/per size) per geological unit.
The risk associated with grade and size frequency distribution has been
previously mentioned. In terms of the assortment profile, the revenue modeling
process was forced to assume a similar assortment for all the geological units.
Despite this amalgamation, the diamond parcel consists of about 150 carats,
which is well below the 2000 to 5000 carats considered necessary to make a
forecast with reasonable levels of confidence.
Conclusions and Recommendations from the 2002 MRM Report
The advances made in the geological model of 140/141 necessitated a complete
rethinking of the grade and revenue estimation processes. It is likely that as
geological knowledge and deposit delineation evolve so will the estimation
methodologies. A natural consequence of refining a geological model is that the
available sampling data has to be separated into the relevant geological
subdivisions. This frequently results in creating a situation where there is
insufficient data per geological subdivision for evaluation purposes.
The 2002 Fort a la Corne update classified the project at the Deposit stage for
all variables and parameters. Subsequent to the report, the geological model was
revised and further LDD drilling was conducted. The recognition of a more
complex internal geology resulted in the necessity of more detailed data per
geological unit. Thus despite additional data from the 2002 program, the project
status has not changed significantly and remains at the Deposit stage for
geology, volume, grade, density and revenue.
Based on the current geological understanding of 140/141 the following
recommendations can be made:
o Petrographic studies from existing material (chemical fingerprint, XRF
etc) should be done to assist in geological unit identification,
differentiation and the emplacement model.
o Increase micro diamond database (from existing core) for the fine,
speckled and breccia kimberlites.
o Investigate the potential for diluting and or concentrating micro
diamonds as a function of the host kimberlite.
o Improve the geological understanding and the extent of the kimberlite
breccia unit by delineation drilling.
o Should the volumetric extent of the kimberlite warrant further
investigation, this should be in the form of single 36 inch diameter
LDD holes on a systematic grid.
Discussion Points Concerning the 2002 MRM Report
In consideration of the MRM Report, the following discussion points are
relevant:
31
1. The 140/141 kimberlite is characterized by stratigraphic complexity and
there appears to be a high degree of variability in grade and diamond size
distribution. It is very likely that the 140/141 kimberlite is the product
of at least two eruptive centres or feeders that have produced a coalescent
kimberlite body. At present the geological model is complex and it is very
important to recognize different kimberlite phases and then to properly
allocate diamond recoveries to these units in preparation for modeling
grade and revenue. It is the opinion of Brent Jellicoe that further work is
required on the geological model and that allocation of diamond results may
change as the geological model evolves.
2. Most data relates to the mega-graded bed; the mega-graded bed is more a
local feature rather than a pervasive kimberlite wide feature. 50% of the
mega-graded samples are "Fine" and are tested only in the central part of
the 141 sector (about 20 ha); the grades and values are not representative
of the entire body. Combining data from the mega-graded bed at 140 and from
141 is not advisable as they likely came from two different vents and
eruptive events.
3. Considerable additional sampling will be required to obtain a confident
geological model for the entire kimberlite. This model requires broad
distribution of drillholes and representative sampling both vertically and
horizontally in order to model the spatial distribution of diamonds in
terms of size and number. However, delineation of the extent of higher
grade zones may permit early estimation of the volume and tonnage of that
phase - this becomes a relevant evaluation criterion that may discourage
further work if the calculated tonnage falls below that which is thought to
be required for an economic deposit.
4. In previous years, grade forecasts for Fort a la Corne Grade kimberlites
typically have been 2-3 times higher than actual sample grades. Two
forecasts in 2002 were lower than the actual sample grades. De Beers has
explained that this is the other side of the nugget-effect whereby a
greater amount of diamond is recovered from a sample than that which would
be representative of a larger sample. Both the "breccia" and "Fine
Kimberlite (Vent)" would fall under this explanation if the kimberlite unit
contacts and corresponding allocation of diamonds were correctly
determined.
5. Recovery derived from total content models for the subdivisions was
factorised in respect of the smaller diamonds to represent a probable
production type diamond size distribution, thus eliminating smaller
diamonds that would normally be screened out to undersize or locked in
tailings during production.
6. Small parcel sizes limit confidence in the modeled grades, values, and
revenues; in particular, all phases besides the mega-graded bed have very
small diamond parcels.
7. It is difficult to compare results from 2000, 2001, and 2002 due to
different presentation formats and different (evolving) ways of modeling
the data.
Disclaimers and Cautionary Points - 2002 MRM Report
1. Grade was derived from the total diamond content model. This procedure
assumes that the observed diamond content distribution with size is
reflected correctly by sampling and provides a global grade estimate for
the part of the kimberlite covered by sampling.
2. Revenue figures supplied in this report are based on very small amounts of
diamonds and could vary substantially from actual average values determined
from larger diamond parcels.
3. Actual parcel value is calculated by dividing total dollar value by total
carats in the parcel. For small samples, this value is highly variable and
simulations have shown that the actual dollar per carat value for a
producer is usually understated this way.
4. Modeled dollar per carat value takes into account the expected diamond size
distribution for the producer and is based on average values extrapolated
for larger diamond sieves.
5. Under normal conditions, it is possible to draw a valid comparison only if
the diamond parcel contains more than 2000 carats. The absence of a
sufficient number of large stones means that there is still considerable
uncertainty associated with the revenue model.
6. If the presence of any part of the size distribution has been influenced by
secondary events in any part of the body, local grade derived from these
methods would not be valid and a serious difference in diamond size
distribution and grade may occur locally within the kimberlite.
7. More confidence in the extrapolated values can only be achieved by having a
larger diamond parcel for valuation. 8. Diamonds could be lost during
sampling and treatment as a result of breakage or non-recovery due to low
luminescence; breakage is not accounted for in any of the modeling, despite
the preponderance of breakage in larger stones.
32
2003 Exploration and Sampling Program
During the first eight months of 2003, no field programs were conducted at Fort
a la Corne as the bulk of the 2002 diamond recovery and the interpretation
program was underway. In August 2003, the FALC-JV partners met to discuss a work
program for 2003 and decided to implement a $3.0 million program based, in part,
on recommendations put forward by geoscientists of De Beers' MRM following
evaluation of draft interpretations of results from the combined 2000, 2001, and
2002 programs. This program focused on improving the understanding of geology,
diamond distribution, and diamond values of the southern part of the 140/141
body with a goal of ultimately proving up resource tonnage for the "kimberlite
breccia". In addition, a significant drilling and sampling effort was aimed at
investigating the geology and diamond distribution in other high priority bodies
including Kimberlites 122, 148, and 150.
2003 Airborne Geophysical Survey
The 2003 work program commenced with a fixed-wing airborne tri-sensor magnetic
gradiometer survey over the entire FALC-JV project claim area that was run by
Goldak Airborne Surveys. The survey had some over-run beyond the claim
boundaries and the affected claim holders were offered hard copy results
covering their land. Two blocks were flown for a total of 3,090 line kilometres
at a 150 metre line spacing. The airborne survey provides a much improved
magnetic dataset compared to previous airborne data acquired in 1989 and 1990.
Kensington received a final report documenting the program and including a full
digital record of the results. The project operator has produced full scale
colour maps and interpreted the results. Six new magnetic anomalies potentially
representing un-tested kimberlite bodies were identified. These targets required
drill-testing to confirm the presence of kimberlite and to permit logging for
petrographic character.
2003 Ground Gravity Surveys
Ground gravity surveys accompanied by differential GPS were conducted by an
in-house De Beers' crew over kimberlite 122, a large area embracing kimberlites
148, 150, and the area around kimberlite 140/141, which was partially surveyed
in 2002. The surveys used 100 m line spacing and 100 m stations; a total of
2,482 stations were acquired over a 3 month period. A large gravity anomaly of
significant amplitude was delineated immediately east of, and contiguous to, the
150 kimberlite. The anomaly covers an area three times that of the known 150
kimberlite body, or about 200 ha. Both the gravity and magnetic data indicate
that some kimberlites may have greater extents than previously outlined. The
outlined extent of kimberlite bodies to a 30 metre thickness cut-off by modeling
geophysical data is in progress by the operator. Kensington has received a final
report documenting the program and including a full digital record of the
results.
2003 Core Drilling Program
Boart-Longyear mobilized three LF-70 hydraulic core drilling rigs for this
program. A total of 49 core holes provide significant opportunities for
understanding the geology of 4 separate, prioritized kimberlite bodies and for
diamond recovery geared to better understanding their diamond content and
distribution.
Drilling concluded during mid-November with a total of 48 HQ (63.5 mm or 2.5
inches) coreholes and one NQ (47.6 mm or 1.875 inches) corehole. Diamond core
bits are composed of traceable synthetic cutting diamonds that can easily be
distinguished from natural stones. Significant intersections of prospective
kimberlite were encountered in each of the kimberlite bodies investigated and
sufficient coverage of the bodies from this program and previous drilling will
permit construction of geological models. The table shown below summarizes the
drilling program. The core was subsequently petrographically logged in detail
and sampled for microdiamond recovery and geochemistry according to priority and
prospectivity. A summary of kimberlite core intersections is shown in Table 16.
33
Table 16: Summary of 2003 Drilling Results
- ---------------------------------------------------------------------------------------------------------
Base of Thickness of Thickness of
Thickness Top of Main Main Main Total End
Kimberlite of Till Kimberlite Kimberlite Kimberlite Kimberlite of Hole
Body / Drillhole (m) (m) (m) (m) (m) (m)
- ---------------------------------------------------------------------------------------------------------
140-32 101.06 101.06 244.30 143.24 146.29 291.00
- ---------------------------------------------------------------------------------------------------------
140-33 100.42 100.42 199.35 98.93 98.93 208.00
- ---------------------------------------------------------------------------------------------------------
140-34 100.20 100.20 205.50 105.3 105.72 219.00
- ---------------------------------------------------------------------------------------------------------
140-35 104.95 113.60 152.43 38.83 56.85 216.00
- ---------------------------------------------------------------------------------------------------------
140-36 99.00 99.00 139.62 40.62 40.62 142.00
- ---------------------------------------------------------------------------------------------------------
140-37 102.92 131.93 142.33(1) 10.40 10.40 147.00
- ---------------------------------------------------------------------------------------------------------
140-38 101.90 105.00 214.96 109.96 109.96 228.00
- ---------------------------------------------------------------------------------------------------------
141-40 109.20 138.93 161.35 22.42 25.23 272.00
- ---------------------------------------------------------------------------------------------------------
140-39 100.17 100.17 243.40 143.23 143.23 249.00
- ---------------------------------------------------------------------------------------------------------
140-40 102.00 102.00 237.35 135.35 138.55 246.00
- ---------------------------------------------------------------------------------------------------------
140/141 Total 1,021.82 837.88 875.78 2,218.00
- ---------------------------------------------------------------------------------------------------------
03-150-01 106.32 106.32 198.85 92.53 92.53 207.00
- ---------------------------------------------------------------------------------------------------------
03-150-02 112.78 112.78 214.13 101.35 101.35 225.00
- ---------------------------------------------------------------------------------------------------------
03-150-03 110.42 123.96 169.17 45.21 45.21 180.00
- ---------------------------------------------------------------------------------------------------------
03-150-04 106.80 111.23 169.70 58.47 60.59 192.00
- ---------------------------------------------------------------------------------------------------------
03-150-05 99.90 104.53 154.90 50.37 50.42 174.00
- ---------------------------------------------------------------------------------------------------------
03-150-06 96.28 96.28 216.16 119.88 119.88 222.00
- ---------------------------------------------------------------------------------------------------------
03-150-07 104.15 121.49 157.56 36.07 36.07 165.00
- ---------------------------------------------------------------------------------------------------------
03-150-08 113.73 117.67 205.96 88.29 88.29 213.00
- ---------------------------------------------------------------------------------------------------------
03-150-09 99.00 101.16 183.05 81.89 81.89 192.00
- ---------------------------------------------------------------------------------------------------------
03-150-10 103.47 109.63 135.00 (2) 31.60 31.60 135.00
- ---------------------------------------------------------------------------------------------------------
03-150-11 113.47 120.90 158.00 (3) 35.33 35.33 158.00
- ---------------------------------------------------------------------------------------------------------
03-150-12 102.90 102.90 192.50 89.60 89.60 201.00
- ---------------------------------------------------------------------------------------------------------
150 Total 1,269.22 763.66 832.76 2,264.00
- ---------------------------------------------------------------------------------------------------------
03-148-01 92.39 92.39 251.20 158.81 158.81 258.00
- ---------------------------------------------------------------------------------------------------------
03-148-02 93.65 93.65 201.50 107.85 107.85 231.00
- ---------------------------------------------------------------------------------------------------------
03-148-03 92.75 92.75 203.87 111.12 111.12 216.00
- ---------------------------------------------------------------------------------------------------------
03-148-04 99.15 99.15 153.38 54.23 54.23 183.00
- ---------------------------------------------------------------------------------------------------------
03-148-05 0.00 (4) 67.00
- ---------------------------------------------------------------------------------------------------------
03-148-05a 92.18 92.18 181.00 88.82 91.77 204.00
- ---------------------------------------------------------------------------------------------------------
03-148-06 91.80 91.80 200.09 108.29 108.29 207.00
- ---------------------------------------------------------------------------------------------------------
03-148-07 100.88 100.88 147.24 46.36 46.36 153.00
- ---------------------------------------------------------------------------------------------------------
03-148-08 99.31 99.31 147.12 47.81 47.81 156.00
- ---------------------------------------------------------------------------------------------------------
03-148-09 109.90 109.90 124.93 15.03 16.95 156.00
- ----------------------------------------------------------------------------------------------------------
03-148-10 112.54 112.54 152.31 39.77 39.77 159.00
- ---------------------------------------------------------------------------------------------------------
03-148-11 102.49 102.49 134.80 32.31 36.64 150.00
- ---------------------------------------------------------------------------------------------------------
03-148-12 92.20 92.20 272.85 180.65 180.65 282.00
- ----------------------------------------------------------------------------------------------------------
03-148-13 96.00 96.00 193.33 97.33 97.33 210.00
- ---------------------------------------------------------------------------------------------------------
03-148-14 93.02 93.02 222.85 129.83 129.83 234.00
- ---------------------------------------------------------------------------------------------------------
03-148-15 92.56 92.56 198.31 105.75 105.75 207.00
- ---------------------------------------------------------------------------------------------------------
148 Total 1,460.82 1,323.96 1,333.16 3,073.00
- ---------------------------------------------------------------------------------------------------------
03-122-01 117.05 140.36 204.25 63.89 63.89 213.00
- ---------------------------------------------------------------------------------------------------------
03-122-02 117.10 118.70 230.29 111.59 111.59 249.00
- ---------------------------------------------------------------------------------------------------------
03-122-03 119.45 119.45 195.00 75.55 75.55 204.00
- ---------------------------------------------------------------------------------------------------------
03-122-04 107.20 107.20 225.00 117.80 117.80 231.00
- ---------------------------------------------------------------------------------------------------------
34
- ---------------------------------------------------------------------------------------------------------
Base of Thickness of Thickness of
Thickness Top of Main Main Main Total End
Kimberlite of Till Kimberlite Kimberlite Kimberlite Kimberlite of Hole
Body / Drillhole (m) (m) (m) (m) (m) (m)
- ---------------------------------------------------------------------------------------------------------
03-122-05 108.48 113.80 183.20 69.40 69.60 195.00
- ---------------------------------------------------------------------------------------------------------
03-122-06 112.41 112.41 178.24 65.83 66.02 186.00
- ---------------------------------------------------------------------------------------------------------
03-122-07 106.80 119.25 195.28 76.03 83.63 204.00
- ---------------------------------------------------------------------------------------------------------
03-122-08 114.00 114.00 193.92 79.92 79.92 204.00
- ---------------------------------------------------------------------------------------------------------
03-122-09 111.60 111.60 268.30 156.70 158.06 279.00
- ---------------------------------------------------------------------------------------------------------
03-122-10 112.00 112.00 140.62 28.62 28.89 144.00
- ---------------------------------------------------------------------------------------------------------
03-122-11 108.00 108.00 153.39 45.39 45.39 165.00
- ---------------------------------------------------------------------------------------------------------
122 Total 1,234.09 890.72 900.34 2,274.00
- ---------------------------------------------------------------------------------------------------------
Grand Total 4,985.95 3,816.22 3,942.04 9,829.00
- ---------------------------------------------------------------------------------------------------------
% of Total 50.7 38.8 40.1
- ---------------------------------------------------------------------------------------------------------
1. drillhole 140-37 prematurely terminated in disturbed kimberlitic sediments
2. drillhole 03-150-10 prematurely terminated in kimberlite due to drilling
difficulties
3. drillhole 03-150-11 prematurely terminated in kimberlite due to drilling
difficulties
4. drillhole 03-148-05 prematurely terminated in overburden due to drilling
difficulties
2003 Sampling and Micro-diamond Recovery
A selection of representative intervals were sampled from each of the kimberlite
bodies drilled in 2003. Core from each of the bodies drilled in 2003 were
macroscopically logged, slabbed longitudinally by saw, and then selectively
sampled. The main sampling effort was two-fold: to collect representative
samples for petrographic examination and archiving, and tocomplete diamond
recovery down to a lower cut-off of 75 microns using caustic dissolution
methods. Samples of slabbed core measuring up to 40 cm long were collected for
archiving and future petrographic studies. Representative samples for diamond
recovery were collected over variable intervals with attention to sampling
discrete phases of kimberlite.
Diamond recovery was completed in two stages. The SRC recovered diamonds using
caustic dissolution and concentrate beneficiation methods. Stones were
hand-picked from the resulting residue, and then described and weighed.
Recently, the SRC was certified under ISO 17025 for Diamonds (see CAN-P-1579 in
the Guide to the Accreditation of Mineral Analysis Lab). The second stage
involved shipping the recovered diamonds and selected caustic residue to the
KMDL in South Africa for further auditing and verification of individual stone
size, shape, and sieve category using proprietary techniques. Both sets of data
were released to the FALC-JV partners, however, the KMDL weights were utilized
in grade forecasting based on statistical evaluation of diamond size
distributions. For results following in this section, the reader is cautioned
that viewed in isolation, microdiamond stone counts can be misleading and the
estimation of macrodiamond grade from microdiamond results require an
interpretation of the diamond size frequency distributions.
Diamond Recovery from Kimberlite 140/141 in 2003
Average microdiamond recoveries from three of the 2002 coreholes targeted on the
central and southern parts of the body ranged from 12.7 to 13.5 stones per 10
kg, but these averages reflect sampling of at least three different kimberlite
phases. These drillhole averages are at least twice that seen for similar
recoveries from other parts of the body. Allocation of diamonds to appropriate
kimberlite phases by De Beers' experts facilitated an early grade forecast of
18.6 cpht for the breccia beds and 4.5 cpht for the speckled beds. Given the
relatively small numbers of microdiamonds in the dataset for discrete kimberlite
types or phases, and the need to better delineate the extent of the new
kimberlite phases, nine HQ coreholes (2.5 inch or 63.5 mm diameter) were
drilled.
35
A total of 1,159 microdiamonds were recovered utilizing caustic dissolution
methods from 595.15 kilograms of core submitted to the SRC from Kimberlite
140/141. Samples for microdiamond recovery were extracted from six of the
corehole intersections. The SRC reported 97% recovery of internal tracers during
diamond recovery; stone picking was routinely audited by a supervisor. The
microdiamond results from these drillholes were integrated with the 140/141
dataset including results from similar kimberlite types intersected in earlier
drillholes (140-12, 140-16, 140-17, and 141-09), followed by modeling of grade
forecasts for the southern part of the 140/141 body. A summary of diamond
recovery results for the drillholes and these phases are reported in Tables 17
and 18 illustrating how the best stone abundances were recovered from the
repeated graded beds and the breccias immediately underlying them. Table 19
shows diamond recovery results by sieve size range for the same kimberlite
types.
Table 17: Summary of 140/141 Microdiamond Results by Drillhole
- -------------------------------------------------------------------------------
Sample Mass Average Stones larger
Drillhole (kg) # of Stones Stones/10kg than 0.5 mm
- -------------------------------------------------------------------------------
140-32 99.90 173 17.3 1
- -------------------------------------------------------------------------------
140-33 92.65 219 23.6 1
- -------------------------------------------------------------------------------
140-38 100.80 173 17.2 1
- -------------------------------------------------------------------------------
140-34 91.85 166 18.1 0
- -------------------------------------------------------------------------------
140-39 110.60 199 18.0 1
- -------------------------------------------------------------------------------
140-40 99.35 229 23.0 0
- -------------------------------------------------------------------------------
Total: 595.15 1159 19.5 4
- -------------------------------------------------------------------------------
Table 18: Summary of 140/141 Microdiamond Results by Kimberlite Type
- --------------------------------------------------------------------------------
Sample # of Average Stones larger
Kimberlite Type Mass (kg) Stones Stones/10kg than 0.5 mm
- --------------------------------------------------------------------------------
Repeated Graded Beds 142.55 323 22.7 2
- --------------------------------------------------------------------------------
Breccia Beds 274.90 593 21.6 2
- --------------------------------------------------------------------------------
Other Kimberlite Units 68.00 109 16.0 0
- --------------------------------------------------------------------------------
Speckled Beds 109.70 134 12.2 0
- --------------------------------------------------------------------------------
Total: 595.15 1159 19.5 4
- --------------------------------------------------------------------------------
Table 19: 140/141 Microdiamond Recoveries by Sieve Category and Kimberlite Type
- -------------------------------------------------------------------------------------------------------------
Kimberlite +0.075mm +0.106mm +0.150mm +0.212mm +0.300mm +0.425mm +0.600mm +0.850mm
Type Sieve Sieve Sieve Sieve Sieve Sieve Sieve Sieve
- -------------------------------------------------------------------------------------------------------------
Repeated Graded Beds 176 94 30 17 3 1 0 2
- -------------------------------------------------------------------------------------------------------------
Breccia Beds 309 159 87 26 9 1 2 0
- -------------------------------------------------------------------------------------------------------------
Other Kimb. Units 58 34 10 5 2 0 0 0
- -------------------------------------------------------------------------------------------------------------
Speckled Beds 66 40 20 6 2 0 0 0
- -------------------------------------------------------------------------------------------------------------
Total: 609 327 147 54 16 2 2 2
- -------------------------------------------------------------------------------------------------------------
36
The "repeated graded beds" and the "breccia beds" immediately underlying them
yielded the best stone abundances. The average microdiamond abundance for all
140/141 samples is 19.5 stones per 10 kg while the repeated graded beds and
breccia beds yielded average microdiamond abundances of 22.5 and 21.6 stones per
10 kg, respectively. This is much higher than previous results for Kimberlite
140/141. A total of four stones larger than 0.5 mm were recovered from the
repeated graded beds and the breccia beds, two of which was recovered from the
0.850 sieve screen. Simple evaluation of microdiamond stone counts in isolation
are insufficient to estimate macrodiamond contents, but can be utilized in
diamond size frequency distributions to give grade forecasts.
In addition to the results from caustic dissolution, a high quality diamond
weighing 0.77 carats was encountered during sample preparation of kimberlite
core in the FALC-JV warehouse. The diamond was liberated while HQ core, from a
depth of 117.86 m in drillhole 140-34, was being slabbed by a rock saw utilizing
a non-diamond masonry blade. The diamond was not damaged by the blade, although
the stone halted the cutting process and scored the blade. Both halves of the
slabbed core retained a clear impression of the stone within kimberlite of the
repeated graded beds. The diamond was weighed and measured by the SRC in
Saskatoon. According to the SRC, the stone measures 5.50 x 4.40 x 4.20 mm in
three dimensions and was described as a colourless, clear octahedroid with
etched trigons and hillocks.
In addition to testing new core, ten kimberlite core samples collectively
weighing 82.46 kg were collected from a 55 metre interval of hole 140-12
(drilled in 2002) located on the southern part of Kimberlite 140/141 during the
fourth quarter of 2003 for a due diligence audit of the SRC diamond recovery
process. A total of 127 diamonds were recovered, of which 6 stones were larger
than a 0.212 square sieve. The larger stones ranged in size from 0.36 x 0.34 x
0.3 mm to 2.14 x 1.78 x 1.7 mm. These diamond recoveries were added to the
140/141 diamond dataset for grade forecasting.
Diamond Recovery from Kimberlite 148 in 2003
A total of 2,059 microdiamonds were recovered from 739.8 kilograms of core
sampled from Kimberlite 148. The average diamond grade for all samples was 27.8
stones per 10 kg, which compares favourably to previous results from corehole
148-09 (drilled and tested in 1993) showing 14.3 stones per 10 kg from a 262 kg
sample. The highest stone abundance figures for previous Fort a la Corne samples
ranged up to 18.3 stones per 10 kg.
The best stone abundances were seen in the FBVK and the MPK units, although the
three largest stones were recovered from OPK. A total of 14 macrodiamonds, with
at least one dimension larger than 0.5 mm, were recovered from the samples.
Diamond results by kimberlite type are shown in Table 20. Diamond results by
kimberlite type and sieve category are shown in Table 21.
Table 20: 148 Microdiamond Results by Kimberlite Type
- -------------------------------------------------------------------------------------------------------------
Microdiamond
Kimberlite Sample Mass Number of Carat Weight Abundance Stones larger
Type (kilograms) Stones (milligrams) (stones/10 kilograms) than 0.5 mm
- -------------------------------------------------------------------------------------------------------------
FBVK 194.75 708 10.033 36.4 4
- -------------------------------------------------------------------------------------------------------------
MPK 316.95 983 10.809 31.0 4
- -------------------------------------------------------------------------------------------------------------
WS-FE 40.70 79 3.705 19.4 0
- -------------------------------------------------------------------------------------------------------------
OPK 146.55 226 5.785 15.4 4
- -------------------------------------------------------------------------------------------------------------
MPK-B 40.85 63 1.008 15.4 2
- -------------------------------------------------------------------------------------------------------------
Total 739.80 2,059 31.340 Average of 27.8
- -------------------------------------------------------------------------------------------------------------
37
Table 21: 148 Microdiamond Results by Sieve Category and Kimberlite Type
- ----------------------------------------------------------------------------------------------------------------------------
Kimberlite Type +0.075mm +0.106mm +0.150mm +0.212mm +0.300mm +0.425mm +0.600mm +0.850mm
Sieve Sieve Sieve Sieve Sieve Sieve Sieve Sieve
- ----------------------------------------------------------------------------------------------------------------------------
FBVK 310 195 121 60 15 5 2 0
- ----------------------------------------------------------------------------------------------------------------------------
MPK 422 336 135 63 21 4 2 0
- ----------------------------------------------------------------------------------------------------------------------------
WS-FE 29 22 12 10 3 2 0 1
- ----------------------------------------------------------------------------------------------------------------------------
OPK 116 53 30 18 5 1 2 1
- ----------------------------------------------------------------------------------------------------------------------------
MPK-B 26 20 9 7 0 1 0 0
- ----------------------------------------------------------------------------------------------------------------------------
Total 903 626 307 158 44 13 6 2
- ----------------------------------------------------------------------------------------------------------------------------
The SRC reported a 97% recovery of internal tracers during diamond recovery;
stone picking was routinely audited by a supervisor. Microdiamond results from
these drillholes were integrated with the 148 dataset including results from
similar kimberlite types intersected in earlier drillholes. Modeling of grade
forecasts for the different major kimberlite units currently is in progress.
Diamond Recovery from Kimberlite 122 in 2003
A total of 327 microdiamonds were recovered from 412.65 kilograms of core
sampled from Kimberlite 122. Representative slabbed core samples were collected
from 11 HQ coreholes widely spaced across the 122 body. Six of these stones have
at least one dimension exceeding 0.5 mm in length and are considered to be
macrodiamonds.
Samples from the north crater of Kimberlite 122 gave total recovery of 133
stones, of which 2 macrodiamonds had at least one dimension greater than 0.5 mm.
Most of the stones were recovered from the MPK-N kimberlite phase producing the
best average stone abundance of 9.8 stones/10kg. In addition, the overlying
UCSK-N gave an average abundance of 7.5 stones/10kg based on recovery of 18
stones from a much smaller sample mass. Table 22 shows the recovery of stones by
kimberlite type and area.
Table 22: Summary of 122 Microdiamond Results by Kimberlite Type
- --------------------------------------------------------------------------------------------------------------
Kimberlite Type Range of Sampled Sample # of Stones Average Stones larger
Phase Thickness Mass (kg) Stones/10kg than 0.5 mm
(m)
- --------------------------------------------------------------------------------------------------------------
North Main Pyroclastic 56 - 74 117.55 115 9.8 1
Kimberlite (MPK-N)
- --------------------------------------------------------------------------------------------------------------
North Upper Complex sediments 11 - 43 23.95 18 7.5 1
and Kimberlite (UCSK-N)
- --------------------------------------------------------------------------------------------------------------
Total 122 North Crater: 141.50 133 9.4 2
- --------------------------------------------------------------------------------------------------------------
38
- --------------------------------------------------------------------------------------------------------------
Kimberlite Type Range of Sampled Sample # of Stones Average Stones larger
Phase Thickness Mass (kg) Stones/10kg than 0.5 mm
(m)
- --------------------------------------------------------------------------------------------------------------
South Main Pyroclastic 36 - 103 222.55 163 7.3 4
Kimberlite (MPK-S)
- --------------------------------------------------------------------------------------------------------------
South Upper Complex sediments 3 - 12 7.75 3 3.9 0
and Kimberlite (UCSK-S)
- --------------------------------------------------------------------------------------------------------------
South Other Pyroclastic 23 - 53 32.40 26 8.0 0
Kimberlite (OPK-S1)
- --------------------------------------------------------------------------------------------------------------
Total 122 South Crater: 262.70 192 7.3 4
- --------------------------------------------------------------------------------------------------------------
Basal Sediments and Kimberlite 7 8.45 2 2.4 0
(SAK), south periphery of body
- --------------------------------------------------------------------------------------------------------------
Total 122: 412.65 327 7.9 6
- --------------------------------------------------------------------------------------------------------------
By comparison, samples from the south crater returned lesser stone abundances of
7.3 and 3.9 stones/10kg for the MPK-S and UCSK-S phases, respectively. The MPK-S
unit had four macrodiamonds with at least one dimension greater than 0.5 mm.
OPK-S1, in the southeastern part of the body, returned an average value of 8.0
stones/10kg based on the recovery of 26 stones from 32.40 kg of sample.
In terms of size fractions, approximately 38% of the stones were recovered on
the 0.075 mm sieve and 83% of the stones were retained in sieves less than 0.212
mm (Table 23). Overall, percentage recoveries by sieve class were very similar
for the north and south sectors.
Stone recoveries from 122 cannot easily be compared to those from bodies 148 and
140/141 as these kimberlites were formed from separate volcanic eruptions that
most likely have a distinct population of micro- and macrodiamonds. Simple
evaluation of microdiamond stone counts in isolation are insufficient to
estimate macrodiamond contents, however, they can be utilized in diamond size
frequency distributions to give grade forecasts.
Table 23: 122 Microdiamond Recoveries by Sieve Category and Kimberlite Type
- ---------------------------------------------------------------------------------------------------------------------------
Kimberlite +0.075mm +0.106mm +0.150mm +0.212mm +0.300mm +0.425mm +0.600mm +0.850mm
Type Sieve Sieve Sieve Sieve Sieve Sieve Sieve Sieve
- ---------------------------------------------------------------------------------------------------------------------------
MPK-N 50 30 19 8 4 3 0 1
- ---------------------------------------------------------------------------------------------------------------------------
UCSK-N 4 7 4 2 0 1 0 0
- ---------------------------------------------------------------------------------------------------------------------------
North Crater: 54 37 23 10 4 4 0 1
- ---------------------------------------------------------------------------------------------------------------------------
% of North: 40.6 27.8 17.3 7.6 3.0 3.0 0 0.7
- ---------------------------------------------------------------------------------------------------------------------------
MPK-S 61 48 26 16 5 3 4 0
- ---------------------------------------------------------------------------------------------------------------------------
UCSK-S 0 3 0 0 0 0 0 0
- ---------------------------------------------------------------------------------------------------------------------------
OPK-S1 8 4 6 7 1 0 0 0
- ---------------------------------------------------------------------------------------------------------------------------
South Crater: 69 55 32 23 6 3 4 0
- ---------------------------------------------------------------------------------------------------------------------------
% of South: 35.9 28.6 16.7 12.0 3.1 1.6 2.1 0
- ---------------------------------------------------------------------------------------------------------------------------
39
- ---------------------------------------------------------------------------------------------------------------------------
Kimberlite +0.075mm +0.106mm +0.150mm +0.212mm +0.300mm +0.425mm +0.600mm +0.850mm
Type Sieve Sieve Sieve Sieve Sieve Sieve Sieve Sieve
- ---------------------------------------------------------------------------------------------------------------------------
SAK 1 0 1 0 0 0 0 0
- ---------------------------------------------------------------------------------------------------------------------------
Total 122: 124 92 56 33 10 7 4 1
- ---------------------------------------------------------------------------------------------------------------------------
% of 122: 37.9 28.1 17.1 10.2 3.1 2.1 1.2 0.3
- ---------------------------------------------------------------------------------------------------------------------------
A comparison of recent stone recoveries from caustic dissolution to similar
types of historical results can be made on a limited basis. For the 122 north
crater, combined MPK-N/UCSK-N diamond abundances are 3 times that seen in rotary
hole 122-01, which was drilled in 1989. This drillhole produced kimberlite
samples in the form of chips. Diamond recovery was achieved by combined
crushing, jigging, heavy liquid separation, and caustic fusion. A total of 77 kg
of kimberlite chips were analyzed for diamond content and produced 22 stones, of
which five were macrodiamonds having at least one dimension greater than 0.5 mm
and two of the stones had their largest dimension close to 1 mm. It is not known
what the bottom cutoff for recovery was for this procedure, Although the
smallest stone size recovered from these samples was 0.10 mm, a relatively
coarse bottom cut-off may explain the comparatively low stone abundances for
122-01, despite recovery of a significant proportion of larger diamonds. Table
24 shows a comparison of diamond abundances for historical and recent results.
Several drillholes located on the south part of 122 were tested for diamond
content from 1993 to 1996. Diamond abundances for these drillholes ranged from
2.5 to 4.5 stones/10kg compared to an average of 7.3 stones/10kg for the 2003
coreholes located in the 122 south crater (MPK-S and OPK areas). Kimberlite core
samples totaling over 400 kg from coreholes 122-05 and 122-06, and an additional
252 kg of chip samples from large diameter reverse circulation drillholes 122-07
and 122-08 averaged between 2.5 to 4.5 stones/10kg based on the recovery of 218
diamonds. All four of these drillholes are located within the south and
southeastern part of body 122. Stone abundances for 2003 coreholes in the 122
south crater (MPK-S and OPK-S1 areas) were about twice these recoveries with an
average of 7.3 stones/10kg.
The SRC reported 95.3% recovery of internal tracers during diamond recovery;
stone picking was routinely audited by a supervisor. Microdiamond results from
these drillholes were integrated with the 122 dataset including results from
similar kimberlite types intersected in earlier drillholes (122-01, 122-05,
122-06, 122-07, 122-08).
Diamond Recovery from Kimberlite 150
Kimberlite 150 was selected for delineation drilling and microdiamond sampling
due to both favourable historical diamond recoveries and its size. The new
results were combined with historical data in order to make grade forecasts
based on stone size distributions.
40
Table 24: Comparison of Recent and Historical 122 Microdiamond Results by Area
- --------------------------------------------------------------------------------------------------------------
Diamond
Year of Diamond Recovery Sample
Drillhole/Area Diamond Recovery Bottom Cut Mass # of Average
Comparison Recovery Facility(1) -off (mm) (kg) Stones Stones/10kg
- --------------------------------------------------------------------------------------------------------------
122 North Crater
- --------------------------------------------------------------------------------------------------------------
122-01 1989 C.F. Minerals ? 77 22 2.9
- --------------------------------------------------------------------------------------------------------------
MPK-N, UCSK-N 2003 SRC 0.075 141.5 133 9.4
- --------------------------------------------------------------------------------------------------------------
122 South Crater
- --------------------------------------------------------------------------------------------------------------
122-05 1992 KAL 0.074 169 42 2.8
- --------------------------------------------------------------------------------------------------------------
122-06 1993 KAL 0.074 239 99 4.5
- --------------------------------------------------------------------------------------------------------------
122-07 1994 KAL 0.074 181 51 2.5
- --------------------------------------------------------------------------------------------------------------
122-08 1995 KAL 0.074 71 26 4.1
- --------------------------------------------------------------------------------------------------------------
122-09 2001 KAL 0.074 264 22 0.8
- --------------------------------------------------------------------------------------------------------------
122-10 2001 KAL, Lakefield 0.074 417 38 0.9
- --------------------------------------------------------------------------------------------------------------
122-11 2001 KAL 0.074 167 20 1.2
- --------------------------------------------------------------------------------------------------------------
MPK-S, UCSK-S, OPK-S1 2003 SRC 0.075 262.70 192 7.3
- --------------------------------------------------------------------------------------------------------------
1. Abbreviated forms are as follows: Saskatchewan Research Council, Saskatoon
(SRC), De Beers' Kimberley Acid Laboratory, South Africa (KAL), Lakefield
Research Labs, Ontario (Lakefield)
Representative slabbed core samples were collected from 12 HQ coreholes widely
spaced across the 150 body. A total of 392 microdiamonds were recovered from 51
samples utilizing caustic dissolution methods on 422 kilograms of core submitted
to the SRC. The SRC recovered and reported diamonds down to a lower cutoff of
0.075 mm in size; diamonds passing through a 0.075 mm screen were not included
in the stone tallies. The SRC reported 98.6% recovery of internal tracers during
diamond recovery; stone picking was routinely audited by a supervisor.
Recovered diamonds and selected caustic residues were sent to the KMDL for
further auditing and verification of individual stone size, shape, and sieve
category using proprietary techniques. KMDL reported 238 stones with dimensions
equivalent to a +74 micron sieve cut-off and having a combined weight of 0.248
carats, including one macrodiamond weighing 0.226 carats recovered in the 2 mm
sieve category. The average diamond grade for all samples was 5.7 stones per 10
kg, utilizing only stones greater than 74 microns.
Due to geological complexity in the 150 kimberlite body, the results from the
2003 drillholes were divided into three groups corresponding to the three areal
lobes of the kimberlite outline (Table 25). Diamond results by kimberlite type
and sieve category are shown in Table 26.
In terms of stone size fractions, approximately 49.4% of the stones were
recovered on the 0.074 mm sieve and 94.1% of the stones were retained in sieves
less than 0.212 mm. However, 91% of the total carat weight of diamond from these
samples was recovered in a single stone from the west lobe. Viewed in isolation,
microdiamond stone counts can be misleading and the estimation of macrodiamond
grade from microdiamond results will require an interpretation of the diamond
grade-size plots.
41
Table 25: 150 Microdiamond Results by Kimberlite Type
- ---------------------------------------------------------------------------------------------------------------------
Microdiamond
150 Total Carat Stones Abundance
Kimberlite Sample Mass Weight > 74 > 74 microns Stones larger
Area (kg) Total Stones (octacarats)(1) microns (stones/10 kg) than 0.5 mm
- ---------------------------------------------------------------------------------------------------------------------
North Lobe 82.7 80 394,500 47 5.7
- ---------------------------------------------------------------------------------------------------------------------
West Lobe 239.5 258 24,332,850 161 6.7 1;0.226 cts.
- ---------------------------------------------------------------------------------------------------------------------
South Lobe 99.5 54 183,400 31 3.1
- ---------------------------------------------------------------------------------------------------------------------
Total 421.7 392 24,910,750 239 Average of 5.7
- ---------------------------------------------------------------------------------------------------------------------
1. One octacarat is equivalent to 1x10-8 carats
Table 26: KMDL 150 Microdiamond Results (>74 microns) by Sieve Category and Kimberlite Type
- ------------------------------------------------------------------------------------------------------------------------
+0.600 to
Kimberlite +0.074mm +0.106mm +0.150mm +0.212mm +0.300mm +0.425mm +0.850 mm +2 mm
Type Sieve Sieve Sieve Sieve Sieve Sieve Sieves Sieve
- ------------------------------------------------------------------------------------------------------------------------
North Lobe 22 18 3 4 0 0 0 0
- ------------------------------------------------------------------------------------------------------------------------
West Lobe 78 49 25 6 2 0 0 1
- ------------------------------------------------------------------------------------------------------------------------
South Lobe 18 9 3 1 0 0 0 0
- ------------------------------------------------------------------------------------------------------------------------
Total 118 76 31 11 2 0 0 1
- ------------------------------------------------------------------------------------------------------------------------
Modeling of the south lobe of the body utilized 129 microdiamonds (23 unused
stones were categorized as less than 74 microns in size) grouped into four size
categories. Only 15 macrodiamonds were recovered from this lobe in the past and
this number of stones was insufficient to include in the modeling. The south
lobe was assigned a forecast grade of 3 cpht encompassing a mass of 50.5 million
tonnes based on integration of drillhole information and geophysical data. The
north lobe was not modeled due to the availability of only 67 microdiamonds and
no historical macrodiamonds. The estimated mass for this lobe is 32.1 tonnes.
The reader is cautioned that the grade estimates are conceptual in nature. The
grade of kimberlite above a 1.5 mm bottom cutoff is estimated from a combination
of micro- and macrodiamond data. Confidence levels for these figures are low and
additional testing of macrodiamond content may be required to increase
confidence levels in the grade forecasts. The reader should also be aware that
insufficient geological control and quantity of sampling has been obtained to
permit rigorous application of economic considerations and that there is no
certainty that these preliminary assessments will be realized. In short, the
figures presented herein are utilized as an exploration tool and their primary
value is for comparison of diamondiferous kimberlite targets within the focus of
the ongoing evaluation program.
Both the new data and the De Beers MRM grade forecasts do not support further
drilling and sampling work on this kimberlite but efforts on the other
prospective bodies will continue under the current, accelerated program.
2004 Exploration and Sampling Program
During the first eight months of 2004, no field programs were conducted at Fort
a la Corne. In July 2004, the FALC-JV partners implemented a $7.62 million
program in part based on recommendations put forward by geoscientists of De
Beers' MRM and in recognition of large, relatively sparsely tested kimberlite
bodies located proximally to the centre of the large cluster in the southern
part of the main kimberlite trend.
42
The 2004 exploration program had three main objectives. One was to determine
geological models for four high-interest kimberlite bodies and to adequately
sample individual kimberlite units in each body for diamond content. The four
bodies include kimberlites 120, 147, 121, and 221. None of these four bodies
have been drilled in the past 5 years. The second objective was to test for the
presence of kimberlite in five geophysical anomalies located around the central
cluster using HQ core holes. The third objective was to improve the
understanding of geology, diamond distribution, and diamond values of the
southern parts of both the 140/141 body and 122 body with the goal of ultimately
proving resource tonnage for the higher grade zones. A combination of coreholes
(as pilot holes) and large diameter reverse circulation drillholes were used in
these two bodies. The 2004 program included ten large diameter minibulk
drillholes positioned on the higher-grade zones in Kimberlites 140/141 and 122.
The 140/141 kimberlite had been the subject of drilling in 2000, 2001, 2002, and
2003, however the 2004 work focussed on the south west portion of the kimberlite
where little information was available. Kimberlite 122 was last drilled in 2000
when three large diameter (610 mm) reverse circulation drillholes (LDDH) were
completed on the south-central part of the body. The rationale for mini-bulk
sampling in 2004 was to increase the confidence in the grade forecast models and
the average diamond values in the kimberlite units of higher grade interest in
bodies 140/141, 122 and 148. During 2004, mini-bulk sampling was carried out on
the oscillating breccia unit of body 140/141 and the MPK unit within the
southern crater of body 122.
Planning, Permits, Environmental Health and Safety
At the project level, De Beers Canada submitted a detailed
exploration/evaluation program plan to Saskatchewan Environment ("SE") prior to
the start of the field program which included all anticipated impacts caused by
the drilling activities in the Fort a la Corne Forest area (road construction,
drill pad preparation, water sources and rehabilitation). Approval for drillsite
access and drill pad construction was granted through a Timber Permit issued
separately by SE. Authority to withdraw surface water for drilling was covered
by a Temporary Water Rights Licence issued by the Saskatchewan Watershed
Authority. The Department of Fisheries and Oceans ("DFO") was advised by letter
of the programme and responded with several guidelines.
Prior to mobilization, a field visit was conducted by an SE conservation officer
who inspected each of the proposed drillsites. Photographs were taken at each
site so that rehabilitation could be checked against the original features of
the land surface after drilling was completed.
2004 Core Drilling Program
Boart-Longyear mobilized two LF-70 hydraulic core drilling rigs for this
program. A total of 39 HQ core (2.5 inches or 63.5 mm diameter) core holes
provided significant opportunities for understanding the geology of 6 separate,
prioritized kimberlite bodies and for diamond recovery geared to better
understanding their diamond content and distribution. Ten of the coreholes were
used as pilot holes for large diameter, reverse circulation drilling in
kimberlites 122 and 140/141. As well, five of the coreholes were targeted on
geophysical anomalies to test for the presence of kimberlite.
Drilling concluded during mid-November with a total of 38 HQ or HQ/NQ (63.5 mm
or 2.5 inches) coreholes and one NQ (47.6 mm or 1.875 inches) corehole. Diamond
core bits are composed of traceable synthetic cutting diamonds that can easily
be distinguished from natural stones. Significant intersections of prospective
kimberlite were encountered in each of the prioritized kimberlite bodies
investigated and sufficient coverage of the bodies from this program and
previous drilling will permit construction of geological models. Kimberlite was
intersected in two of the five geophysical anomalies, but will not be further
discussed in this report. A summary of kimberlite core intersections is shown in
Table 27.
At present, the sampling strategy for diamond recovery utilizing caustic
dissolution methods is based on collection the of representative material from
areas within boundaries marking lithological contacts. Representative samples
for diamond recovery were collected over variable intervals, but from areas
within discrete phases of kimberlite. Samples are made up of a maximum of 8 kg
each and closed with numbered seals that cannot be tampered with. In addition,
during 2004, samples of slabbed core measuring up to 40 cm long were collected
for archiving and future petrographic studies. The number of samples collected
per drillhole is a function of several factors including:
o budgetary considerations for the diamond recovery program
o number of discrete phases present in the drillhole and in the
kimberlite as a whole (complexity of geology)
o thickness of intersection and discrete kimberlite phases
o estimate of diamonds required for further evaluation
43
Table 27: Summary of 2004 Core Drilling at Fort a la Corne
- ------------------------------------------------------------------------------------------------------------------
Thickness of Total
Base of Main Kimberlite End of
Top of Kimberlite Kimberlite Kimberlite Intersection Hole
Drill hole # CoreSize(1) (m) (m) (m) (m)(2) (m)
- ------------------------------------------------------------------------------------------------------------------
04-140-041 HQ 97.40 246.00 106.44 128.28 252.00
- ------------------------------------------------------------------------------------------------------------------
04-140-042 HQ 97.56 241.22 138.59 140.76 243.00
- ------------------------------------------------------------------------------------------------------------------
04-140-043 HQ 100.57 232.35 119.84 124.89 236.00
- ------------------------------------------------------------------------------------------------------------------
04-140-048 NQ 104.90 137.66 32.76 58.65 180.00
- ------------------------------------------------------------------------------------------------------------------
04-140-050 HQ 100.19 236.62 129.18 131.59 243.00
- ------------------------------------------------------------------------------------------------------------------
140 Subtotal 584.17 1,154.00
- ------------------------------------------------------------------------------------------------------------------
04-121-009 HQ/NQ 112.03 289.53 177.50 177.50 291.00
- ------------------------------------------------------------------------------------------------------------------
04-121-010 HQ 112.67 204.50 91.83 91.83 222.00
- ------------------------------------------------------------------------------------------------------------------
04-121-011 HQ 109.84 200.78 90.94 90.94 207.00
- ------------------------------------------------------------------------------------------------------------------
04-121-012 HQ 116.33 154.61 29.75 36.63 168.00
- ------------------------------------------------------------------------------------------------------------------
04-121-013 HQ 131.24 168.33 30.76 32.27 179.00
- ------------------------------------------------------------------------------------------------------------------
121 Subtotal 429.17 1,067.00
- ------------------------------------------------------------------------------------------------------------------
04-221-002 HQ 112.05 170.80 28.99 51.16 180.00
- ------------------------------------------------------------------------------------------------------------------
04-221-003 HQ 121.35 196.73 75.38 75.38 303.00
- ------------------------------------------------------------------------------------------------------------------
04-221-004 HQ 109.55 183.49 34.05 68.59 195.00
- ------------------------------------------------------------------------------------------------------------------
221 Subtotal 195.13 678.00
- ------------------------------------------------------------------------------------------------------------------
04-147-006 HQ 106.28 181.22 74.94 74.94 192.00
- ------------------------------------------------------------------------------------------------------------------
04-147-007 HQ 101.35 184.56 83.21 83.21 195.00
- ------------------------------------------------------------------------------------------------------------------
04-147-008 HQ 101.12 218.19 117.07 117.07 228.00
- ------------------------------------------------------------------------------------------------------------------
04-147-009 HQ 103.40 221.82 118.42 118.42 231.00
- ------------------------------------------------------------------------------------------------------------------
04-147-010 HQ 96.00 221.68 125.68 125.68 231.00
- ------------------------------------------------------------------------------------------------------------------
04-147-011 HQ 99.78 218.03 118.37 118.25 228.00
- ------------------------------------------------------------------------------------------------------------------
04-147-012 HQ 101.42 202.96 101.54 101.54 213.00
- ------------------------------------------------------------------------------------------------------------------
04-147-013 HQ 95.16 211.31 116.15 116.15 222.00
- ------------------------------------------------------------------------------------------------------------------
147 Subtotal 855.26 1,740.00
- ------------------------------------------------------------------------------------------------------------------
04-120-021 HQ 104.00 236.97 132.97 132.97 242.00
- ------------------------------------------------------------------------------------------------------------------
04-120-022 HQ 108.00 293.80 185.80 185.80 306.00
- ------------------------------------------------------------------------------------------------------------------
04-120-023 HQ 111.00 234.88 123.88 123.88 246.00
- ------------------------------------------------------------------------------------------------------------------
04-120-024 HQ 115.88 125.50 9.62 9.62 192.00
- ------------------------------------------------------------------------------------------------------------------
04-120-025 HQ 111.00 240.55 129.55 130.55 244.00
- ------------------------------------------------------------------------------------------------------------------
04-120-026 HQ/NQ 105.00 243.60 7.36 131.96 255.00
- ------------------------------------------------------------------------------------------------------------------
04-120-027 HQ 102.00 234.50 57.61 126.00 246.00
- ------------------------------------------------------------------------------------------------------------------
04-120-028 HQ 119.52 218.80 99.28 99.28 237.00
- ------------------------------------------------------------------------------------------------------------------
120 Subtotal 940.06 1,968.00
- ------------------------------------------------------------------------------------------------------------------
04-122-012(3) HQ n/a n/a n/a n/a 102.00
- ------------------------------------------------------------------------------------------------------------------
04-122-012A HQ 108.00 313.15 198.49 202.88 357.00
- ------------------------------------------------------------------------------------------------------------------
04-122-013 HQ 114.00 200.37 86.37 86.37 213.00
- ------------------------------------------------------------------------------------------------------------------
04-122-014 HQ 110.45 299.00 141.84 176.80 299.00
- ------------------------------------------------------------------------------------------------------------------
04-122-019 HQ 107.24 314.65 207.41 207.41 345.00
- ------------------------------------------------------------------------------------------------------------------
122 Subtotal 673.46 1,316.00
- ------------------------------------------------------------------------------------------------------------------
Total 3,677.25 7,923.00
- ------------------------------------------------------------------------------------------------------------------
1. HQ core has a diameter of 2.5 inches or 63.5 mm; NQ core has a diameter of
1.875 inches or 47.6 mm; drillholes listed with both core sizes started
with HQ diameter, but were forced to decrease to NQ size due to drilling
difficulties
2. These values may not be equal to Base of Kimberlite minus Top of
Kimberlite due to intervening layers of country rock 3. Drillhole
04-122-012 was lost due to drilling difficulties at a depth of 102 m
44
Diamond recovery was completed in two stages. The SRC recovered diamonds using
caustic dissolution and concentrate beneficiation methods. Stones were
hand-picked from the resulting residue, and then described and weighed. The
second stage involved shipping the recovered diamonds and selected caustic
residue to the KMDL for further auditing and verification of individual stone
size, shape, and sieve category using proprietary techniques.
Diamond recovery information and results for each drillhole and kimberlite are
recorded in tabular form. MRM and independent consultants/experts use this data
for grade calculation exercises and prediction of stone sizes. For some bodies,
microdiamond data is relatively sparse, sometimes being derived from a single
drillhole, and represents the only diamond data (macro or micro) available for a
given body.
2004 Drilling and Sampling Results
Kimberlite 120
The 120 kimberlite occurs in the main cluster of the Fort a la Corne Kimberlite
Province and is located on western end of the irregular shaped 148/147/120/220
volcanic complex with the 148 kimberlite directly to the southeast and the 220
kimberlite immediately to the east. Eight coreholes on Kimberlite 120 provided
940.05 m of kimberlitic material from a total meterage of 1,968.0 m. The top of
the first kimberlite intersection ranged between 102.0 to 115.88 m and the
bottom of the last kimberlite unit situated between 234.5 and 243.6 m.
Kimberlite thicknesses varied between 9.62 and 185.8 m. The average total core
recovery for the 2004 drillholes was 93.7%.
Previous Drilling on Kimberlite 120
As summarized in Table 28, twenty drillholes were completed on the 120
kimberlite body between 1990 and 1993. Various thicknesses of kimberlite ranging
between 0.0 and 170.0 m were encountered by the drilling. The top of the
kimberlite in the drillholes was noted to be between 97.0 and 115.0 m depth.
The initial drilling programme testing the 120 body in 1990 consisted of four
reverse circulation drillholes (120-01 to 120-04). Follow-up holes (DH's120-02
to 120-17) were completed in 1991 and 1992. These consisted of reverse
circulation mini-bulk sample and coreholes (76 mm). One of the reconnaissance
holes drilled in 1992 (DH 120-18) did not recover any kimberlite. One other
hole, DH 120-05X, had to be abandoned while drilling overburden when problems
were encountered in the hole. A second hole, DH 120-05 was completed at the same
location. The following year 120-14 was abandoned and was replaced by 120-15.
The reconnaissance drillhole 120-18 did not intersect any kimberlite in 1992.
Drillhole 120-20 was a redrill of holes 120-12 and 120-13 in order to confirm
macrodiamond recoveries in the earlier drillhole.
45
Table 28: Summary of Historic Drillholes and Minibulk Macrodiamond Recovery for 120
- -------------------------------------------------------------------------------------------------------------
Year Kimberlite Sample Recovered Recovered
Drillhole Drilled Type(1) TOK BOK Thickness EOH Mass(t) Stones Carats
- -------------------------------------------------------------------------------------------------------------
120-01 1990 RCA 105.0 228.0 123.0 265.0 7.10 0 0
- -------------------------------------------------------------------------------------------------------------
120-02 1990 RCA 114.0 223.0 109.0 223.0 6.29 26 0.070
- -------------------------------------------------------------------------------------------------------------
120-03 1990 RCA 108.0 222.0 114.0 270.0 6.58 5 0.280
- -------------------------------------------------------------------------------------------------------------
120-04 1990 RCA 106.0 238.0 132.0 250.0 7.62 12 0.865
- -------------------------------------------------------------------------------------------------------------
120-05 1991 RCA/UR 102.6 198.0 92.0 230.0 14.07 15 0.175
- -------------------------------------------------------------------------------------------------------------
120-05X 1991 RCA - - 0 110.0 0 0 0
- -------------------------------------------------------------------------------------------------------------
120-06 1991 RCA/UR 110.0 203.0 90.0 231.8 13.17 1 0.445
- -------------------------------------------------------------------------------------------------------------
120-07 1991 RCA 97.0 179.0 59.0 207.4 2.92 8 0.010
- -------------------------------------------------------------------------------------------------------------
120-08 1991 RCA/UR 107.0 240.0 130.8 264.0 19.50 22 0.160
- -------------------------------------------------------------------------------------------------------------
120-09 1991 RCA/UR 108.0 238.0 128.0 246.0 19.10 11 0.460
- -------------------------------------------------------------------------------------------------------------
120-10 1991 RCA/UR 106.5 190.0 81.0 204.0 12.18 2 0.240
- -------------------------------------------------------------------------------------------------------------
120-11 1991 Core 109.0 232.3 123.3 232.3 4.72 0 0.045
- -------------------------------------------------------------------------------------------------------------
120-12 1992 Core 112.0 184.5 71.5 221.0 1.71 0 0
- -------------------------------------------------------------------------------------------------------------
120-13 1992 Core 115.0 240.4 122.4 246.0 0 0 0
- -------------------------------------------------------------------------------------------------------------
120-14 1992 RCa 108.0 109.0 0 111.5 0 0 0
- -------------------------------------------------------------------------------------------------------------
120-15 1992 RCA 108.0 236.5 125.0 236.5 17.46 12 0.420
- -------------------------------------------------------------------------------------------------------------
120-16 1992 RCA 114.0 246.5 130.0 246.5 18.16 22 1.620
- -------------------------------------------------------------------------------------------------------------
120-17 1992 RCA 104.0 276.5 170.0 276.5 23.74 20 0.610
- -------------------------------------------------------------------------------------------------------------
120-18 1992 Rotary - - 0 160.0 0 0 0
- -------------------------------------------------------------------------------------------------------------
120-19 1993 Core 110.0 283.1 168.0 293.0 0.99 1 0.055
- -------------------------------------------------------------------------------------------------------------
120-20 1993 RCA 110.0 276.3 163.5 276.3 29.82 12 0.316
- -------------------------------------------------------------------------------------------------------------
Total: 2132.5 4800.8 205.14 151 5.771
- -------------------------------------------------------------------------------------------------------------
1 RCA = 152-914 mm reverse circulation airblast; UR= under-ream; Rotary=
conventional circulation tricone Note This table does not include
microdiamonds and macrodiamonds that may have been recovered from caustic
dissolution or jigging recovery methods.
Microdiamond recoveries in 2004 compared favourably with historical recoveries
which are shown at the bottom of Table 29. The average stone density of the 2004
recoveries was significantly higher at 15 stones/10kg and there were similar
recoveries of stones larger than 0.5 mm (per kg). Microdiamond recovery by
drillhole and sieve category for Kimberlite 120 is shown in Table 30.
Microdiamonds recovered from the 2004 program will be combined with all suitable
historical diamond results and submitted to MRM of De Beers for grade forecasts
of commercial-sized diamonds based on statistical and graphical treatment of the
data.
Table 29: Summary of 2004 and Historical Kimberlite 120 Microdiamond Results
- -----------------------------------------------------------------------------------------------------------------------
Carat
Drillhole Number of Sample Weight # of Average Stones larger
Drillhole Samples(1) Mass (kg) (carats) Stones Stones/10kg than 0.5 mm(2)
- -----------------------------------------------------------------------------------------------------------------------
04-120-021 12 97.75 0.0073550 127 13.0 0
- -----------------------------------------------------------------------------------------------------------------------
04-120-022 16 129.62 0.0104550 155 12.0 1
- -----------------------------------------------------------------------------------------------------------------------
04-120-023 10 82.05 0.0095050 102 12.4 1
- -----------------------------------------------------------------------------------------------------------------------
04-120-024 1 8.05 0.0004100 9 11.2 0
- -----------------------------------------------------------------------------------------------------------------------
04-120-025 12 98.40 0.0355650 196 19.9 1
- -----------------------------------------------------------------------------------------------------------------------
04-120-026 10 81.65 0.0072700 137 16.8 0
- -----------------------------------------------------------------------------------------------------------------------
04-120-027 11 89.16 0.0061850 99 11.1 0
- -----------------------------------------------------------------------------------------------------------------------
04-120-028 7 56.72 0.0075550 137 24.2 0
- -----------------------------------------------------------------------------------------------------------------------
Total: 79 643.40 0.0843000 962 15.0 3
- -----------------------------------------------------------------------------------------------------------------------
120 Historical(3) 13 DH; 59 samples 1104.68 0.1664583 734 5.36 6
- -----------------------------------------------------------------------------------------------------------------------
46
1. For the 2004 samples, representative sample intervals ranged from 6.5 to 18
metres of kimberlite intersection; sample weights ranged from 8.05 to 8.35
kg
47
2 Stones with at least one axis greater than 0.5 mm in length
3 Due to the wide variance in sample mass per historical drillhole, the
average stones/10 kg for the historical results was weighted by the mass of
individual samples (a simple average of drillhole values was calculated at
4.77 stones/10 kg)
Table 30: Kimberlite 120 Microdiamond Recoveries by Drillhole and Sieve Category
- ------------------------------------------------------------------------------------------------------------------------------
Drillhole +0.075mm +0.106mm +0.150mm +0.212mm +0.300mm +0.425mm +0.600mm +1.400mm
Sieve Sieve Sieve Sieve Sieve Sieve Sieve Sieve
- ------------------------------------------------------------------------------------------------------------------------------
04-120-021 39 54 19 10 5 0 0 0
- ------------------------------------------------------------------------------------------------------------------------------
04-120-022 58 54 31 9 2 1 0 0
- ------------------------------------------------------------------------------------------------------------------------------
04-120-023 37 35 14 10 5 0 1 0
- ------------------------------------------------------------------------------------------------------------------------------
04-120-024 3 4 1 1 0 0 0 0
- ------------------------------------------------------------------------------------------------------------------------------
04-120-025 79 74 32 10 0 0 0 1
- ------------------------------------------------------------------------------------------------------------------------------
04-120-026 56 40 21 17 2 1 0 0
- ------------------------------------------------------------------------------------------------------------------------------
04-120-027 25 49 13 7 5 0 0 0
- ------------------------------------------------------------------------------------------------------------------------------
04-120-028 59 44 22 10 1 1 0 0
- ------------------------------------------------------------------------------------------------------------------------------
Total: 356 354 153 74 20 3 1 1
- ------------------------------------------------------------------------------------------------------------------------------
Kimberlite 147
The 147 kimberlite occurs in the main cluster of the Fort a la Corne Kimberlite
Province and is located at the eastern section of the irregular shaped
148/147/120/220 volcanic complex with the 148 kimberlite directly to the
south-west and the 220 kimberlite immediately to the west. Eight HQ coreholes
(1,740.0 m) were completed during October and November 2004 in order to provide
geological information on the 147 kimberlite and to provide additional
information on the diamond potential of the body through microdiamond sampling.
The coreholes provided 855.38 m of kimberlitic material from a total meterage of
1,740.0 m. The top of the first kimberlite intersection ranged between 96 and
106.28 m and the bottom of the last kimberlite unit situated between 181.22 and
221.82 m. Kimberlite thicknesses varied between 74.94 and 125.68 m. Three main
kimberlite units were recognized within body 147. The average total core
recovery for the 2004 drillholes was 97.4%.
Previous Drilling
Five reverse circulation drillholes were completed in the 147 kimberlite prior
to 2004. Drillhole information for these holes is summarized in Table 31.
Table 31: Summary of Historic Drillholes and
Minibulk Macrodiamond Recovery for 147
- -------------- ---------- -------- ------- --------- -------------- --------- ---------- --------------- ----------------
Year Kimberlite Sample Recovered Recovered
Drillhole Drilled Type(1) TOK BOK Thickness EOH Mass (t) Stones Carats
- -------------- ---------- -------- ------- --------- -------------- --------- ---------- --------------- ----------------
147-01 1991 RCA 101.0 213.0 112.0 222.0 5.39 6 0.130
- -------------- ---------- -------- ------- --------- -------------- --------- ---------- --------------- ----------------
147-02 1992 RCA 91.0 198.0 107.0 198.0 0.91 4 0.150
- -------------- ---------- -------- ------- --------- -------------- --------- ---------- --------------- ----------------
147-03 1995 RCA 98.5 212.5 114.0 213.0 20.04 23 1.495
- -------------- ---------- -------- ------- --------- -------------- --------- ---------- --------------- ----------------
147-04 1999 RCA 99.5 231.5 132.0 232.0 23.38 41 1.200
- -------------- ---------- -------- ------- --------- -------------- --------- ---------- --------------- ----------------
147-05 1999 RCA 100.5 231.2 130.7 231.2 22.94 44 1.230
- -------------- ---------- -------- ------- --------- -------------- --------- ---------- --------------- ----------------
Total: 595.7 1096.2 72.66 118 4.205
- -------------- ---------- -------- ------- --------- -------------- --------- ---------- --------------- ----------------
1 RCA= 152-914 mm reverse circulation airblast; UR= under-ream; Rotary=
conventional circulation tricone Note: This table does not include
microdiamonds and macrodiamonds that may have been recovered from caustic
dissolution or jigging recovery methods.
48
Sampling and Microdiamond Recoveries for 147
A total of 2,432 microdiamonds were recovered from 515.20 kg of kimberlite core
in 63 samples utilizing caustic dissolution methods at the SRC. Microdiamond
recoveries were audited and comparative individual stone sizes were calculated
by experts at the KMDL in South Africa. Summaries of diamond recovery by
kimberlite drillhole and by sieve category are shown in Tables 32 and 33.
49
Table 32: Summary of 2004 and Historical Kimberlite 147 Microdiamond Results
- --------------------------------------------------------------------------------------------------------------------------
Carat
Number of Sample Weight # of Average Stones larger
Drillhole Samples(1) Mass(kg) (carats) Stones Stones/10kg than 0.5 mm(2)
- --------------------------------------------------------------------------------------------------------------------------
04-147-006 13 106.40 0.025255 378 35.53 0
- --------------------------------------------------------------------------------------------------------------------------
04-147-007 4 32.65 0.004075 67 20.52 0
- --------------------------------------------------------------------------------------------------------------------------
04-147-008 7 57.35 0.052650 650 113.34 2
- --------------------------------------------------------------------------------------------------------------------------
04-147-009 7 57.20 0.036245 155 27.10 1
- --------------------------------------------------------------------------------------------------------------------------
04-147-010 7 57.40 0.030035 311 54.18 0
- --------------------------------------------------------------------------------------------------------------------------
04-147-011 7 57.25 0.017215 238 41.57 1
- --------------------------------------------------------------------------------------------------------------------------
04-147-012 6 48.90 0.014190 201 41.10 1
- --------------------------------------------------------------------------------------------------------------------------
04-147-013 12 98.05 0.025415 432 44.06 1
- --------------------------------------------------------------------------------------------------------------------------
Total: 63 515.20 0.205080 2432 47.21 6
- --------------------------------------------------------------------------------------------------------------------------
147 Historical(3) 3 DH; 10 samples 292 0.1042626 559 21.1 7
- --------------------------------------------------------------------------------------------------------------------------
1. For the 2004 samples, representative sample intervals ranged from 3.2 to
24.2 metres of kimberlite intersection; sample weights ranged from 8.05 to
8.25 kg
2. Stones with at least one axis greater than 0.5 mm in length
3. Due to the wide variance in sample mass per historical drillhole, the
average stones/10 kg for the historical results was weighted by the mass of
individual samples (a simple average of drillhole values was calculated at
21.4 stones/10 kg)
Table 33: Kimberlite 147 Microdiamond Recoveries by Drillhole and Sieve Category
- -----------------------------------------------------------------------------------------------------------------------------
+0.075mm +0.106mm +0.150mm +0.212mm +0.300mm +0.425mm +0.850mm +1.000mm
Drillhole Sieve Sieve Sieve Sieve Sieve Sieve Sieve Sieve
- -----------------------------------------------------------------------------------------------------------------------------
04-147-006 130 118 67 48 15 0 0 0
- -----------------------------------------------------------------------------------------------------------------------------
04-147-007 26 17 14 9 1 0 0 0
- -----------------------------------------------------------------------------------------------------------------------------
04-147-008 195 229 123 64 34 5 0 0
- -----------------------------------------------------------------------------------------------------------------------------
04-147-009 51 58 22 12 8 3 0 1
- -----------------------------------------------------------------------------------------------------------------------------
04-147-010 93 112 58 28 11 9 0 0
- -----------------------------------------------------------------------------------------------------------------------------
04-147-011 92 74 34 27 8 2 1 0
- -----------------------------------------------------------------------------------------------------------------------------
04-147-012 80 66 28 20 5 1 1 0
- -----------------------------------------------------------------------------------------------------------------------------
04-147-013 168 156 64 29 11 4 0 0
- -----------------------------------------------------------------------------------------------------------------------------
Total: 835 830 410 237 93 24 2 1
- -----------------------------------------------------------------------------------------------------------------------------
Microdiamond recoveries in 2004 were significantly higher than historical
recoveries shown at the bottom of Table 32. At 47 stones/10kg, the average stone
density of the 2004 recoveries was more than double that of the historical
recoveries and was actually much higher if the 128 microdiamonds measuring less
than 0.075 mm were not included in the historical tally. In comparison, less
than half of the stones larger than 0.5 mm were recovered. Microdiamonds
recovered from the 2004 program will be combined with all suitable historical
diamond results and submitted to MRM for grade forecasts of commercial-sized
diamonds based on statistical and graphical treatment of the data.
Kimberlites 121 and 221
The 121 and 221 kimberlites occur in the main cluster of the Fort a la Corne
Kimberlite Province and are located east of the 148/147/120/220 volcanic
complex. Eight HQ coreholes (120-09 to 13, 221-02 to 04) were completed during
October and November 2004 in order to improve the geological understanding of
the 121 and 221 kimberlite bodies. The eight holes provided a total metreage of
1,745 m of core with a total of 624.3 m of kimberlitic material core. Kimberlite
thicknesses varied between 32.27 m and 177.5 m for kimberlite body 121 and
between 51.16 m and 75.38 m for kimberlite body 221. Drillholes 04-121-011 and
04-221-002 were reduced to NQ size core at a depth of 165 m due to technical
problems encountered while drilling. From the core logging of the eight drill
cores examined from kimberlite bodies 121/221, it has been determined that the
medium to coarse-grained pyroclastic units intersected in the centre of the 121
and 221 bodies represent the material of highest interest. The average total
core recovery for the 121/221 holes drilled during 2004was 97.1%.
50
Previous Drilling
Eight previous drillholes of various types (rotary, NQ core and reverse
circulation mini-bulk sample holes) have tested the 121 kimberlite and one
rotary hole tested the 221 body during the period 1989 through 1996. As shown in
Table 34, the majority of past drillholes in the target area are clustered
towards the centre of the circular to ovoid shaped 121 kimberlite body which
ground magnetic modelling has forecasted to be 28 ha in size.
Table 34: Summary of Historic Drillholes and Minibulk Macrodiamond on 121 and 221
- -------------------------------------------------------------------------------------------------------------------
Year Kimberlite Sample Recovered Recovered
Drillhole Drilled Type(1) TOK BOK Thickness EOH Mass(t) Stones Carats
- -------------------------------------------------------------------------------------------------------------------
121-01 1989 Rotary 110.9 158.5 47.60 158.5 0 0 0
- -------------------------------------------------------------------------------------------------------------------
121-02 1991 RCA 112.0 276.0 162.30 276.0 8.80 4 0.100
- -------------------------------------------------------------------------------------------------------------------
121-03 1992 Core 120.0 194.0 72.00 221.5 1.72 1 0.030
- -------------------------------------------------------------------------------------------------------------------
121-04 1992 Core 114.0 294.2 172.20 297.0 6.08 8 0.230
- -------------------------------------------------------------------------------------------------------------------
121-05 1992 RCA 120.0 185.0 62.50 185.0 8.73 2 0.095
- -------------------------------------------------------------------------------------------------------------------
121-06 1992 RCA 117.0 258.0 139.00 258.0 19.41 32 1.210
- -------------------------------------------------------------------------------------------------------------------
121-07 1992 RCA 111.0 216.5 104.50 216.5 14.52 15 0.665
- -------------------------------------------------------------------------------------------------------------------
121-08 1993 Core 112.0 299.0 172.00 305.0 0.97 1 0.010
- -------------------------------------------------------------------------------------------------------------------
221-01 1996 Rotary 123.1 298.4 168.55 299.0 4.66 21 0.341
- -------------------------------------------------------------------------------------------------------------------
Total: 595.7 1096.2 64.89 84 2.681
- -------------------------------------------------------------------------------------------------------------------
1. RCA152-914 mm reverse circulation airblast; UR= under-ream; Rotary=
conventional circulation tricone Note: This table does not include
microdiamonds and macrodiamonds that may have been recovered from caustic
dissolution or jigging recovery methods.
Variable thicknesses of kimberlite were also encountered by previous drillholes
testing the 121 body ranging from 47.6 m (incomplete, rotary test hole) to 172.0
m depth. The average thickness of kimberlite encountered by the seven complete
historic holes testing the body is 126.4 m. Taking local variations in elevation
into consideration, the top of the kimberlite in the 121 body is approximately
at 111-116 m depth.
The magnetic indicated outline of the 221 body indicates a circular 15 ha body
appended to the northwest margin of the 121 kimberlite. A single 4 3/4 inch
rotary drillhole (DH 221-01) collared at the centre of the body tested the
target in 1996. A 168.6 m intersection of kimberlite was recovered in the hole.
Kimberlite 121
A total of 326 microdiamonds were recovered from 295.25 kg of kimberlite core in
36 samples utilizing caustic dissolution methods at the SRC. Microdiamond
recoveries were audited and individual stone sizes were calculated by experts at
the KMDL in South Africa. Summaries of diamond recovery by kimberlite drillhole
and by sieve category are shown in Tables 35 and 36.
Table 35: Summary of 2004 and Historical Kimberlite 121 Microdiamond Results
- --------------------------------------------------------------------------------------------------------------------
Carat
Number of Sample Weight # of Average Stones larger
Drillhole Samples(1) Mass(kg) (carats) Stones Stones/10kg than 0.5 mm(2)
- --------------------------------------------------------------------------------------------------------------------
04-121-009 19 155.95 0.430420 248 15.90 1
- --------------------------------------------------------------------------------------------------------------------
04-121-010 4 32.95 0.000715 13 3.95 0
- --------------------------------------------------------------------------------------------------------------------
04-121-011 5 41.00 0.000710 25 6.10 0
- --------------------------------------------------------------------------------------------------------------------
04-121-012 4 32.65 0.005110 25 7.66 1
- --------------------------------------------------------------------------------------------------------------------
04-121-013 4 32.70 0.000530 15 4.59 0
- --------------------------------------------------------------------------------------------------------------------
Total: 36 295.25 0.437485 326 11.04 2
- --------------------------------------------------------------------------------------------------------------------
121 Historical(3) 7 DH; 43 samples 875.75 0.1049610 378 5.18 17
- --------------------------------------------------------------------------------------------------------------------
51
1. For the 2004 samples, representative sample intervals ranged from 4.2 to
33.6 m of kimberlite intersection; sample weights ranged from 8.05 to 8.35
kg
2. Stones with at least one axis greater than 0.5 mm in length
3. Due to the wide variance in sample mass per historical drillhole, the
average stones/10 kg for the historical results was weighted by the mass of
individual samples (a simple average of drillhole values was calculated at
4.32 stones/10 kg)
At first look, microdiamond recoveries in 2004 appeared considerably higher than
historical recoveries, which are shown at the bottom of Table 35. At 11
stones/10kg, the average stone density of the 2004 recoveries was more than
double that of the historical recoveries and was actually much higher if the 94
microdiamonds measuring less than 0.075 mm were not included in the historical
tally. However, the average was affected significantly by very high stone
recoveries in 04-121-009, which was located near the centre of the body and
proximal to three historical holes with drillhole averages of greater than 6
stones/10 kg. While stone densities for the four drillholes located some 200 to
250 m away from the postulated central eruptive vent are comparable to the
historical results, there is some indication that the centre of the pipe is more
microdiamond-rich than the margins.
It is not known why only one stone larger than 0.5 mm was recovered in the 2004
program (notably, it was recovered on the 2.8 mm sieve screen and weighed
0.41667 carats), but most of the larger stones recovered in the historical
programs were from the same central area of the body.
Microdiamonds recovered from the 2004 program will be combined with all suitable
historical diamond results and submitted to MRM for grade forecasts of
commercial-sized diamonds based on statistical and graphical treatment of the
data.
Table 36: Kimberlite 121 Microdiamond Recoveries by Drillhole and Sieve Category
- -------------------------------------------------------------------------------------------------------------------
+0.075mm +0.106mm +0.150mm +0.212mm +0.300mm +0.425mm +2.800mm
Drillhole Sieve Sieve Sieve Sieve Sieve Sieve Sieve
- -------------------------------------------------------------------------------------------------------------------
04-121-009 96 85 39 19 7 1 1
- -------------------------------------------------------------------------------------------------------------------
04-121-010 6 2 3 2 0 0 0
- -------------------------------------------------------------------------------------------------------------------
04-121-011 11 10 4 0 0 0 0
- -------------------------------------------------------------------------------------------------------------------
04-121-012 4 7 4 4 3 3 0
- -------------------------------------------------------------------------------------------------------------------
04-121-013 7 4 3 0 1 0 0
- -------------------------------------------------------------------------------------------------------------------
Total: 124 108 53 25 11 4 1
- -------------------------------------------------------------------------------------------------------------------
Kimberlite 221
A total of 168 microdiamonds were recovered from 203.33 kg of kimberlite core in
25 samples utilizing caustic dissolution methods at the SRC. Microdiamond
recoveries were audited and individual stone sizes calculated by experts at
KMDL. Summaries of diamond recovery by kimberlite drillhole and by sieve
category are shown in Tables 37 and 38.
Table 37: Summary of 2004 and Historical Kimberlite 221 Microdiamond Results
- -------------------------------------------------------------------------------------------------------------------
Carat
Number of Sample Weight # of Average Stones larger
Drillhole Samples(1) Mass(kg) (carats) Stones Stones/10kg than 0.5 mm(2)
- -------------------------------------------------------------------------------------------------------------------
04-221-002 3 24.65 0.001030 16 6.49 0
- -------------------------------------------------------------------------------------------------------------------
04-221-003 19 154.44 0.034955 137 8.87 2
- -------------------------------------------------------------------------------------------------------------------
04-221-004 3 24.24 0.001370 15 6.19 0
- -------------------------------------------------------------------------------------------------------------------
Total: 25 203.33 0.037355 168 8.26 2
- -------------------------------------------------------------------------------------------------------------------
121 Historical 1 DH; 8 samples 264.35 0.0781664 74 2.78 3
- -------------------------------------------------------------------------------------------------------------------
1. For the 2004 samples, representative sample intervals ranged from 5.15 to
25.8 m of kimberlite intersection; sample weights ranged from 8.08 to 8.25
kg
52
Microdiamond recoveries in 2004 were considerably higher than historical
recoveries, which are shown at the bottom of Table 37. At 8.26 stones/10kg, the
average stone density of the 2004 recoveries was close to three times that of
the historical recoveries and was slightly higher if the 12 microdiamonds
measuring less than 0.075 mm were not included in the historical tally. Most of
the stones were recovered from a large amount of sample taken from the centrally
located corehole 04-221-003 that was targeted on the eruptive vent and near to
historic drillhole 221-001 drilled in 1996 using a conventional circulation
rotary drilling method. A single large stone was recovered from corehole
04-221-003 weighing just over 0.025 carats and caught on a 1.18 mm sieve screen.
Stone densities for all three 2004 coreholes are comparable despite drillholes
04-221-002 and 04-221-004 being located some 200 m away, towards the margins of
the body.
Microdiamonds recovered from the 2004 program will be combined with all suitable
historical diamond results and submitted to MRM for grade forecasts of
commercial-sized diamonds based on statistical and graphical treatment of the
data.
Table 38: Kimberlite 221 Microdiamond Recoveries by Drillhole and Sieve Category
- ------------------------------------------------------------------------------------------------
+0.075mm +0.106mm +0.150mm +0.212mm +0.300mm +0.425mm +1.180mm
Drillhole Sieve Sieve Sieve Sieve Sieve Sieve Sieve
- ------------------------------------------------------------------------------------------------
04-221-002 8 6 0 1 1 0 0
- ------------------------------------------------------------------------------------------------
04-221-003 55 33 27 15 5 1 1
- ------------------------------------------------------------------------------------------------
04-221-004 6 5 2 1 1 0 0
- ------------------------------------------------------------------------------------------------
Total: 69 44 29 17 7 1 1
- ------------------------------------------------------------------------------------------------
Kimberlite 140/141
Four HQ coreholes (04-140-41, 42, 43, 50) were completed during September and
October 2004 in order to provide geological control for five large diameter
drillholes completed in the south central portion of the 140/141 kimberlite body
testing the diamond potential of an oscillating kimberlite breccia unit. The
holes provided material for petrographic logging and microdiamond sampling. A
total of 974.0 m of core was drilled with a total kimberlite intersection of
525.52 m. The top of the first kimberlite intersection was encountered at a
depth of 97.4 to 100.57 m; the bottom of the last kimberlite unit was drilled at
a depth of 232.35 to 241.22 m. In three of the four drillholes three different
kimberlite intersections were cored. A fifth corehole, 04-140-048, was completed
on the southern-most part of the 140/141 magnetic anomaly. It was drilled to a
depth of 180.0 m and intersected three separate kimberlite units totaling 158.65
m. New geological information from these coreholes together with the existing
geological model was used to determine the location of several large diameter
drillholes. Intersections of the Oscillating Breccia unit were shorter than that
predicted by the model, with a maximum thickness of 81 m found for the unit. At
greater depth, all the holes intersected the speckled kimberlite ("SPK"). The
average total core recovery for the 140 drillholes completed in 2004 was 98.6%.
Previous Drilling
Between 1992 and 2003, seventy-seven drillholes were completed on the composite
140/141 kimberlite involving 18,738.2 m of drilling. This total includes 9,044.3
m of kimberlite. Past drilling of the composite 140/141 body indicates that a
relatively deep intersection of kimberlite exists near DH 140-21 which may
correspond to the location of a second vent in the 140/141 body, the first being
identified in DH 141-02 in 1992 and the second identified in DH 141-13 in 2001.
As summarized in Tables 39 and 40, past drilling along the eastern margin of the
140/141 body intersected relatively thin intersections of kimberlite. Several
holes drilled along the western margin of the body resulted in deeper than
expected intersections. It would also appear from these results that kimberlite
with some thickness also extends beyond the currently modelled western margin of
the 140/141 body.
53
Table 39: Summary of Historic Drillholes and Minibulk Macrodiamond Recovery for 140
- ------------------------------------------------------------------------------------------------------------------
Year Kimberlite Sample Recovered Recovered
Drillhole Drilled Type(1) TOK BOK Thickness EOH Mass(t) Stones Carats
- ------------------------------------------------------------------------------------------------------------------
140-01 1992 Core 120.0 182.5 49.5 204.0 0.45 0 0
- ------------------------------------------------------------------------------------------------------------------
140-02 1992 Core 127.0 153.7 26.7 153.7 0.54 0 0
- ------------------------------------------------------------------------------------------------------------------
140-03 1992 Core 124.0 320.0 194.0 323.7 6.10 8 0.495
- ------------------------------------------------------------------------------------------------------------------
140-04 1992 Core 133.0 207.0 70.9 275.5 2.46 1 0.035
- ------------------------------------------------------------------------------------------------------------------
140-05 1993 Core 123.0 315.9 184.2 323.0 1.10 2 0.090
- ------------------------------------------------------------------------------------------------------------------
140-06 1993 Rotary 102.0 204.0 102.0 204.0 4.09 3 0.340
- ------------------------------------------------------------------------------------------------------------------
140-07 1994 RCA 128.0 232.0 100.0 246.0 17.14 2 0.040
- ------------------------------------------------------------------------------------------------------------------
140-08 1995 RCA 120.0 354.0 234.0 354.0 41.63 23 1.010
- ------------------------------------------------------------------------------------------------------------------
140-09 2001 Core 116.0 229.5 113.5 245.7
- ------------------------------------------------------------------------------------------------------------------
140-10 2001 Core 110.0 242.0 132.0 250.8
- ------------------------------------------------------------------------------------------------------------------
140-11 2002 Core 102.0 167.0 65.0 201.0
- ------------------------------------------------------------------------------------------------------------------
140-12 2002 Core 102.0 242.9 140.9 247.5
- ------------------------------------------------------------------------------------------------------------------
140-13 2002 Core 110.0 236.6 126.6 243.0
- ------------------------------------------------------------------------------------------------------------------
140-14 2002 Core 109.0 244.3 135.3 249.0
- ------------------------------------------------------------------------------------------------------------------
140-15 2002 Core 102.0 336.5 234.5 342.0
- ------------------------------------------------------------------------------------------------------------------
140-16 2002 Core 99.7 237.3 137.6 243.0
- ------------------------------------------------------------------------------------------------------------------
140-17 2002 Core 104.1 258.2 154.1 261.0
- ------------------------------------------------------------------------------------------------------------------
140-18 2002 Core 99.8 120.0 Hole Lost 120.0
- ------------------------------------------------------------------------------------------------------------------
140-19 2002 Core 104.1 218.1 114.0 231.0
- ------------------------------------------------------------------------------------------------------------------
140-20 2002 Core 99.5 221.0 Hole Lost 221.0
- ------------------------------------------------------------------------------------------------------------------
140-21 2002 Core 105.3 367.5 264.2 369.5
- -------------------------------------------------------------------------------------------------------------------
140-22 2002 Core 107.8 185.0 77.2 198.0
- ------------------------------------------------------------------------------------------------------------------
140-23 2002 Core 125.0 180.9 55.9 192.0
- ------------------------------------------------------------------------------------------------------------------
140-24 2002 Core 110.7 214.8 104.1 225.0
- ------------------------------------------------------------------------------------------------------------------
140-25 2002 Core 108.2 189.6 81.4 195.0
- ------------------------------------------------------------------------------------------------------------------
140-26 2002 Core 110.7 218.5 107.8 225.0
- ------------------------------------------------------------------------------------------------------------------
140-27 2002 Core 118.7 207.4 88.7 219.0
- ------------------------------------------------------------------------------------------------------------------
140-28 2002 RCA 105.3 217.1 111.8 217.1 72.16 15 1.220
- ------------------------------------------------------------------------------------------------------------------
140-29 2002 RCA 99.6 230.8 131.2 230.8 84.87 72 9.300
- ------------------------------------------------------------------------------------------------------------------
140-30 2002 RCA 103.5 253.5 150.0 259.0 100.10 55 9.500
- ------------------------------------------------------------------------------------------------------------------
140-31 2002 RCA 105.0 271.5 166.5 274.7 109.25 29 3.125
- ------------------------------------------------------------------------------------------------------------------
140-32 2003 Core 101.1 244.3 143.2 291.0
- ------------------------------------------------------------------------------------------------------------------
140-33 2003 Core 100.4 199.4 98.9 208.0
- ------------------------------------------------------------------------------------------------------------------
140-34 2003 Core 100.2 205.5 105.3 219.0
- ------------------------------------------------------------------------------------------------------------------
140-35 2003 Core 113.7 152.6 38.9 216.0
- ------------------------------------------------------------------------------------------------------------------
140-36 2003 Core 99.0 138.6 39.6 142.0
- ------------------------------------------------------------------------------------------------------------------
140-37 2003 Core 131.9 142.3 10.4 147.0
- ------------------------------------------------------------------------------------------------------------------
140-38 2003 Core 108.3 215.0 106.7 228.0
- ------------------------------------------------------------------------------------------------------------------
140-39 2003 Core 100.2 239.4 139.2 249.0
- ------------------------------------------------------------------------------------------------------------------
140-40 2003 Core 102.0 242.9 140.9 246.0
- ------------------------------------------------------------------------------------------------------------------
Total: 40 Holes 4476.7 9490.0 439.89 210 25.155
- ------------------------------------------------------------------------------------------------------------------
1. RCA= 152-914 mm reverse circulation airblast; UR= under-ream; Rotary=
conventional circulation tricone Note:This table does not include
microdiamonds and macrodiamonds that may have been recovered from caustic
dissolution or jigging recovery methods.
140/141 Corehole Drilling
The purpose of the 2004 drill program in the central portion of the 140/141
kimberlite was to generate additional geological information about the
kimberlite and to enhance the geological model of the kimberlite body. Three of
the four coreholes were used primarily as pilot holes for subsequent large
diameter drillholes which tested the area extent of the oscillating kimberlite
breccia unit and provided sufficient diamonds to obtain a preliminary diamond
revenue estimate for the unit.
54
Table 40: Summary of Historic Drillholes and Minibulk Macrodiamond Recovery for 141
- ------------------------------------------------------------------------------------------------------------------
Year Kimberlite Sample Recovered Recovered
Drillhole Drilled Type(1) TOK BOK Thickness EOH Mass(t) Stones Carats
- ------------------------------------------------------------------------------------------------------------------
141-01 1992 Core 136.1 210.5 74.4 226.5 2.61 1 0.015
- ------------------------------------------------------------------------------------------------------------------
141-02 1992 Core 136.0 320.0 183.0 320.0 6.14 2 0.040
- ------------------------------------------------------------------------------------------------------------------
141-03 1994 RCA 105.0 258.0 144.0 274.0 24.93 15 0.870
- ------------------------------------------------------------------------------------------------------------------
141-04 2000 RCA 103.9 272.0 168.1 272.0 137.97 169 12.840
- ------------------------------------------------------------------------------------------------------------------
141-05 2000 RCA 104.3 245.5 141.2 248.8 112.82 106 8.220
- ------------------------------------------------------------------------------------------------------------------
141-06 2001 Core 103.5 246.0 142.5 249.0
- ------------------------------------------------------------------------------------------------------------------
141-07 2001 Core 109.5 238.5 129.0 245.0
- ------------------------------------------------------------------------------------------------------------------
141-08 2001 Core 109.5 273.5 164.0 285.0
- ------------------------------------------------------------------------------------------------------------------
141-09 2001 Core 105.0 362.8 257.8 372.0
- ------------------------------------------------------------------------------------------------------------------
141-10 2001 Core 101.5 254.9 153.4 264.0
- ------------------------------------------------------------------------------------------------------------------
141-11 2001 Core 102.5 192.0 89.50 204.0
- ------------------------------------------------------------------------------------------------------------------
141-12 2001 Core 112.5 266.5 154.0 273.0
- ------------------------------------------------------------------------------------------------------------------
141-13 2001 Core 111.2 N/A 338.0 450.0
- ------------------------------------------------------------------------------------------------------------------
141-14 2001 Core 105.0 207.8 102.8 222.0
- ------------------------------------------------------------------------------------------------------------------
141-15 2001 Core 115.3 233.6 118.3 243.0
- ------------------------------------------------------------------------------------------------------------------
141-16 2001 Core 105.8 221.1 115.3 228.0
- ------------------------------------------------------------------------------------------------------------------
141-17 2001 Core 114.0 250.8 136.8 264.0
- ------------------------------------------------------------------------------------------------------------------
141-18 2001 Core 111.0 201.0 90.0 213.0
- ------------------------------------------------------------------------------------------------------------------
141-19 2001 RCA N/A N/A 0 65.7 0 0 0
- ------------------------------------------------------------------------------------------------------------------
141-20 2001 RCA 109.7 255.2 145.5 255.2 95.59 46 3.770
- ------------------------------------------------------------------------------------------------------------------
141-21 2001 RCA 102.8 245.0 142.2 245.0 93.40 53 6.225
- ------------------------------------------------------------------------------------------------------------------
141-22 2001 RCA 112.0 231.0 119.0 231.0 84.13 50 6.115
- ------------------------------------------------------------------------------------------------------------------
141-23 2001 RCA 106.2 267.0 160.8 267.0 104.59 72 6.140
- ------------------------------------------------------------------------------------------------------------------
141-24 2001 RCA 115.3 231.0 115.7 231.0 76.94 43 4.205
- ------------------------------------------------------------------------------------------------------------------
141-25 2001 RCA 105.3 206.6 101.3 206.6 66.68 35 1.925
- ------------------------------------------------------------------------------------------------------------------
141-26 2001 RCA 110.1 236.2 126.1 236.2 82.47 63 5.165
- ------------------------------------------------------------------------------------------------------------------
141-27 2001 RCA 103.7 219.3 115.6 219.5 76.46 26 1.655
- ------------------------------------------------------------------------------------------------------------------
141-28 2001 RCA 109.2 244.7 135.5 244.7 88.59 40 3.515
- ------------------------------------------------------------------------------------------------------------------
141-29 2002 Core 105.8 273.0 167.2 279.0
- ------------------------------------------------------------------------------------------------------------------
141-30 2002 RCa 105.0 264.6 161.6 264.6 233.83 155 14.770
- ------------------------------------------------------------------------------------------------------------------
141-31 2002 RCA 104.9 269.8 166.8 269.8 241.40 153 16.620
- ------------------------------------------------------------------------------------------------------------------
141-32 2002 RCA 102.2 268.8 165.8 268.8 253.78 144 16.930
- ------------------------------------------------------------------------------------------------------------------
141-33 2002 RCA 103.6 359.0 252.6 359.0 176.49 45 16.795
- ------------------------------------------------------------------------------------------------------------------
141-34 2002 Core 101.4 238.1 136.7 246.0
- ------------------------------------------------------------------------------------------------------------------
141-35 2002 Core 109.0 215.0 106.0 222.0
- ------------------------------------------------------------------------------------------------------------------
141-36 2002 Core 102.5 273.5 171.0 280.0
- ------------------------------------------------------------------------------------------------------------------
141-37 2002 Core 104.8 - 0 124.0
- ------------------------------------------------------------------------------------------------------------------
141-37A 2002 Core 104.8 255.1 150.3 261.0
- ------------------------------------------------------------------------------------------------------------------
141-38 2002 Core 106.2 218.5 112.3 231.0
- ------------------------------------------------------------------------------------------------------------------
141-39 2002 Core 105.8 275.0 169.2 278.0
- ------------------------------------------------------------------------------------------------------------------
141-40 2003 Core 132.5 161.3 28.9 272.0
- ------------------------------------------------------------------------------------------------------------------
900-01 1993 Core 114.0 167.2 299.0 299.0 0.42 0 0
- ------------------------------------------------------------------------------------------------------------------
Total: 42 Holes 5951.2 10709.4 1959.24 1218 125.815
- ------------------------------------------------------------------------------------------------------------------
1. RCA= 152-914 mm reverse circulation airblast; UR= under-ream; Rotary=
conventional circulation tricone
Note:This table does not include microdiamonds and macrodiamonds that may have
been recovered from caustic dissolution or jigging recovery methods.
55
One hydraulic LF-70 corehole rig was mobilised into the Fort a la Corne Forest
by Boart Longyear Ltd. on September 2, 2004. As summarized in Table 27, five
coreholes were completed in the area. Drill pad construction and site access was
contracted to T&P Enterprises of Choiceland, Saskatchewan with access to the
141/140 kimberlite gained via previously constructed trails. At each of the
drill pads an area approximately 40 x 40 m was cleared. Temporary in-ground
tailings sumps were also constructed in order to receive, store, and
re-circulate mud and effluent produced during the corehole drilling.
HQ corehole drilling during the reporting period was generally completed using
three different sized bits. Initial surface holes were drilled using a mud and
water circulation system and a PW milled tooth tricone bit (139 mm diameter). At
between 12 and 35 m depth, the tricone bit was replaced by a HW tricone bit
(130.2 mm diameter) with bentonite mud and water used as a circulant in the
hole. At a depth of 90-96 m, the HW tricone was replaced by an HQ tungsten
carbide bit and coring commenced. The core drilling was conducted with either
fresh water or low viscosity mud. Casing was generally installed to around 95 m
in the hole, although on occasion, the casing string slipped downhole, so that
additional lengths of casing had to be added.
A total of 168 m of HWT schedule casing and 37.5 m of PWT casing were lost in
three of the four holes completed during the drillhole program.
140/141 Sampling and Diamond Recovery
Samples were obtained from three different HQ (2.5 inches or 63.5 mm diameter)
drillholes that intersected the "breccia beds" and underlying "speckled beds"
located in the southern part of the 140/141 kimberlite body. Similar to 2003
results, the "breccia beds" yielded the better stone abundances, although both
kimberlite units yielded a single macrodiamond larger than 0.5 mm. The average
microdiamond abundance for all 140/141 samples from 2004 was 13.3 stones per 10
kg while the breccia beds gave average microdiamond abundances of 17 stones per
10 kg. While the average 2004 stone abundance for the breccia beds was slightly
lower than the 21.6 stones per 10 kg recorded in 2003, the latter were taken
from a much broader area and variation in local diamond distribution was thought
to account for the lower values seen in these three closely spaced drillholes.
A total of 658 microdiamonds were recovered from 496 kg of kimberlite core
utilizing caustic dissolution methods at the SRC. Microdiamond recoveries were
audited and individual stone sizes were calculated by experts at the KMDL. All
recoveries reported here include stones with modeled sizes less than 74 microns
in size in order to be directly comparable to 2003 results from the SRC that
were reported for this zone. Summaries of diamond recovery by kimberlite phase,
drillhole, and by sieve category are shown in Tables 41, 42, and 43.
Table 41: 140/141 Microdiamond Results by Kimberlite Type and Year Tested
- --------------------------- --------------- ------------- ------------------- ----------------------
Kimberlite Type By Year Sample Mass # of Stones Average Stones larger than
Tested (kg) Stones/10kg 0.5 mm
- --------------------------- --------------- ------------- ------------------- ----------------------
2003 Breccia Beds 274.9 593 21.6 4
- --------------------------- --------------- ------------- ------------------- ----------------------
2004 Breccia Beds 312.0 531 17.0 1
- --------------------------- --------------- ------------- ------------------- ----------------------
2003 Speckled Beds 109.7 134 12.2 0
- --------------------------- --------------- ------------- ------------------- ----------------------
2004 Speckled Beds 184.0 127 6.9 1
- --------------------------- --------------- ------------- ------------------- ----------------------
2004 Total: 595.15 1159 19.5 2
- --------------------------- --------------- ------------- ------------------- ----------------------
Table 42: Summary of 140/141 Microdiamond Results by Drillhole
- -------------------- ----------------- ---------------- ----------------- --------------------
Drillhole Sample Mass # of Stones Average Stones larger than
(kg) Stones/10kg 0.5 mm
- -------------------- ----------------- ---------------- ----------------- --------------------
140-41 160 245 15.3 1
- -------------------- ----------------- ---------------- ----------------- --------------------
140-42 176 266 15.1 2
- -------------------- ----------------- ---------------- ----------------- --------------------
140-43 160 147 9.2 0
- -------------------- ----------------- ---------------- ----------------- --------------------
Total: 496 658 13.3 3
- -------------------- ----------------- ---------------- ----------------- --------------------
56
Table 43: 140/141 Microdiamond Recoveries by Sieve Category and Kimberlite Type
- ---------------- ------------ ------------- ------------ ------------- ------------ ------------- ------------- -----------
Kimberlite -0.074mm +0.074mm +0.104mm +0.150mm +0.212mm +0.300mm +0.500mm +1.00mm
Type Sieve Sieve Sieve Sieve Sieve Sieve Sieve Sieve
- ---------------- ------------ ------------- ------------ ------------- ------------ ------------- ------------- -----------
Breccia Beds 130 221 111 46 15 6 1 1
- ---------------- ------------ ------------- ------------ ------------- ------------ ------------- ------------- -----------
Speckled Beds 25 52 36 12 1 0 0 1
- ---------------- ------------ ------------- ------------ ------------- ------------ ------------- ------------- -----------
Total: 155 273 147 58 16 6 1 2
- ---------------- ------------ ------------- ------------ ------------- ------------ ------------- ------------- -----------
Large Diameter Drilling on Kimberlite 140/141
Five large diameter minibulk sampling holes were targeted on the oscillating
breccia beds unit located in the south part of Kimberlite 140/141 in order to
expand the parcel of diamonds from this body so that confidence levels in grade
and revenue estimates could be increased.
Minibulk Sampling and Macrodiamond Recovery from 140/141
The total estimated mass of kimberlite excavated from body 140/141 in 2004 was
792.216 tonnes of which 494.066 tonnes of material greater than 1.5 mm in size
was retained for macrodiamond recoveries. All five drillholes primarily sampled
the oscillating pyroclastic breccia group (OPKBGP). Minibulk samples were
shipped to the De Beers' dense media separation plant located in Grande Prairie,
Alberta for the first stage of diamond recovery procedures, followed by final
diamond recovery in an ultra-high security facility in Johannesburg, RSA.
Total macrodiamond recovery from the five LDDH on 140/141 was 553 stones with a
combined weight of 83.200 carats. Individual sample grades ranged from 1.68 cpht
to 69.15 cpht, the latter grade being markedly influenced by recovery of the
10.23 carat stone. Drillhole grades ranged from 7.05 to 12.20 cpht. Two large
macrodiamonds weighing 10.53 carats and 4.09 carats and 58 other stones larger
than 0.25 carats were added to the inventory of large macrodiamonds recovered
from the 140/141 breccia beds during the 2004 program. These recent larger
stones and historical recoveries, including diamonds weighing 1.0, 1.16, 1.18,
1.26, 1.32, 1.39, 1.48, 1.5, 1.8, 2.57, 2.59, and 3.61 carats, contribute
significantly to the evidence supporting a large stone distribution in the
oscillating breccia unit.
LDDH 04-140-044
The total estimated mass of kimberlite excavated from Large Diameter drillhole
(LDDH) 04-140-044 was 198.903 tonnes of which 94.362 tonnes of material greater
than 1.5 mm in size were retained for macrodiamond recoveries. The pilot hole
for this LDDH is corehole 04-140-041. A summary of sampling information and
diamond recovery results for this drillhole is shown in Table 44.
Table 44: Summary of Macrodiamond Recovery for Minibulk Samples from Drillhole 04-140-044
- ----------------- -------------- ------------ --------------- ---------- ------------ ---------- ------------ ------------
Est. # of
Diamonds
Theoretical > 0.25
Sample Excavated Drillhole Drillhole cts.
Kimberlite Interval Mass Total Grade Total stones/ (largest
Drillhole Unit (m) (tonnes)(1) Carats (cpht) Stones tonne stone)(2)
- ----------------- -------------- ------------ --------------- ---------- ------------ ---------- ------------ ------------
04-140-044 140 Breccia 128.36 186.29 21.06 11.30 160 0.86 14 stones
Beds (4.09 cts.)
- ----------------- -------------- ------------ --------------- ---------- ------------ ---------- ------------ ------------
1. The calculation of theoretical mass was based on the volume of a vertical
cylinder and a kimberlite rock density of 2.21.
2. Diamond weights were provided in terms of total carats per sieve class. The
reader is cautioned that for interval samples (12 m) with multiple stone
recoveries, the number of stones greater than 0.25 carats was estimated by
dividing carat weight by the number of stones in the +9 sieve class for
selected samples and all of the +11 and larger sieve classes.
57
A total of 160 macrodiamonds weighing 21.06 carats, including a 4.09 carat
stone, were recovered from large diameter drillhole 04-140-044. Large stone
recoveries in drillhole 04-140-044 included an estimated 14 diamonds greater
than 0.25 carat in size with a combined weight of 9.58 carats. These 14
diamonds, or some 8.8% of the total number of stones, accounted for 45.5% of the
carat weight of the parcel. The 4.09 carat stone was recovered from the 118 to
130 m interval within the upper part of the kimberlite body. The size
distribution of the recovered diamonds from this drillhole is shown in Table 45.
Table 45: Summary of Macrodiamond Recovery by Sieve Size Category for Drillhole 04-140-044
- ----------------- -------- ------- -------- -------- ---------- --------- --------- ---------- -------- --------- ---------
Drillhole +1 +2 +3 +5 +6 +7 +9 +11 +13 +15 +21
Sieve Sieve Sieve Sieve Sieve Sieve Sieve Sieve Sieve Sieve Sieve
>1.09 >1.32 >1.48 >1.83 >2.15 >2.46 >2.85 >3.45 >4.52 >5.41 >7.93
mm mm mm mm mm mm mm mm mm mm mm
- ----------------- -------- ------- -------- -------- ---------- --------- --------- ---------- -------- --------- ---------
04-140-044 0.01 0.145 1.025 3.035 1.96 3.37 2.77 3.13 0.65 0.86 4.09
Carats
- ----------------- -------- ------- -------- -------- ---------- --------- --------- ---------- -------- --------- ---------
04-140-044 1 3 29 54 22 26 12 8 1 1 1
Stones
- ----------------- -------- ------- -------- -------- ---------- --------- --------- ---------- -------- --------- ---------
* An additional 2 stones weighing a cumulative 0.015 carats were recovered in
the -1 sieve category (<1.09 mm).
LDDH 04-140-045
The total estimated mass of kimberlite excavated from Large Diameter drillhole
(LDDH) 04-140-045 was 143.128 tonnes of which 102.877 tonnes of material greater
than 1.5 mm in size were retained for macrodiamond recoveries. A total of 135
macrodiamonds weighing 15.445 carats were recovered from LDDH 04-140-045. The
pilot hole for this LDDH is corehole 04-140-050. A summary of sampling
information and diamond recovery results for this drillhole is shown in Table
46.
Table 46: Summary of Macrodiamond Recovery for Minibulk Samples from Drillhole 04-140-045
- ----------------- -------------- ------------ --------------- ---------- ------------ ---------- ------------ ------------
Est. # of
Diamonds
Theoretical > 0.25
Sample Excavated Drillhole Drillhole cts.
Kimberlite Interval Mass Total Grade Total stones/ (largest
Drillhole Unit (m) (tonnes)(1) Carats (cpht) Stones tonne stone)(2)
- ----------------- -------------- ------------ --------------- ---------- ------------ ---------- ------------ ------------
04-140-045 140 Breccia 96.7 140.34 15.455 11.1 135 1 16 stones
Beds (0.46)
- ----------------- -------------- ------------ --------------- ---------- ------------ ---------- ------------ ------------
1 The calculation of theoretical mass was based on the volume of a vertical
cylinder and a kimberlite rock density of 2.21.
2 Diamond weights were provided in terms of total carats per sieve class. The
reader is cautioned that for interval samples (12 m) with multiple stone
recoveries, the number of stones greater than 0.25 carats was estimated by
dividing total carat weight by the number of stones in the +11 and larger
sieve classes.
Large stone recoveries in drillhole 04-140-045 included an estimated sixteen
diamonds greater than 0.25 carat in size with a combined weight of 6.845 carats.
These 16 stones, or some 11% of the total number, account for 44% of the carat
weight of the parcel. The size distribution of the recovered diamonds from this
drillhole is shown in Table 47.
Table 47: Summary of Macrodiamond Recovery by Sieve Size Category
- ----------------- -------- ------- -------- -------- -------- ---------- --------- -------- ---------- ---------- --------
Drillhole -1 +1 +2 +3 +5 +6 +7 +9 +11 +12 +13
Sieve Sieve Sieve Sieve Sieve Sieve Sieve Sieve Sieve Sieve Sieve
<1.09 >1.09 >1.32 >1.48 >1.83 >2.16 >2.46 >2.85 >3.45 >4.089 >4.52
mm mm mm mm mm mm mm mm mm mm mm
- ----------------- -------- ------- -------- -------- -------- ---------- --------- -------- ---------- ---------- --------
04-140-045 0.020 0.040 0 0.740 2.090 1.560 2.585 1.575 4.320 2.065 0.460
Carats
- ----------------- -------- ------- -------- -------- -------- ---------- --------- -------- ---------- ---------- --------
04-140-045 6 4 0 22 39 17 21 10 11 4 1
Stones
- ----------------- -------- ------- -------- -------- -------- ---------- --------- -------- ---------- ---------- --------
58
LDDH 04-140-049
The total estimated mass of kimberlite excavated from Large Diameter drillhole
(LDDH) 04-140-049 was 150.591 tonnes of which 74.545 tonnes of material greater
than 1.5 mm in size were retained for recovery of commercial-sized diamonds. A
total of 100 macrodiamonds weighing 10.615 carats were recovered from LDDH
04-140-049. The pilot hole for this LDDH is corehole 04-140-051. A summary of
sampling information and diamond recovery results for this drillhole is shown in
Table 48.
Large stone recoveries in drillhole 04-140-049 included 6 diamonds greater than
0.25 carat in size with a combined weight of 2.78 carats. These 6 stones, or
some 6% of the total number, accounted for 39% of the carat weight of the
parcel. The size distribution of the recovered diamonds from this drillhole is
shown in Table 49.
Table 48: Summary of Macrodiamond Recovery for Minibulk Samples from Drillhole 04-140-049
- ----------------- -------------- ------------ --------------- ---------- ------------ ---------- ------------ ------------
Est. # of
Diamonds
Theoretical > 0.25
Sample Excavated Drillhole Drillhole cts.
Kimberlite Interval Mass Total Grade Total stones/ (largest
Drillhole Unit (m) (tonnes)(1) Carats (cpht) Stones tonne stone)
- ----------------- -------------- ------------ --------------- ---------- ------------ ---------- ------------ ------------
04-140-049 140 Breccia 102.56 148.84 10.615 7.132 100 0.7 6 stones
Beds (1.005 cts)
- ----------------- -------------- ------------ --------------- ---------- ------------ ---------- ------------ ------------
1. The calculation of theoretical mass was based on the volume of a vertical
cylinder and a kimberlite rock density of 2.21.
Table 49: Summary of Macrodiamond Recovery by Sieve Size Category
---------------- -------- -------- ---------- --------- --------- ---------- --------- ---------
Drillhole +3 +5 +6 Sieve +7 +9 +11 +12 +13
Sieve Sieve Sieve Sieve Sieve Sieve Sieve Sieve
>1.48 >1.83 >2.16 >2.46 >2.85 >3.45 >4.089 >4.52
mm mm mm mm mm mm mm mm
---------------- -------- -------- ---------- --------- --------- ---------- --------- ---------
04-140-049 0.765 2.105 1.705 1.115 1.715 1.595 0.24 1.375
Carats
---------------- -------- -------- ---------- --------- --------- ---------- --------- ---------
04-140-049 19 37 19 8 9 5 1 2
Stones
---------------- -------- -------- ---------- --------- --------- ---------- --------- ---------
LDDH 04-140-051
The total estimated mass of kimberlite excavated from LDDH 04-140-051 was
156.026 tonnes of which 117.045 tonnes of material greater than 1.5 mm in size
were retained for recovery of commercial-sized diamonds. A total of 68
macrodiamonds weighing 18.560 carats including a 10.53 carat stone were
recovered from large diameter drillhole 04-140-051. The large, clear, yellow,
macrodiamond, measuring approximately 1.4 x 1.0 x 0.75 cm, was recovered during
diamond recovery procedures at the De Beers Group Exploration Diamond Laboratory
in Johannesburg, RSA. It is classed as a higher-value Fancy stone. The pilot
hole for this LDDH is corehole 04-140-032. A summary of sampling information and
diamond recovery results for this drillhole is shown in Table 50.
59
Table 50: Summary of Macrodiamond Recovery for Minibulk Samples from Drillhole 04-140-051
- ----------------- -------------- ------------ --------------- ---------- ------------ ---------- ------------ ------------
Est. # of
Diamonds
Theoretical > 0.25
Sample Excavated Drillhole Drillhole cts.
Kimberlite Interval Mass Total Grade Total stones/ (largest
Drillhole Unit (m) (tonnes)(1) Carats (cpht) Stones tonne stone)
- ----------------- -------------- ------------ --------------- ---------- ------------ ---------- ------------ ------------
04-140-051 140 Breccia 101.93 147.93 18.56 12.545 68 0.46 7 stones
Beds cts)
- ----------------- -------------- ------------ --------------- ---------- ------------ ---------- ------------ ------------
1. The calculation of theoretical mass was based on the volume of a vertical
cylinder and a kimberlite rock density of 2.21.
2. Diamond weights were provided in terms of total carats per sieve class. The
reader is cautioned that for interval samples (12 m) with multiple stone
recoveries, the number of stones greater than 0.25 carats was estimated by
dividing carat weight by the number of stones in the +9 sieve class for
selected samples and all of the +11 and larger sieve classes.
Large stone recoveries in drillhole 04-140-051 included an estimated 7 diamonds
greater than 0.25 carat in size with a combined weight of 13.665 carats. These
larger diamonds accounted for 73.6% of the total carat weight, but represented
only 10.3% of the total stones in the parcel. Four of the seven larger diamonds,
including the 10.53 carat stone, were recovered from samples taken from the
upper 30 m of the kimberlite body within the oscillating breccia beds. The size
distribution of the recovered diamonds from this drillhole is shown in Table 51.
Table 51: Summary of Macrodiamond Recovery from LDDH 04-140-051 by Sieve Size Category
- ----------------- -------- ------- -------- ---------- --------- --------- ---------- --------- -------- -----------
Drillhole +2 +3 +5 +6 Sieve +7 +9 +11 +12 +15 +23
Sieve Sieve Sieve Sieve Sieve Sieve Sieve Sieve Sieve Sieve
>1.32 >1.48 >1.83 >2.16 >2.46 >2.85 >3.45 >4.09 >5.41 >10.312
mm mm mm mm mm mm mm mm mm mm
- ----------------- -------- ------- -------- ---------- --------- --------- ---------- --------- -------- -----------
04-140-051 0.075 0.455 1.045 0.815 0.700 1.84 0.885 0.895 1.32 10.53
Carats
- ----------------- -------- ------- -------- ---------- --------- --------- ---------- --------- -------- -----------
04-140-051 4 13 18 10 6 10 3 2 1 1
Stones
- ----------------- -------- ------- -------- ---------- --------- --------- ---------- --------- -------- -----------
* No stones were recovered in the -1 (<1.09 mm) and +1 (>1.09 mm) sieve
categories.
LDDH 04-140-052
The total estimated mass of kimberlite excavated from LDDH 04-140-052 was
143.567 tonnes of which 105.567 tonnes of material greater than 1.5 mm in size
were retained for recovery of commercial-sized diamonds. A total of 90
macrodiamonds weighing 17.51 carats, including a 1.39 carat stone, were
recovered from LDDH 04-140-052. The nearest corehole to this LDDH is 04-140-032.
A summary of sampling information and diamond recovery results for this
drillhole is shown in Table 52.
Table 52: Summary of Macrodiamond Recovery for Minibulk Samples from Drillhole 04-140-052
- ----------------- -------------- ------------ --------------- ---------- ------------ ---------- ------------ ------------
Est. # of
Diamonds
Theoretical > 0.25
Sample Excavated Drillhole Drillhole cts.
Kimberlite Interval Mass Total Grade Total stones/ (largest
Drillhole Unit (m) (tonnes)(1) Carats (cpht) Stones tonne stone)
- ----------------- -------------- ------------ --------------- ---------- ------------ ---------- ------------ ------------
04-140-052 140 Breccia 91.05 132.14 17.51 13.25 90 0.68 17 stones
Beds (1.39 cts.)
- ----------------- -------------- ------------ --------------- ---------- ------------ ---------- ------------ ------------
1. The calculation of theoretical mass was based on the volume of a vertical
cylinder and a kimberlite rock density of 2.21.
2. Diamond weights were provided in terms of total carats per sieve class. The
reader is cautioned that for interval samples (12 m) with multiple stone
recoveries, the number of stones greater than 0.25 carats was estimated by
dividing carat weight by the number of stones in the +9 sieve class for
selected samples and all of the +11 and larger sieve classes.
60
Large stone recoveries in drillhole 04-140-052 included an estimated 17 diamonds
greater than 0.25 carat in size with a combined weight of 11.13 carats. These
larger diamonds accounted for 63.6% of the total carat weight, but represented
only 18.9% of the total stones in the parcel. Eleven of the 17 larger diamonds
were recovered from samples taken from the upper 50 m of the kimberlite body.
The size distribution of the recovered diamonds from this drillhole is shown in
Table 53.
Table 53: Summary of Macrodiamond Recovery by Sieve Size Category
- ----------------- -------- ------- -------- ---------- --------- --------- ---------- --------- -------- --------- ---------
Drillhole +2 +3 +5 +6 +7 +9 +11 +12 +13 +15 +17
Sieve Sieve Sieve Sieve Sieve Sieve Sieve Sieve Sieve Sieve Sieve
>1.32 >1.48 >1.83 >2.16 >2.46 >2.85 >3.45 >4.09 >4.52 >5.41 >5.74
mm mm mm mm mm mm mm mm mm mm mm
- ----------------- -------- ------- -------- ---------- --------- --------- ---------- --------- -------- --------- ---------
04-140-052 0.07 0.3 1.23 1.325 1.6 2.29 2.29 0.435 4.14 2.57 1.26
Carats
- ----------------- -------- ------- -------- ---------- --------- --------- ---------- --------- -------- --------- ---------
04-140-052 3 8 23 14 16 10 7 1 5 2 1
Stones
- ----------------- -------- ------- -------- ---------- --------- --------- ---------- --------- -------- --------- ---------
* No stones were recovered in the -1 (<1.09 mm) and +1 (>1.09 mm) sieve
categories.
Kimberlite 122
Five HQ coreholes (04-122-012, 012A, 013, 014, 019) were completed during
September and October 2004 in order to provide geological control for five large
diameter drillholes completed in the south central portion of the 122 kimberlite
body. The purpose of the drilling was to generate additional information in the
southern portion of the 122 kimberlite and enhance geological modeling for the
body. Drillhole 04-122-012 had to be abandoned due to technical problems. The
primary object of the LDDH drilling was to obtain sufficient diamonds in order
to obtain a preliminary revenue estimate of the MPK unit. A total metreage of
1,316 m of core was obtained having a combined kimberlite intersection of 673.46
m. The kimberlite thicknesses varied between 86.37 and 207.41 m. The average
total core recovery for the 122 drillholes was 95.8%.
Previous Drilling
As seen in Table 54, twenty-two drillholes totalling 4,855 m of drilling were
completed between 1989 and 2003 on the 122 kimberlite body. Of this total,
2,139.2 m of kimberlite material was cored. The first reconnaissance drillholes
testing the body were completed in 1989 with one rotary drillhole collared in
the centre of the body. An airborne magnetic survey over the entire Fort a la
Corne claims in 2003 followed by ground gravity surveys more clearly defined the
shape and internal complexities of the 122 body. The results of the survey
showed intense positive gravity anomalies that extended beyond the boundaries of
the magnetic anomaly for the target.
61
Table 54: Summary of Historic Drillholes and Minibulk Macrodiamond Recovery for 122
- ----------------- ---------- ----------- --------- --------- ------------- ---------- --------- ---------- ------------
Year Kimberlite Sample Recovered Recovered
Drillhole Drilled Type(1) TOK BOK Thickness EOH Mass (t) Stones Carats
- ----------------- ---------- ----------- --------- --------- ------------- --------- ---------- ---------- ------------
122-01 1989 Rotary 108.2 164.6 56.4 164.6 0 0 0
- ----------------- ---------- ----------- --------- --------- ------------- --------- ---------- ---------- ------------
122-02 1991 RCA/UR 109.0 199.0 85.7 237.0 12.26 8 0.210
- ----------------- ---------- ----------- --------- --------- ------------- --------- ---------- ---------- ------------
122-03 1991 RCA/UR 111.0 183.0 69.5 197.0 10.39 4 0.100
- ----------------- ---------- ----------- --------- --------- ------------- --------- ---------- ---------- ------------
122-04 1991 RCA/UR 116.0 191.5 72.5 210.0 10.85 6 0.850
- ----------------- ---------- ----------- --------- --------- ------------- --------- ---------- ---------- ------------
122-05 1992 Core 108.5 185.2 72.0 222.7 0 0 0
- ----------------- ---------- ----------- --------- --------- ------------- --------- ---------- ---------- ------------
122-06 1993 Core 105.0 302.2 188.0 305.0 1.13 0 0
- ----------------- ---------- ----------- --------- --------- ------------- --------- ---------- ---------- ------------
122-07 1994 RCA 109.0 331.0 222.0 331.0 38.31 56 4.525
- ----------------- ---------- ----------- --------- --------- ------------- --------- ---------- ---------- ------------
122-08 1995 RCA 105.8 180.0 74.2 181.0 13.01 3 0.135
- ----------------- ---------- ----------- --------- --------- ------------- --------- ---------- ---------- ------------
122-09 2000 RCA 105.9 261.0 155.1 261.5 128.78 63 4.235
- ----------------- ---------- ----------- --------- --------- ------------- --------- ---------- ---------- ------------
122-10 2000 RCA 110.0 255.5 145.5 255.5 117.57 57 5.105
- ----------------- ---------- ----------- --------- --------- ------------- --------- ---------- ---------- ------------
122-11 2000 RCA 112.9 213.4 100.5 215.7 80.87 92 7.97
- ----------------- ---------- ----------- --------- --------- ------------- --------- ---------- ---------- ------------
03-122-01 2003 Core 140.4 204.3 63.9 213.0
- ----------------- ---------- ----------- --------- --------- ------------- --------- ---------- ---------- ------------
03-122-02 2003 Core 118.7 230.3 111.6 249.0
- ----------------- ---------- ----------- --------- --------- ------------- --------- ---------- ---------- ------------
03-122-03 2003 Core 119.9 195.0 75.1 204.0
- ----------------- ---------- ----------- --------- --------- ------------- --------- ---------- ---------- ------------
03-122-04 2003 Core 107.2 225.0 117.8 231.0
- ----------------- ---------- ----------- --------- --------- ------------- --------- ---------- ---------- ------------
03-122-05 2003 Core 115.9 183.2 67.3 195.0
- ----------------- ---------- ----------- --------- --------- ------------- --------- ---------- ---------- ------------
03-122-06 2003 Core 115.2 178.2 63.0 186.0
- ----------------- ---------- ----------- --------- --------- ------------- --------- ---------- ---------- ------------
03-122-07 2003 Core 106.8 195.3 88.5 204.0
- ----------------- ---------- ----------- --------- --------- ------------- --------- ---------- ---------- ------------
03-122-08 2003 Core 114.0 193.9 79.9 204.0
- ----------------- ---------- ----------- --------- --------- ------------- --------- ---------- ---------- ------------
03-122-09 2003 Core 111.6 268.3 156.7 279.0
- ----------------- ---------- ----------- --------- --------- ------------- --------- ---------- ---------- ------------
03-122-10 2003 Core 112.0 140.6 28.6 144.0
- ----------------- ---------- ----------- --------- --------- ------------- --------- ---------- ---------- ------------
03-122-11 2003 Core 108.0 153.4 45.4 165.0
- ----------------- ---------- ----------- --------- --------- ------------- --------- ---------- ---------- ------------
Total: 22 Holes 2139.2 4855.0 413.17 289 23.13
- ----------------- ---------- ----------- --------- --------- ------------- --------- ---------- ---------- ------------
1. RCA= 152-914 mm reverse circulation airblast; UR= under-ream; Rotary=
conventional circulation tricone
Note:This table does not include microdiamonds and macrodiamonds that may have
been recovered from caustic dissolution or jigging recovery methods.
Prior to 2003, drilling consisted primarily of reverse circulation drillholes of
various sizes. In 2003, eleven HQ coreholes were drilled in various parts of the
body in order to provide a better understanding of the geology of the
kimberlite. Past drilling of the body had indicated a relatively deep
intersection of kimberlite exists in the vicinity of holes 122-06, 07, 09 which
may correspond to the location of a vent in the 122 body.
Re-sampling Core and Microdiamond Recovery for Kimberlite 122
Selected 2003 coreholes were re-sampled to provide additional material for
diamond recoveries utilizing caustic dissolution methods. Additional kimberlite
samples totaling 464 kg from eight 2003 coreholes located across the body were
submitted for diamond recovery utilizing caustic dissolution methods at the SRC
in Saskatoon. The SRC recovered and reported diamonds down to a lower cutoff of
0.075 millimetres in size. A total of 269 additional microdiamonds were
recovered for use in grade forecasting of specific kimberlite zones.
Microdiamond recoveries were audited and individual stone sizes were calculated
by experts at KMDL. All recoveries reported here included stones with modeled
sizes less than 74 microns in size in order to be directly comparable to 2003
results from the SRC that were reported for several kimberlite units (Table 55).
Initial geological modeling of distinct kimberlite phases by De Beers, based on
drill core from Kimberlite 122 shows the body is divisible into two main
craters, and a subordinate third area based on relatively sparse information.
Both craters are dominated by massive to graded beds of olivine/lapilli
pyroclastic kimberlite (MPK-N and MPK-S) overlain by interbedded sediments,
resedimented kimberlite, and kimberlite (UCSK-N and UCSK-S). The order of
emplacement for the individual kimberlites and their contact relationships
within, and between, the two main parts of body 122 are not fully understood at
this time.
62
The average microdiamond abundance for all 122 samples from 2004 was 5.8 stones
per 10 kg while the upper 122 North beds (UCSK-N) gave the best results with
average microdiamond abundances of 8.3 stones per 10 kg. In general, the results
for the North crater were comparable between 2003 and 2004, but a significant
decrease in recovery was noted for both units in the South crater (Table 56).
There is no obvious reason for the difference in results between years for the
same core, except that which is expected from the "nugget-effect", whereby there
is irregular recovery of diamonds within small sample masses. Both 2003 and 2004
results will be combined by kimberlite unit to produce higher confidence grade
forecasts. A summary of diamond recovery by kimberlite phase is shown in the
Table 57.
The SRC reported 97% recovery of internal tracers during diamond recovery; stone
picking was routinely audited by a supervisor. Recovered diamonds and selected
caustic residues will be sent to KMDL for further auditing and verification of
individual stone size, shape, and sieve category using proprietary techniques.
The microdiamond results from these drillholes will be integrated with the 122
dataset including results from similar kimberlite types intersected in earlier
drillholes (122-01, 122-05, 122-06, 122-07, 122-08) followed by modeling of
grade forecasts for the southern and northern parts of the body, as well as by
major kimberlite unit.
Table 55: Summary of 122 Microdiamond Results by Drillhole
- -------------------- ----------------- ---------------- ----------------- --------------------
Sample Mass Average Stones larger than
Drillhole (kg) # of Stones Stones/10kg 0.500 mm
- -------------------- ----------------- ---------------- ----------------- --------------------
122-01 72 39 5.4 0
- -------------------- ----------------- ---------------- ----------------- --------------------
122-02 96 110 11.5 0
- -------------------- ----------------- ---------------- ----------------- --------------------
122-03 56 20 3.6 1
- -------------------- ----------------- ---------------- ----------------- --------------------
122-04 32 11 3.4 1
- -------------------- ----------------- ---------------- ----------------- --------------------
122-05 64 24 3.8 0
- -------------------- ----------------- ---------------- ----------------- --------------------
122-06 24 3 1.3 1
- -------------------- ----------------- ---------------- ----------------- --------------------
122-07 80 41 5.1 0
- -------------------- ----------------- ---------------- ----------------- --------------------
122-08 40 21 5.3 0
- -------------------- ----------------- ---------------- ----------------- --------------------
Total: 464 269 5.8 3
- -------------------- ----------------- ---------------- ----------------- --------------------
Table 56: Summary of 2004 Microdiamond Results for 122 by Type and Year Sampled
- ------------------------------ ------------------------ -------------- ------------- ---------------- ----------------
Range of Sampled Phase
Thickness Sample Mass Average Stones larger
Kimberlite Type (m) (kg) # of Stones Stones/10kg than 0.5 mm
- ------------------------------ ------------------------ -------------- ------------- ---------------- ----------------
2003 MPK-N 56 - 74 117.55 115 9.8 1
- ------------------------------ ------------------------ -------------- ------------- ---------------- ----------------
2003 UCSK-N 11 - 43 23.95 18 7.5 1
- ------------------------------ ------------------------ -------------- ------------- ---------------- ----------------
2004 MPK-N 56 - 74 240.0 153 6.4 1
- ------------------------------ ------------------------ -------------- ------------- ---------------- ----------------
2004 UCSK-N 11 - 43 48.0 40 8.3 0
- ------------------------------ ------------------------ -------------- ------------- ---------------- ----------------
Total 429.5 326 7.6 3
122 North Crater:
- ------------------------------ ------------------------ -------------- ------------- ---------------- ----------------
2003 MPK-S 36 - 103 222.55 163 7.3 4
- ------------------------------ ------------------------ -------------- ------------- ---------------- ----------------
2003 UCSK-S 3 - 12 7.75 3 3.9 0
- ------------------------------ ------------------------ -------------- ------------- ---------------- ----------------
2004 MPK-S 20 - 68 168.0 74 4.4 2
- ------------------------------ ------------------------ -------------- ------------- ---------------- ----------------
2004 UCSK-S 6.2 8.0 2 4.3 0
- ------------------------------ ------------------------ -------------- ------------- ---------------- ----------------
Total 406.3 242 6.0 6
122 South Crater:
- ------------------------------ ------------------------ -------------- ------------- ---------------- ----------------
Total 122: 835.8 568 6.8 9
- ------------------------------ ------------------------ -------------- ------------- ---------------- ----------------
63
Table 57: 2003-2004 Microdiamond Recoveries by Sieve Class and Kimberlite Type for 122
- ----------------------- ----------- ------------ ----------- ----------- ------------ ----------- ------------ -----------
-0.075mm +0.075mm +0.106mm +0.150mm +0.212mm +0.300mm +0.500mm +2.000mm
Kimberlite Type Sieve Sieve Sieve Sieve Sieve Sieve Sieve Sieve
- ----------------------- ----------- ------------ ----------- ----------- ------------ ----------- ------------ -----------
MPK-N 11 68 39 24 6 4 1 0
- ----------------------- ----------- ------------ ----------- ----------- ------------ ----------- ------------ -----------
UCSK-N 8 13 10 8 1 0 0 0
- ----------------------- ----------- ------------ ----------- ----------- ------------ ----------- ------------ -----------
North Crater: 19 81 49 32 7 4 1 0
- ----------------------- ----------- ------------ ----------- ----------- ------------ ----------- ------------ -----------
% from North: 63 68 72 89 100 80 50 0
- ----------------------- ----------- ------------ ----------- ----------- ------------ ----------- ------------ -----------
MPK-SB 10 39 18 4 0 1 1 1
- ----------------------- ----------- ------------ ----------- ----------- ------------ ----------- ------------ -----------
UCSK-S 1 0 1 0 0 0 0 0
- ----------------------- ----------- ------------ ----------- ----------- ------------ ----------- ------------ -----------
South Crater: 11 39 19 4 23 1 1 1
- ----------------------- ----------- ------------ ----------- ----------- ------------ ----------- ------------ -----------
% from South: 37 32 28 11 0 20 50 100
- ----------------------- ----------- ------------ ----------- ----------- ------------ ----------- ------------ -----------
Total 122: 30 120 68 36 7 5 2 1
- ----------------------- ----------- ------------ ----------- ----------- ------------ ----------- ------------ -----------
% of 122: 11 45 25 13 3 2 1 0.3
- ----------------------- ----------- ------------ ----------- ----------- ------------ ----------- ------------ -----------
Large Diameter Drilling on Kimberlite 122
Four large diameter minibulk sampling holes were targeted on the south part of
Kimberlite 122 (MPK - South Kimberlite Unit) in order to expand the parcel of
diamonds from this body so that confidence levels in grade and revenue estimates
could be increased. The total estimated mass of kimberlite excavated from body
122 in 2004 was 739.2 tonnes of which 318.1 tonnes of material greater than 1.5
mm in size was retained for macrodiamond recoveries. All four drillholes
primarily sampled the main, massive to bedded pyroclastic kimberlite unit (MPK).
One of the four drillholes was lost within the top 2 m of kimberlite due to
drilling problems, but is listed in the results. An additional two drillholes
did not reach the top of kimberlite due to downhole difficulties; there are no
results to report. Minibulk samples were shipped to the De Beers' dense media
separation plant located in Grande Prairie, Alberta for the first stage of
diamond recovery procedures, followed by final diamond recovery in an ultra-high
security facility in Johannesburg, RSA.
Minibulk Sampling and Macrodiamond Recovery for Kimberlite 122
A total of 248 macrodiamonds weighing 28.81 carats, including 23 stones larger
than 0.25 carats, were recovered from three 36-inch (914 mm) diameter drillholes
located on Kimberlite 122 during the 2004 minibulk sampling program (Table 58).
The recovery of many stones larger than 0.25 carats and two larger than one
carat supports the model of a larger stone population in Kimberlite 122. Diamond
recoveries and actual sample grades for stones in the +5 and higher sieve
categories from 2004 are comparable to those seen in 2000, although the total
carats recovered last year fell short of program expectations.
64
Table 58: Actual 2004 Macrodiamond Recoveries from Kimberlite 122
- ----------------- -------------- ------------ --------------- ---------- ------------ ---------- ------------ ------------
Est. # of
Diamonds
Actual > 0.25
Main Sample Excavated Drillhole Drillhole cts.
Kimberlite Interval Mass Total Grade Total stones/ (largest
Drillhole Unit (m) (tonnes)(1) Carats (cpht) Stones tonne stone)(2)
- ----------------- -------------- ------------ --------------- ---------- ------------ ---------- ------------ ------------
04-122-016 122 South MPK 98.57 166.82 5.565 3.34 43 0.26 4 stones
(1.01 cts.)
- ----------------- -------------- ------------ --------------- ---------- ------------ ---------- ------------ ------------
04-122-018 122 South MPK 178.56 312.68 11.990 3.84 90 0.29 12 stones
(1.11 cts.)
- ----------------- -------------- ------------ --------------- ---------- ------------ ---------- ------------ ------------
04-122-021 122 South MPK 151.45 257.89 11.255 4.36 115 0.45 7 stones
(0.73 cts.)
- ----------------- -------------- ------------ --------------- ---------- ------------ ---------- ------------ ------------
04-122-015 122 South MPK 1.20 1.81 0 n/a 0 n/a 0
- ----------------- -------------- ------------ --------------- ---------- ------------ ---------- ------------ ------------
Total/Avg. 429.78 739.20 28.810 3.90 248 0.33 23 stones
- ----------------- -------------- ------------ --------------- ---------- ------------ ---------- ------------ ------------
1. The calculation of actual mass was based on interval borehole volume
measured by a 3-arm caliper tool and a kimberlite rock density of 2.5.
2. Diamond weights were provided in terms of total carats per sieve class. The
reader is cautioned that for interval samples (12 m) with multiple stone
recoveries, the number of stones greater than 0.25 carats was estimated by
dividing carat weight by the number of stones in the sieve class.
Macrodiamond recoveries for the three main drillhole intersections are reported
by sieve size category in Table 59. Drillhole 04-122-015 was lost at a depth of
106.6 m after cutting only 1.2 m of kimberlite due to loss of steel downhole.
Table 59: Summary of 2004 Macrodiamond Recovery from Kimberlite 122 by Sieve Size Category
+5 Sieve +6 Sieve +7 Sieve +9 Sieve
Drillhole stones carats stones carats stones carats stones carats
- ---------- ------------- ------------- ------------- -------------
04-122-016 8 0.440 12 1.065 4 0.440 3 0.765
04-122-018 22 1.110 17 1.340 15 1.945 16 3.405
04-122-021 33 1.570 19 1.505 13 1.805 13 2.230
Total: 63 3.120 48 3.910 32 4.190 32 6.400
+11 Sieve +12 Sieve +13 Sieve +15 Sieve +17 Sieve
Drillhole stones carats stones carats stones carats stones carats stones carats
- ---------- ------------- ------------- ------------- ------------- -------------
04-122-016 4 1.035 1 0.550 0 0 1 1.015 0 0
04-122-018 6 2.165 0 0 1 0.630 0 0 1 1.110
04-122-021 4 1.375 1 0.560 2 1.395 0 0 0 0
Total: 14 4.575 2 1.110 3 2.025 1 1.015 1 1.110
The pilot holes for these LDDH are as follows: LDDH 04-122-015 with corehole
04-122-012A, LDDH 04-122-016 with corehole 04-122-012A, LDDH 04-122-018 with
corehole 04-122-014, and LDDH 04-122-021 with corehole 04-122-019.
Minibulk sampling programs in 2000 and 2004 differed in the bottom cut-off size
for macrodiamonds utilizing a 1.0 mm screen in 2000 versus a 1.5 mm screen in
2004. In order to compare macrodiamond results from these two programs, all
diamonds passing through a +5 round diamond sieve screen (equivalent to 1.47 mm
square sieve size) were subtracted from the program totals. These results are
shown in Table 60. While normalizing the data reduces the total stone counts and
to a lesser extent grades, a more accurate comparison of diamond recoveries can
be made for the two programs.
65
Table 60: Comparison of Adjusted 2000 and 2004 Macrodiamond Recoveries from Kimberlite 122
- ----------------- -------------- ------------ --------------- ---------- ------------ ---------- ------------ ------------
Est. # of
Diamonds
Actual > 0.25
Main Sample Excavated Drillhole Drillhole cts.
Kimberlite Interval Mass Total Grade Total stones/ (largest
Drillhole Unit (m) (tonnes)(1) Carats (cpht) Stones tonne stone)(2)
- ----------------- -------------- ------------ --------------- ---------- ------------ ---------- ------------ ------------
122-009(3) 122 South MPK 155.70 129.15 3.270 2.53 20 0.15 5 stones
(2000) (0.61 cts.)
- ----------------- -------------- ------------ --------------- ---------- ------------ ---------- ------------ ------------
122-010(3) 122 South MPK 146.04 118.09 4.565 3.87 33 0.28 5 stones
(2000) (0.72 cts.)
- ----------------- -------------- ------------ --------------- ---------- ------------ ---------- ------------ ------------
122-011(3) 122 South MPK 102.82 81.08 6.875 8.48 42 0.52 6 stones
(2000) (0.76 cts.)
- ----------------- -------------- ------------ --------------- ---------- ------------ ---------- ------------ ------------
Total/Avg. 404.56 328.32 14.710 4.48 95 0.29 16 stones
(2000 only)
- ----------------- -------------- ------------ --------------- ---------- ------------ ---------- ------------ ------------
04-122-016 122 South MPK 98.57 166.82 5.310 3.18 33 0.20 4 stones
(2004) (1.01 cts.)
- ----------------- -------------- ------------ --------------- ---------- ------------ ---------- ------------ ------------
04-122-018 122 South MPK 178.56 312.68 11.705 3.74 78 0.25 12 stones
(2004) (1.11 cts.)
- ----------------- -------------- ------------ --------------- ---------- ------------ ---------- ------------ ------------
04-122-021 122 South MPK 151.45 257.89 10.440 4.05 85 0.33 7 stones
(2004) (0.73 cts.)
- ----------------- -------------- ------------ --------------- ---------- ------------ ---------- ------------ ------------
04-122-015 122 South MPK 1.20 1.81 0 n/a 0 n/a 0
(2004)
- ----------------- -------------- ------------ --------------- ---------- ------------ ---------- ------------ ------------
Total/Avg. 429.78 739.20 27.455 3.71 196 0.27 23 stones
(2004 only)
- ----------------- -------------- ------------ --------------- ---------- ------------ ---------- ------------ ------------
1. The calculation of actual mass was based on interval borehole volume
measured by a 3-arm caliper tool and a kimberlite rock density of 2.5.
2. Diamond weights were provided in terms of total carats per sieve class. The
reader is cautioned that for interval samples (12 m) with multiple stone
recoveries, the number of stones greater than 0.25 carats was estimated by
dividing carat weight by the number of stones in the sieve class.
3. Results for the 2000 and the 2004 drillholes were adjusted to make them
comparable to 2004 values; the lower cutoff for minibulk samples was 1.0mm
in 2000 compared to 1.5mm in 2004, therefore all diamond recoveries in the
sieve categories less than +5 were excluded in order to simulate a 1.5mm
cutoff.
Comparison of diamond recovery between the two programs shows that the overall
grade was higher in 2000 with a significant contribution from the higher sample
grade in drillhole 122-011 as well as recovery of more stones larger than 0.25
carats in size per tonne, but with occurrence of larger stones in the 2004
samples. Macrodiamond recoveries in 2004 will be added to the existing stone
inventory in order to determine the change in grade forecast for Kimberlite 122.
Drilling of Geophysical Anomalies
Five HQ coreholes were completed during September and November 2004 in order to
test for the presence of kimberlite in five different geophysical anomalies and
to determine whether subtle magnetic features and resistivity anomalies
represented buried kimberlites not having an obvious magnetic character.
Coreholes were targeted on two magnetic anomalies (284 and 285), one gravity
anomaly (150 east extension), and two GeoTEM resistivity anomalies (292 and
300). Kimberlite was intersected in only two of the coreholes and these provided
material for petrographic logging and microdiamond sampling. The large gravity
anomaly located east of the known 150 body was targeted with an HQ corehole
during the last week of September 2004. No substantial kimberlite interval was
intersected, although a three metre thick kimberlitic ash bed was encountered
within mudstone of the Lower Colorado Group at a depth of 142.6 m. The corehole
was terminated at a depth of 195 m. The source of the gravity anomaly remains
unknown.
66
Those coreholes without kimberlite intersections provided uninterrupted
intervals of host rock that could be incorporated into regional stratigraphic
studies. A total of 874.0 m was drilled with a combined kimberlite intersection
of 31.82 m. A sixth test corehole was completed on the southern-most part of the
140/141 magnetic anomy and is briefly described in the previous section on
Kimberlite 140/141. This corehole is listed separately in Table 61 for
comparison to the other targets.
Table 61: Summary of Core Drilling on Geophysical Anomalies
- ------------------ ---------------------- -------- -------------- -------------- ---------------------- ------------------
Top of Base of
Core Kimberlite Kimberlite Total Kimberlite End of hole
Drill hole # Anomaly Type Size(1) (m) (m) Intersection(2) (m)
- ------------------ ---------------------- -------- -------------- -------------- ---------------------- ------------------
04-150-013 Gravity HQ 142.6 147.0 4.4 195.0
- ------------------ ---------------------- -------- -------------- -------------- ---------------------- ------------------
04-284-001 subtle Magnetic HQ 162.0
- ------------------ ---------------------- -------- -------------- -------------- ---------------------- ------------------
04-285-001 subtle Magnetic HQ 141.3 183.8 27.4 195.0
- ------------------ ---------------------- -------- -------------- -------------- ---------------------- ------------------
04-291-001 GeoTEM HQ 160.0
- ------------------ ---------------------- -------- -------------- -------------- ---------------------- ------------------
04-300-001 GeoTEM HQ 162.0
- ------------------ ---------------------- -------- -------------- -------------- ---------------------- ------------------
Total 31.82 874.0
- ------------------ ---------------------- -------- -------------- -------------- ---------------------- ------------------
04-140-048 Magnetic HQ 104.9 173.2 58.7 180.0
- ------------------ ---------------------- -------- -------------- -------------- ---------------------- ------------------
1. HQ core has a diameter of 2.5 inches or 63.5 mm
2. These values may not be equal to Base of Kimberlite minus Top of Kimberlite
due to intervening layers of country rock
Archeological and Flora/Fauna Surveys
Golder Associates Ltd. of Saskatoon, Saskatchewan was contracted to undertake a
flora and fauna survey of the area around each anomaly as well a heritage
resource review of drill site areas in accordance with the provincial Heritage
Property Act. Once reports of the findings of the various surveys were submitted
and reviewed by both the Cultural and Heritage Branch (Heritage Resource Review)
and SE (Flora and Fauna Survey), approval was granted by the various regulatory
bodies for drilling activity. Drill pads for four coreholes were surveyed by the
archaeological crew covering a surface of 3 hectares.
2004 Venmyn Rand Audit of Macrodiamond Recovery
Venmyn Rand (Pty) Ltd. was hired by the Company to evaluate efficiency and
suitability of final diamond recovery procedures and equipment at the newly
renovated GEMDL facility. The end-product of the evaluation was an independent
Qualified Person's report documenting the new configuration of the laboratory
and recommendations for future analytical work. This report remains as an
internal reference document for the company and is not considered material. The
audit was successful in that only two very minor potential security issues were
identified. Overall, the independent Qualified Person was satisfied with the
configuration, procedures, and efficiency of the plant.
In addition to monitoring diamond recovery, Mr. Jellicoe (Kensington's Qualified
Person) visited a highly successful small, low grade, and high average value
open pit mine in Lesotho and a large-scale diamond recovery operation from
historic mine tailings operated by De Beers in Kimberley, South Africa. During
these visits, he familiarized himself with scales of mining and ore processing
that may one day be applied to high priority FALC-JV kimberlite bodies.
2004 Development of the Advanced Exploration and Evaluation Plan (AE&E)
Consideration of the longer term view for the Fort a la Corne Project has
provided the FALC-JV Partners with a clear perspective on the way forward.
Predicted supply, demand, and price trends for rough diamonds into the next
decade provide a rationale for accelerating the present rate of work on the
project in order to be well positioned with respect to the favourable forecasts.
67
Management and technical staff from each of the FALC-JV partners met for
strategic planning sessions held in Saskatoon and Vancouver in 2004. The
meetings used a facilitated process (run by AMEC) known as Enhanced Systematic
Planning (ESP). An overview perspective of the Fort a la Corne Project, from
present day to an assumed eventual mining operation was examined and a time-line
was developed. The current phase of the project was denoted as the Advanced
Exploration and Evaluation Study ("AE&E") and was estimated to require
approximately 3 years in order to complete. The overall time-line for the Fort a
la Corne Project is considered to be aggressive, being driven by the need to
favourably position the commencement of mining operations in terms of long term
rough diamond supply and demand predictions.
The objective of the ESP session, as developed by the FALC-JV partners was: " to
develop an aggressive Action Plan for the AE&E leading to a go/no-go decision
for the Pre-feasibility Study by mid 2008, with a conscious forward looking
perspective to be time- and cost-efficient over the global project development
period". Furthermore, the project objective was defined as the intent "to
develop and operate the Fort a la Corne Project in a financially,
environmentally and socially responsible manner".
The AE&E Plan seeks to delineate at least 70 million carats in the ground from
the higher grade units within the larger (greater than 20 hectares) kimberlites
in the south-central cluster. Twenty primary kimberlite targets have been
identified to date, most within a radius of five kilometres in the southern
cluster of kimberlites. Four of the twenty targets were investigated by
evaluation and delineation drilling programs during 2000, 2001, 2002 and 2003,
namely kimberlites 122, 140/141, 148 and 150. One of the four, kimberlite 150,
was determined to be of no further interest. Two kimberlites, 122 and 140/141,
were determined to be of significant interest, and mini-bulk sampling was
conducted on them as part of the 2004 Exploration Program. Kimberlite 148
remains to be minibulk tested and first stage results will be compared to those
obtained from other kimberlites investigated in 2005. Three more bodies
including 120, 147 and 121/221 were drilled in the 2004 work program. The
remaining bodies of interest will be tested with up to 10 coreholes each to
determine the existence of higher-grade units. The AE&E Plan assumes nine of
these will produce strong results for further corehole sampling of the
higher-grade units; of these, it is believed six bodies will graduate to
mini-bulk sampling.
The program is considered to be aggressive and will require careful management
of project activities in order to achieve the objectives within the allotted
time. Only funding for the 2005 program is presently approved; funding for the
2006 program and beyond will depend on a responsible and step-wise approach
based on results from preceding programs. Should remarkable results be
encountered as better potential kimberlites are investigated initially, then
these targets may be preferentially accelerated through the stages of
evaluation.
Phases of the AE&E Study
The AE&E Study's key planning parameter is that there are five distinct
exploration drilling phases, with strategic objectives for each phase. During
the ESP session, the basis for each phase of the global AE&E drilling program
was established by a number of consensus-based assumptions are documented below.
The main phases in the AE&E study are as follows:
Phase 1 - 2004 Geological Drilling and Mini-bulk Sampling
Essentially, this was the first phase of the geological drilling. Following the
2000 to 2003 exploration programs that focused on kimberlites 140/141, 150, 122,
and 150, the three bodies considered to represent the next highest level of
opportunity of the original twenty were the targets for the 2004 exploration
program - namely kimberlites 120, 121/221, and 147. Core drilling on these three
bodies was completed in November 2004. Follow-up activities such as logging,
analysis, and interpretation are expected to be completed by the end of
September 2005. The 2004 exploration program results are anticipated during the
initial months of the AE&E Study and may impact the direction of the new work;
for that reason, it is included in the overall action plan for the AE&E Study.
68
Phase 2 - Geological Drilling
Determine, through core drilling and other methods, the basic geological
internal model of each kimberlite, utilize microdiamond sampling based on the
interpreted model, and identify higher interest sub-zones, including grade
estimates, if any, within each kimberlite. This work continues the geological
drilling programme commenced in 2004. The thirteen remaining kimberlites from
the twenty kimberlites greater than 25 ha in size within the southern cluster
represent the maximum number of kimberlites remaining to be tested during the
geological drilling program phase. A process of prioritisation was undertaken by
the FALC-JV partners to determine the actual scope of the geological drilling
program. It was assumed for the purposes of planning and estimating costs that
the all thirteen kimberlites may be targeted during this phase of the AE&E
study.
Phase 3 - Delineation Drilling
Define, through additional core drilling and microdiamond sampling, the volumes
and grade estimates of higher interest sub-zones, to the extent that the next
phase of work can be undertaken. The three kimberlites investigated during the
2004 drilling program together with the remaining 13 kimberlites to be
considered for the geological drilling program, provide up to 16 targets from
which to select targets for the delineation drilling program. It was assumed for
the ESP plan and cost estimates that a maximum of nine kimberlites would be
selected for this phase of work.
Phase 4 - Mini-Bulk Sampling
Obtain mini-bulk samples sufficient to confirm the abundance of macrodiamonds
and provide an improved grade estimate. From the maximum of nine bodies which
might be investigated during the delineation drilling phase, together with those
bodies investigated during the 2000-2003 programs, it was assumed for planning
and cost estimating purposes that a maximum of 6 bodies would be selected for
mini-bulk sampling.
Phase 5 - Supplemental Mini-Bulk Sampling
Obtain additional mini-bulk samples sufficient to provide a robust grade
estimate for the higher interest sub-unit and to provide a small parcel of
diamonds sufficient for a preliminary estimate of diamond revenue. It is assumed
that all six of the bodies investigated during the mini-bulk sample program will
be included in the supplemental bulk sample.
"Best-Bodies First" Assumption
During the ESP session, there was consistent intent within the planning team to
pursue the most promising bodies on a prioritized basis at every stage of the
AE&E program as a means of consciously attempting to develop an early measure of
the opportunity presented by the global program.
Scope of Additional Work
In addition to the primary focus on resource exploration and evaluation work
over the three year period, it was recognised that in order to achieve the time
objective of the AE&E study, additional studies are required to run in parallel
with the resource exploration and evaluation. It was also considered essential
that an updated conceptual study, incorporating the current options available,
would be required in order to provide a basis for go/no-go decisions on the
project phases. These additional studies, together with the resource work and
project administration tasks constitute ten work areas:
1. Project Administration (updated Conceptual Study)
2. Resource
3. Geotechnical and Hydrogeological Studies
4. Mining
5. Waste Management
6. Metallurgy
7. Infrastructure
8. Socio-Economic
9. Environmental
10. Government Liaison
69
A high level plan was then developed for each of these work packages, the plan
consisting of a series of high level task or work packages.
2005 Advanced Exploration and Evaluation Program
The present FALC-JV work program for 2005 encompasses the completion of the
first phase of the AE&E Action Plan, which consists primarily of geological
drilling to establish the presence of potential higher grade units within the
kimberlites located in the southern part of the FALC-JV claims. In order to take
advantage of the results from the 2004 program (which, in part, retroactively
formed the initial thrust of the first phase through investigation of four
additional high-interest bodies within the central cluster), a provision has
been made in the 2005 budget for some delineation work should the results of the
2004 program be sufficiently encouraging.
The current program budget estimate of $25.6 million will be applied to first
stage geological drilling for up to thirteen kimberlites in the southern cluster
of the FALC-JV claims, which is scheduled to be completed by February 2006.
o The AE&E budget for 2005 makes specific provision for the following
additional work:
o Update conceptual study to include mining of multiple pits.
o Core drilling of up to 13 kimberlites, assuming on average 10 holes
will be required per body.
o Delineation drilling of up to three kimberlites
o Microdiamond sampling involving treatment of up to 10000 kg of core
o Minibulk sampling of one kimberlite, to obtain approximately 580
tonnes of kimberlite for treatment.
o Geotechnical and hydrogeological testing of up to 3 selected drill
holes, including cone tests and hydraulic pump tests.
o Develop a preliminary geotechnical mine design model
o Develop a preliminary groundwater chemistry model and preliminary
hydrological mine design criteria
o Geophysical borehole logging
o Whole rock geochemical analyses
o Commence investigation and develop possible alternative mining
strategies
o Investigate waste management concepts
o Commence development of future infrastructure requirements
o Investigate short term infrastructure needs.
o Develop metallurgical process concepts, develop BSP operational
strategy and upgrade BSP
o Develop future Ore Dressing Study Requirements
o Continue consultation with First Nations and government; develop
agreements with First Nations and government on relevant issues.
o Develop environmental baseline plan and vegetation, wildlife and
heritage surveys to support exploration permit applications.
Update on the 2005 Drilling Program Currently in Progress
The current budgeted project activity represents work toward the first phase of
the AE&E Plan. This phase will consist mainly of geological drilling and
microdiamond analysis to determine the internal geology and grades of the
targeted kimberlites. These results will be used by De Beers to develop a model
to help predict the grades that could be seen in a commercial production
scenario and to assist in modeling average diamond values once a sufficient
parcel of macrodiamonds is obtained. A budget of $25.6 million was planned for a
minimum of 130 HQ coreholes during the 2005 program that will be distributed
over seventeen prioritized kimberlite bodies on individual grids of
approximately 150-200 m. Field activities will include downhole geophysical
surveys on most or all of the drillholes. This type of survey provides
information on the physical characteristics of the kimberlites as well as
providing supplemental data to refine the placement of boundaries between
significant kimberlite units. First pass logging was completed on suitable holes
remaining from the 2004 program while all 2005 holes have had full downhole
surveys, where possible.
70
Under the 2005 budget, areas of investigation traditionally viewed as
pre-feasibility levels of work, but that are embodied within the current AE&E
Plan, are progressing under the joint management of De Beers Canada and their
alliance partner, AMEC. Several of these investigations include: environmental
baseline studies and heritage resource impact assessments, metallurgical studies
based on geotechnical data, updating of conceptual studies and mining plans,
ongoing development of waste management and infrastructure concepts, development
of government liaison strategies and fiscal regimes. Kensington staff members
lead several of these efforts and contribute substantially to the latter three
points of this list.
A total of 103 HQ coreholes (diameter of 2.5 inches or 63.5 mm) with kimberlite
intersections totaling 9,179.01 m have been completed on thirteen high interest,
prioritized kimberlite bodies, including the western part of the Star
Kimberlite. Additionally, two coreholes intersected 151.63 m of kimberlite
drilled for hydrogeological testing on Kimberlites 140/141 and 150. A total of
134 HQ coreholes are planned as part of the 2005 program, which is budgeted at
$25.6 million. Table 62 summarizes drilling results to August 31, 2005. The
expected final meterage for the current phase of drilling will be reached near
the end of November.
Drilling continues with three Boart-Longyear LF-70 core rigs operating on 24
hour schedules. Two of the LF-70 rigs have been converted to helicopter-portable
configurations in order to drill on wet surface areas within Kimberlites 123,
223, 152, and the west extension of the Star Kimberlite. The drill program
remains on schedule and is 80% complete.
Corehole STR-05-003C, located 70 m west of the Star shaft, intersected 612.0 m
of kimberlite in a hole that was terminated at a total depth of 699 m while
still in kimberlite. The corehole was centred on a deep-going part of the body
that is interpreted to be a major feeder vent for the volcanic complex. Two main
phases of kimberlite were encountered with a thicker unit extending from 108.15
m to a depth of at least 395 m, the base of core examined to date. Preliminary
descriptions of the core indicates the unit is generally medium-grained with
common indicator minerals. It appears that this hole is quite different from
other coreholes drilled by the FALC-JV on the Star Kimberlite and the dominant
rock unit appears to have characteristics represented in both the Early Joli Fou
and the Late Joli Fou kimberlite phases. Further geological logging of this core
and comparison to other drillholes will be conducted by the operator once all of
the holes targeted on the Star Kimberlite are completed.
Table 62: FALC-JV Core Drilling Summary to August 31, 2005
- ----------------- -------------- --------------- -------------- ---------------- ------------------ ----------------
Number of Number of Number of Thickest
Kimberlite Coreholes Coreholes Coreholes Total Drilled Total Kimberlite Kimberlite
Body Planned Completed In Progress Interval (m) Thickness (m) Interval (m)
- ----------------- -------------- --------------- -------------- ---------------- ------------------ ----------------
Star 13 10 1 2,609.0 1,117.86 612.00
- ----------------- -------------- --------------- -------------- ---------------- ------------------ ----------------
101 5 0 0 0.0 0.00 0.00
- ----------------- -------------- --------------- -------------- ---------------- ------------------ ----------------
116(1) 5 5 0 1,167.0 475.87 218.30
- ----------------- -------------- --------------- -------------- ---------------- ------------------ ----------------
118 11 11 0 2,526.0 1,044.24 192.95
- ----------------- -------------- --------------- -------------- ---------------- ------------------ ----------------
119 6 6 0 1,324.0 414.80 202.34
- ----------------- -------------- --------------- -------------- ---------------- ------------------ ----------------
123 6 2 2 405.0 149.05 88.50
- ----------------- -------------- --------------- -------------- ---------------- ------------------ ----------------
133 6 6 0 1,362.0 309.66 90.36
- ----------------- -------------- --------------- -------------- ---------------- ------------------ ----------------
134 5 5 0 1,134.0 474.35 145.10
- ----------------- -------------- --------------- -------------- ---------------- ------------------ ----------------
135 6 5 1 1,260.4 473.82 141.90
- ----------------- -------------- --------------- -------------- ---------------- ------------------ ----------------
145 11 11 0 2,503.0 1,027.47 176.50
- ----------------- -------------- --------------- -------------- ---------------- ------------------ ----------------
152 6 0 0 0.0 0.00 0.00
- ----------------- -------------- --------------- -------------- ---------------- ------------------ ----------------
158 11 11 0 2,642.5 950.32 190.25
- ----------------- -------------- --------------- -------------- ---------------- ------------------ ----------------
163 9 0 0 0.0 0.00 0.00
- ----------------- -------------- --------------- -------------- ---------------- ------------------ ----------------
216(2) 13 13 0 2,910.0 1,054.82 186.00
- ----------------- -------------- --------------- -------------- ---------------- ------------------ ----------------
218 6 6 0 1,605.0 643.22 142.4
- ----------------- -------------- --------------- -------------- ---------------- ------------------ ----------------
219 12 12 0 2,723.6 1,043.53 199.13
- ----------------- -------------- --------------- -------------- ---------------- ------------------ ----------------
223 3 0 0 0.0 0.00 0.00
- ----------------- -------------- --------------- -------------- ---------------- ------------------ ----------------
Total
Priority
Drilling 134 103 4 24,171.5 9,179.01
- ----------------- -------------- --------------- -------------- ---------------- ------------------ ----------------
71
- ------------------ ----------------- ------------------ ----------------- -------------- ------------------ ------------------
Kimberlite Body Number of Number of Number of Total Total Thickest
Number of Number of Number of Drilled Kimberlite Kimberlite
Kimberlite Coreholes Coreholes Coreholes Interval Thickness Interval
Body Planned Completed In Progress (m) (m) (m)
- ------------------ ----------------- ------------------ ----------------- -------------- ------------------ ------------------
140(3) 1 1 1 249.0 148.50 148.50
- ------------------ ----------------- ------------------ ----------------- -------------- ------------------ ------------------
150(3) 1 1 1 249.0 3.13 2.81
- ------------------ ----------------- ------------------ ----------------- -------------- ------------------ ------------------
Geotechnical
Drilling 2 2 2 498.0 151.63
- ------------------ ----------------- ------------------ ----------------- -------------- ------------------ ------------------
Grand Total: 136 105 4 24,669.5 9,330.64
- ------------------ ----------------- ------------------ ----------------- -------------- ------------------ ------------------
1. Corehole 116-05-006C was inclined at -60 degrees to investigate the wet,
eastern part of Kimberlite 116
2. Coreholes 216-05-014C and 04-216-010C were inclined at -60 degrees to
investigate the wet, eastern part of Kimberlite 216; lithological contacts
and thicknesses have not yet been corrected for the dip of the hole;
Corehole 216-05-009C was lost at a depth of 105 m above kimberlite due to
drilling difficulties
3. Geohydrological holes to test ground water flows.
Methodical geotechnical measurements are conducted on each core including
magnetic susceptibility, rock competence, core quality, and density of natural
fractures. Detailed core logging is in progress by De Beers' experts and
preparations for slabbing the core and sampling for diamond recovery are
underway in the FALC-JV warehouse located in Saskatoon. The objective of this
approach is to identify sufficient higher-grade kimberlite in order to move
forward with delineation drilling and minibulk sampling in the subsequent phases
of the AE&E Plan.
Star Kimberlite
The Star Kimberlite is located at the south-eastern terminus of the south
cluster. The body has an estimated size of approximately 250 ha and
approximately 240 million tonnes of kimberlite on the Shore Gold side of the
claim boundary. The area and mass of kimberlite on the FALC-JV side of the
boundary has not been estimated at this point due to a lack of relevant data.
The FALC-JV side of the Star Kimberlite was drilled first in the 2005 program
despite being listed as second priority because of wet conditions on Kimberlite
123, which had the highest priority. Fifteen coreholes were planned to
investigate the westward extent of prospective high-grade kimberlite that was
recently the subject of a successful 25,000-tonne bulk sampling program by Shore
Gold Ten coreholes have been completed with a combined intersection of 1,117.86
m of kimberlite from 2,609.0 m of drilling. Individual intersections of
kimberlite range from 8.8 to 612.0 m. Table 63 shows a summary of drilling
results to August 31, 2005.
Thicker intervals of the prospective Early Joli Fou ("EJF") kimberlite unit were
identified in three of the drillholes. These were identified based on a
comparison of core to detailed kimberlite descriptions available in public
domain assessment reports (Saskatchewan Industry and Resources) and Shore Gold's
technical reports on SEDAR. The greatest interval of this unit recovered thus
far is approximately 77 m thick.
Corehole STR-05-003C, located approximately 70 m west of Shore Gold's shaft into
the Star Kimberlite, intersected 612.0 m of kimberlite in a hole that was
terminated at a total depth of 699 m while still in kimberlite. The corehole was
centred on a deep-going part of the body that is interpreted to be a major
feeder vent for the volcanic complex. There are two phases of kimberlite
recognized in the drill hole. The first is a thin, shallow phase which is
present from 90.3 m to 108.15 m. This unit is very fine grained, matrix
supported, shale-clast rich and likely associated with the Late Joli Fou
kimberlite ("LJF") as identified by Shore Gold on their side of the property
boundary. A second, deeper phase was intersected from 108.15 to 395 m (base of
the examined core). This unit is generally medium grained with common to very
common indicator minerals including garnet and ilmenite as well as trace to 10%
shale xenoliths, varying from the mm size up to 20 centimetres. It is apparent
that this hole is quite different from other coreholes drilled by the FALC-JV on
the Star Kimberlite and that no kimberlite directly comparable to the EJF was
intersected nor were there any breccia units noted within the 395 m of core
examined. A preliminary evaluation of the lower unit is that it is either a
coarser-grained, proximal version of the LJF kimberlite, or a new unit that has
aspects of both the EJF and the LJF. This unit may correspond to an intermediate
kimberlite layer situated between the EJF and the LJF.
72
This kimberlite phase is considered to have moderate prospectivity by the
Kensington geologist, Shawn Harvey, B.Sc., P.Geo. who is tasked with core
logging. Encouraging points include the relatively high abundance of mantle
indicator minerals including garnets, ilmenite, and clinopyroxene and, although
not highly abundant, the presence of mantle xenoliths. In addition, the presence
of medium- to coarse-grained olivine macocrysts is positive. Discouraging points
include the high groundmass and shale xenolith content, both of which tend to
indicate potential dilution, and an abundance of olivine phenocrysts, which may
reduce the relative proportion of olivine macrocrysts and reliability of this
component as an indicator of diamond content.
In comparison with work completed during the underground bulk sample program by
Shore Gold, this unit may be similar to MK (macrocrystic kimberlite) Type 5,
which has been described as a distinct grey green matrix rich MK that is
probably the youngest unit of the EJF or is a transition phase to basal LJF (ACA
Howe Report dated March 16, 2005). This unit has been intersected in the
west-southwestern portion of the lateral drifts (see Map 15 in the ACA Howe
report on the Star kimberlite dated March 16, 2005 for details). The unit was
sampled by Batch 62 and 72, both of which are located about 50 m southeast of
STAR-05-003. The grades in batches 62 and 72 were 14.9 and 5.5 cpht
respectively.
Table 63: Preliminary Core Drilling Summary on for the Star Kimberlite (drilling in progress)
- ---------------------------------------------------------------------------------------------------------------------------
Total
Thickness
Thickness of of
Base of Top of First Base of Last Main Number of Kimberlite End of
Till Kimberlite Kimberlite Kimberlite Kimberlite Intervals Hole
Drillhole Name (m) (m) (m) (m) Units (m) (m)
- ---------------------------------------------------------------------------------------------------------------------------
STR-05-001C not cored 104.35 235.90 85.75 3 118.95 258.0
- ---------------------------------------------------------------------------------------------------------------------------
STR-05-002C not cored 99.36 218.65 104.05 2 108.94 231.0
- ---------------------------------------------------------------------------------------------------------------------------
STR-05-003C not cored 87.00 699.00 612.00 1 612.00 699.0
- ---------------------------------------------------------------------------------------------------------------------------
STR-05-005C 90.69 133.90 181.60 47.70 1 47.7 210.0
- ---------------------------------------------------------------------------------------------------------------------------
STR-05-008C not cored 107.70 230.90 74.85 3 76.41 252.0
- ---------------------------------------------------------------------------------------------------------------------------
STR-05-009C 105.85 150.10 213.14 38.70 4 61.59 237.0
- ---------------------------------------------------------------------------------------------------------------------------
STR-05-0010C 111.0 139.10 190.20 42.91 2 49.11 201.0
- ---------------------------------------------------------------------------------------------------------------------------
STR-05-0011C 88.20 114.80 156.00 17.50 3 19.10 180.0
- ---------------------------------------------------------------------------------------------------------------------------
STR-05-0012C 92.80 138.00 146.80 8.80 1 8.80 174.0
- ---------------------------------------------------------------------------------------------------------------------------
STR-05-0013C not cored 129.23 142.45 13.22 2 15.26 167.0
- ---------------------------------------------------------------------------------------------------------------------------
Star Total: 1,117.86 2,609.0
- ---------------------------------------------------------------------------------------------------------------------------
Kimberlite 134
Kimberlite 134 is located on the south-eastern limb of the south cluster and is
adjacent to the west side of the Star Kimberlite. The body has an estimated size
of 31 ha and 53 million tonnes of kimberlite. Five coreholes were completed on
Kimberlite 134 as part of the westward extending pattern of holes to map the
relationship of the Star Kimberlite to the geology and diamond content of
Kimberlite 134. A total of 474.35 m of kimberlite was intersected in 1,134.0 m
of drilling with individual kimberlite intervals ranging from 40.7 m to 145.1 m.
Finer grained kimberlite was encountered in four of the boreholes while a
coarser, more prospective unit was logged in the northern vent-proximal hole.
Table 64 shows a summary of drilling results to July 21, 2005.
73
Table 64: Preliminary Core Drilling Summary for Kimberlite Body 134
- ---------------------------------------------------------------------------------------------------------------------------
Total
Base of Top of First Base of Last Thickness of Number of Thickness of End of
Till Top of First Base of Last Main Kimberlite Kimberlite Hole
Drillhole Name (m) Kimberlite (m) Kimberlite (m) Kimberlite (m) Units Intervals (m) (m)
- ---------------------------------------------------------------------------------------------------------------------------
134-05-002C 102.50 102.80 145.10 145.10 1 145.10 264.0
- ---------------------------------------------------------------------------------------------------------------------------
134-05-003C 105.00 114.80 75.95 75.95 1 75.95 198.0
- ---------------------------------------------------------------------------------------------------------------------------
134-05-004C 103.10 106.40 100.00 100.00 1 100.00 240.0
- ---------------------------------------------------------------------------------------------------------------------------
134-05-005C not cored 102.00 112.60 112.60 1 112.60 243.0
- ---------------------------------------------------------------------------------------------------------------------------
134-05-006C not cored 119.70 40.70 40.70 1 40.70 189.0
- ---------------------------------------------------------------------------------------------------------------------------
134 Total: 474.35 1,134.0
- ---------------------------------------------------------------------------------------------------------------------------
Kimberlites 145 and 219
Kimberlites 145 and 219 are located between Kimberlites 140/141 to the south and
Kimberlite 148 to the north, all very close to the centre of the south cluster.
The body has an estimated size of 103 ha and 178 million tonnes of kimberlite.
Drilling on the adjoined high-priority kimberlites 219 and 145 is complete.
Eleven coreholes were completed on Kimberlite 145 with a combined kimberlite
intersection of 1,027.47 m from 2,503.0 m drilled. Twelve coreholes were
completed on Kimberlite 219 with a combined kimberlite intersection of 1,043.53
m from 2,723.6 m drilled. Kimberlite intersections ranged from 22.85 m to 208.09
m in thickness although the 22.85 m interval of kimberlite was encountered in a
drillhole targeted between the two bodies, but east of a narrow ridge of
kimberlite that bridges the kimberlites with thicknesses ranging from
approximately 70 to 140 m. Both bodies show oblong areas of thickness oriented
to the northwest and mimicking the primary linear trends throughout the main
kimberlite field. These oblong areas tend to have thicker kimberlite units that
are coarser grained and generally more prospective from a core logging point of
view. All discrete kimberlite units in these two bodies will be tested as well
as the thicker bridge of kimberlite joining then on the western side. Much of
the bridge of kimberlite appears more similar to units in 145. Tables 65 and 66
show summaries of drilling results to July 21, 2005 for Kimberlites 145 and 219,
respectively.
Table 65: Preliminary Core Drilling Summary for Kimberlite Body 145
- ---------------------------------------------------------------------------------------------------------------------------
Total
Thickness
Thickness of of
Base of Top of First Base of Last Main Number of Kimberlite End of
Till Kimberlite Kimberlite Kimberlite Kimberlite Intervals Hole
Drillhole Name (m) (m) (m) (m) Units (m) (m)
- ---------------------------------------------------------------------------------------------------------------------------
145-05-007C 105.00 134.90 140.50 140.50 1 140.50 279.0
- ---------------------------------------------------------------------------------------------------------------------------
145-05-008C 105.60 105.60 214.80 74.50 2 105.70 249.0
- ---------------------------------------------------------------------------------------------------------------------------
145-05-009C 103.30 103.30 279.00 147.50 3 149.40 279.0
- ---------------------------------------------------------------------------------------------------------------------------
145-05-010C 103.57 103.57 197.26 35.48 4 80.50 216.0
- ---------------------------------------------------------------------------------------------------------------------------
145-05-011C 106.30 106.30 232.00 111.75 3 117.95 237.0
- ---------------------------------------------------------------------------------------------------------------------------
145-05-012C 110.50 110.50 153.30 42.80 1 42.80 159.0
- ---------------------------------------------------------------------------------------------------------------------------
145-05-013C 106.64 106.64 150.00 43.36 1 43.36 180.0
- ---------------------------------------------------------------------------------------------------------------------------
145-05-014C 111.50 111.50 176.50 176.50 1 176.50 312.0
- ---------------------------------------------------------------------------------------------------------------------------
145-05-015C 102.75 102.75 53.58 53.58 1 53.58 189.0
- ---------------------------------------------------------------------------------------------------------------------------
145-05-016C 99.00 99.00 159.30 33.25 2 41.68 183.0
- ---------------------------------------------------------------------------------------------------------------------------
145-05-017C 105.00 105.00 193.75 72.65 2 75.50 220.0
- ---------------------------------------------------------------------------------------------------------------------------
145 Total: 1,027.47 2,503.0
- ---------------------------------------------------------------------------------------------------------------------------
74
Table 66: Preliminary Core Drilling Summary for Kimberlite Body 219
- ---------------------------------------------------------------------------------------------------------------------------
Total
Thickness
Thickness of of
Base of Top of First Base of Last Main Number of Kimberlite End of
Till Kimberlite Kimberlite Kimberlite Kimberlite Intervals Hole
Drillhole Name (m) (m) (m) (m) Units (m) (m)
- ---------------------------------------------------------------------------------------------------------------------------
219-05-005C 104.00 104.00 285.35 128.40 3 146.35 291.0
- ---------------------------------------------------------------------------------------------------------------------------
219-05-006C 108.23 108.23 195.88 33.25 4 91.50 222.0
- ---------------------------------------------------------------------------------------------------------------------------
219-05-007C 120.85 120.85 152.30 17.15 2 22.85 180.0
- ---------------------------------------------------------------------------------------------------------------------------
219-05-008C 109.10 109.10 167.10 51.30 2 56.20 198.0
- ---------------------------------------------------------------------------------------------------------------------------
219-05-009C 106.90 106.90 223.80 116.90 1 116.90 249.0
- ---------------------------------------------------------------------------------------------------------------------------
219-05-010C 105.40 105.40 192.69 77.38 3 80.96 231.0
- ---------------------------------------------------------------------------------------------------------------------------
219-05-011C not cored 102.87 135.00 32.13 1 32.13 165.0
- ---------------------------------------------------------------------------------------------------------------------------
219-05-012C 103.67 105.32 189.24 36.08 3 51.73 201.0
- ---------------------------------------------------------------------------------------------------------------------------
219-05-013C 102.90 102.90 188.94 71.00 2 72.77 205.6
- ---------------------------------------------------------------------------------------------------------------------------
219-05-014C 105.33 105.33 316.31 199.13 2 208.09 324.0
- ---------------------------------------------------------------------------------------------------------------------------
219-05-015C 96.30 120.80 221.65 71.00 3 79.75 244.0
- ---------------------------------------------------------------------------------------------------------------------------
219-05-016C 105.70 110.40 194.70 84.30 1 84.30 213.0
- ---------------------------------------------------------------------------------------------------------------------------
219 Total: 1,043.53 2,723.6
- ---------------------------------------------------------------------------------------------------------------------------
Table 67 shows a summary of drilling results to July 21, 2005 for Kimberlite
119.
Table 67: Preliminary Core Drilling Summary for Kimberlite 119
- ---------------------------------------------------------------------------------------------------------------------------
Total
Thickness
Thickness of of
Base of Top of First Base of Last Main Number of Kimberlite End of
Till Kimberlite Kimberlite Kimberlite Kimberlite Intervals Hole
Drillhole Name (m) (m) (m) (m) Units (m) (m)
- ---------------------------------------------------------------------------------------------------------------------------
119-05-004C 107.04 107.04 186.29 52.25 2 52.79 195.0
- ---------------------------------------------------------------------------------------------------------------------------
119-05-005C not cored 111.00 158.60 39.00 2 43.20 189.0
- ---------------------------------------------------------------------------------------------------------------------------
119-05-006C 119.70 119.93 162.50 42.57 1 42.57 192.0
- ---------------------------------------------------------------------------------------------------------------------------
119-05-007C 119.30 126.40 192.80 17.60 3 29.30 219.0
- ---------------------------------------------------------------------------------------------------------------------------
119-05-008C not cored 111.0 313.34 202.34 1 202.34 316.0
- ---------------------------------------------------------------------------------------------------------------------------
119-05-009C not cored 111.0 185.20 34.50 4 44.60 213.0
- ---------------------------------------------------------------------------------------------------------------------------
119 Total: 414.80 1,324.0
- ---------------------------------------------------------------------------------------------------------------------------
Mineral Processing and Metallurgical Testing
A preliminary Ore Dressing Study was recently completed, but due to the general
nature of the study and lack of depth, is not considered material at this time.
A suite of pre-feasibility style engineering, geotechnical, and early
metallurgical work has begun since the inception of the AE&E program. These
lines of investigation are described in the AE&E sections of the 2004 and 2005
descriptions of activities. Any work conducted in these investigations is
currently in progress and is not considered material at this time.
75
Mineral Resource and Mineral Reserve Estimates
Most of the kimberlite bodies identified on the FALC-JV property are considered
early to advanced exploration stage targets. Only kimberlite, body 140/141, is
in the advanced exploration/evaluation stage and as such, it remains a diamond
deposit until sufficient grid drilling and minibulk sampling allows
determination of a reasonable, low to medium confidence estimate of grade and
average diamond value. Furthermore, grid drilling must be completed on the body
with sufficient coverage and density so that continuity of geology and diamond
distribution patterns can be resolved with a reasonable amount of assurance.
Additional drilling and sampling is required on 140/141 to acquire sufficient
geological representivity of the body and statistically significant quantities
of diamond.
Interpretations and Conclusions
o 49 of the 69 tested (71%) bodies are diamondiferous (microdiamonds or
macrodiamonds).
o 34 of the 69 (49%) kimberlites tested contain macrodiamonds; this
frequency is exceptional compared to other kimberlite fields.
o A total of 2,774 macrodiamonds (minimum size of 0.85 mm in one
dimension) with a cumulative weight of 347.45 carats were recovered
during exploration programs conducted from 1989 to 2004; over 10,000
microdiamonds have been recovered from all kimberlites to mid 2005.
o Kimberlite body grades based on macrodiamond recovery alone range up
to 7.7 cpht; these values are considered to be significantly
understated due to the limited amount of minibulk sample from each
body.
o Grade estimates for individual bulk samples range up to 114.44 cpht;
sample intervals range from 12 m to 194 m.
o Grades forecasts for commercial size stones modeled by De Beers range
up to 16 cpht, based on size distributions of combined microdiamonds
and macrodiamonds. A total of 17 kimberlite bodies with sufficient
diamond recoveries were prioritized in 2000. The best five of these
bodies have been the target of various stages of advanced exploration
efforts during the last 5 years, and 17 bodies within the south
central cluster are currently under investigation in the first phase
of the AE&E program.
o Ongoing acquisition of large minibulk samples from prioritized bodies
permits preliminary revenue modeling and evaluation of the economic
potential of select Fort a la Corne diamondiferous kimberlites.
o Based on 2000 data only, modeled average macrodiamond values
determined by De Beers for kimberlite ore from body 141 ranged from
US$148 to US$179 per carat; Modeled stone values for Kimberlites 122
and 141 have low confidence levels because of low numbers of diamonds
included in the evaluation.
o The largest stone recovered to date is a high value, yellow, stone
weighing 10.53 carats; another high value diamond weighs 3.34 carats
and has a value of US$580/carat as determined by De Beers and WWW;
other large stones include stones weighing 10.23, 4.09, and 3.61
carats in size.
o Interpretation of 2001 to 2002 data indicates that grades for specific
parts of the 141 body are variable depending on diamond distribution
and continuity of lithological facies, and that a greater degree of
testing is required to substantiate grade forecasts over the entire
body, and to permit higher levels of confidence in calculation of the
average diamond value; evaluation of small parcels of commercial-size
stones shows preliminary indications (considered low confidence until
larger parcels are evaluated) that the average value of diamonds from
Kimberlite140/141 range from US$67 to US$97 per carat. Further work is
ongoing to delineate all discrete kimberlite phases in this body and
to model estimated stone distributions and revenue per tonne.
o Kimberlite body areas range from 2.7 to 250 ha, typically based on a
30 m thickness cut-off.
76
o The estimated mass of individual kimberlite bodies, based on
geophysical modeling, ranges from 3 million to 675 million tonnes. The
integration of 140 and 141 indicates a combined mass of 500+ million
tonnes as derived from GEMCOM modeling, based on core drilling in 2001
and 2002 with a minimum thickness threshold of 50 m.
o Age of emplacement of the various kimberlites occurred within the
interval from approximately 90-112 Ma, during Cretaceous time. The
kimberlites range from simple mono-eruptive bodies to multi-eruptive,
multi-vent bodies characterized by complex stacking and interlayering
of multi-temporal kimberlite units. Ongoing studies of larger bodies
indicate discernible vertical and areal zonation of kimberlite units
and diamond distribution.
o Two of four high priority, potentially economic kimberlites (bodies
140/141, and 148,) are located within a two mile radius in the central
portion of the Fort a la Corne trend; the total macro-diamondiferous
kimberlite mass in this same radius (12 bodies), is some 3.6 billion
tonnes. The other prioritized kimberlite, body 122, is located
approximately 5 km to the west.
o The Fort a la Corne Kimberlite Field has the largest concentration of
diamondiferous kimberlite in the world; the total modeled mass for the
entire field is estimated at upwards of 9 billion tonnes. Kimberlite
140/141, with an estimated mass of greater than 500 million tonnes, is
the largest macrodiamond-bearing kimberlite in the world. The main
objective for Kensington in this project is to delineate an economic
diamond resource at Fort a la Corne using a methodical stepwise
approach.
o Fort a la Corne kimberlites are best categorized as very large
tonnage, lower grade diamond deposits overall, but with zones of
higher grade potential.
o Overall, the kimberlites remain insufficiently tested in consideration
of their large size. Only three bodies have minibulk testing for
macrodiamonds to a level greater than 100 tonnes. Considerable effort
and money was expended in order to simply reconnoiter the majority of
kimberlite bodies in this field. Since most of the minibulk sampling
efforts in the past were directed to testing to some degree, each of
the 69 targets, many of the larger bodies have very limited coverage.
Furthermore, vertical zonation has not been adequately tested in most
of the existing drillholes due to large sampling intervals. Due to the
prevalence of the "nugget effect" in kimberlites, average macrodiamond
grades are expected to closely approach forecasted grade levels as
sample tonnage increases.
o Evaluation work continues on Kimberlites 140/141, 122, and other high
interest bodies in order to better understand the location, extent
and, continuity of high grade zones, to determine an understanding of
diamond distribution and diamond grade for mineable resources, to
upgrade confidence in determination of the average value of diamonds
(in US$/carat) and, to determine the economic value of the body as
represented by potential revenue calculations for a diamond deposit
given as an in-situ diamond value in US$ per tonne (as per CIM
recommendations) compared to best initial estimates of capital and
operating expenses.
o The first two stages involve core drilling programs on the main part
of the bodies to increase the understanding of the geology (geometry
and architecture) of the body and to identify higher potential zones.
Higher grade zones will then be delineated in order to calculate a
potentially mineable tonnage. This is then followed by identifying a
subset of coreholes that are suitable targets for minibulk sampling in
order to test diamond distribution and to provide a representative
sample of kimberlites from all prospective phases and across the
vertical and areal extent of the kimberlite bodies. A final inventory
of some 100 to 300 carats will enable determination of a high
confidence grade forecast and a moderate level of confidence in the
average value of commercial sized stones. The bulk sample information
coupled with the grid drilling and sampling information should be
adequate for at least a determination of inferred resource over a
significant part of the bodies. All lines of investigation from the
AE&E will then be integrated and evaluated in order to prioritize the
potentially economic targets and to reach a go - no go decision to
proceed with a full pre-feasibility study.
77
o Additional work is required to satisfy two main goals for each of the
priority kimberlite bodies. The AE&E encompasses a planned 43 months
schedule of work to advance the project to a major decision on
pre-feasibility stage work. The plan is results driven and
incorporates a methodical, step-wise, 4-stage approach in the
evaluation of 17 candidate kimberlite bodies for higher-grade units
that have potential to be economically mined. The overall goal of the
plan is to identify at least 70 million carats of commercial-sized
stones in-ground in order to reach a critical decision based on
delineation of inferred resources on several kimberlite bodies by
2008. The AE&E plan identified firm objectives and schedules to reach
this goal.
o The main objective for Kensington in this project is to delineate an
economic diamond resource at Fort a la Corne using a methodical
stepwise approach.
ITEM 5 - OPERATING AND FINANCIAL REVIEW AND PROSPECTS
The following discussion of the financial position, changes in financial
position and results of operations of the Company for the years ended December
31, 2004, 2003 and 2002 should be read in conjunction with the financial
statements of the Company and related notes included therein. The Company's
financial statements are presented in Canadian dollars and have been prepared in
accordance with Canadian GAAP. Differences between Canadian GAAP and U.S. GAAP,
as applicable to the Company, are set forth in Note 13 to the accompanying
Consolidated Financial Statements.
Overview
The Company is a diamond exploration company. It is in the process of exploring
its mineral properties and has not yet determined whether these properties
contain ore reserves that were economically recoverable.
Since 1995, the Company has been focused on the Fort a la Corne Project. Nearly
all of the Company's activities are directed to such exploration programs.
Yearly variations in individual property expenditures generally reflected
increases or decreases in exploration costs based on previous results and annual
budgets agreed upon by the FALC-JV.
The Company has mineral properties and deferred exploration expenditures of
$13,780,530 at December 31, 2004 compared to $10,527,906 at December 31, 2003
and $8,429,966 at December 31, 2002. The recoverability of these amounts is
dependent upon the existence of economically recoverable reserves, securing and
maintaining title and beneficial interest in the properties, the ability to
obtain the necessary financing to meet its obligations under various agreements
and the completion of the development of its properties, any future profitable
production, or alternatively, upon its ability to dispose of its interests on an
advantageous basis. The Company has incurred losses since inception of
$15,034,105 and has a working capital surplus at December 31, 2004 of
$4,091,329.
Future write-downs of properties are dependent on many factors, including
general and specific assessments of mineral resources, the likelihood of
increasing or decreasing the resources, land costs, estimates of future mineral
prices, potential extraction methods and costs, the likelihood of positive or
negative changes to the environment, taxation, labor and capital costs. It is
not possible to assess the monetary impact of these factors at the current stage
of its properties. The dollar amounts shown as mineral properties and deferred
exploration expenditures are direct costs of acquiring, maintaining and
exploring properties, including costs of structures and equipment employed on
the properties and allocations of administrative management salaries based on
time spent and directly related to specific properties. These amounts do not
necessarily reflect present or future values.
Additional financing will be required for further exploration and development of
the Company's properties. Although the Company has been successful in the past
in raising funds, there is no assurance that it will be able to raise the
necessary funds to meet its funding obligations.
The Company has not been required to make any material expenditure for
environmental compliance to date. The operations of the Company may in the
future be affected from time to time in varying degrees by changes in the
environmental regulations. Both the likelihood of new regulations and their
overall affect upon the Company are not predictable. See "Item 3 - Key
Information, Risk Factors".
78
Critical Accounting Policies
The preparation of financial statements in conformity with Canadian generally
accepted accounting principles requires the Company to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting periods. Significant estimates and assumptions are
used in determining the application of the going concern concept, the deferral
of costs incurred for mineral properties and deferred exploration, and
assumptions used to determine the fair value of stock-based compensation. The
Company evaluates its estimates on an ongoing basis and bases them on various
assumptions that are believed to be reasonable under the circumstances. The
Company's estimates form the basis for making judgments about the carrying value
of assets and liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates under different assumptions or
conditions.
The Company believes the policies for going concern, mineral properties and
deferred exploration, and the fair value of stock-based compensation are
critical accounting policies that affect the significant judgments and estimates
used in the preparation of the Company's financial statements.
The Company's accounting policies are set out in Note 2 of the accompanying
Consolidated Financial Statements.
Under Canadian GAAP, the Company deferred all costs relating to the acquisition
and exploration of its mineral properties. Any revenues received from such
properties were credited against the costs of the property. When commercial
production commences on any of its properties, any previously capitalized costs
would be charged to operations using a unit-of-production method. The Company
regularly reviewed deferred exploration costs to assess their recoverability and
when the carrying value of a property exceeded the estimated net recoverable
amount, provision was made for impairment in value.
The Company is in the process of exploring its mineral properties and has not
yet determined whether the properties contain mineral reserves that are
economically recoverable. Development of any property may take years to complete
and the amount of resulting income, if any, is difficult to determine with any
certainty. The sales value of any mineralization discovered by the Company is
largely dependent upon factors beyond the Company's control, such as the market
value of the diamonds recovered.
Changes in circumstances in the future, many of which are outside of
management's control, will impact on the Company's estimates of future
recoverability of net amounts to be realized from their assets. Such factors
include, but are not limited to, the availability of financing, the
identification of economically recoverable reserves, co-venturer decisions and
developments, market prices of minerals, the Company's plans and intentions with
respect to its assets and other industry and competitor developments.
While the Company believes that economically recoverable reserves will be
identified, there is no assurance that this will occur. Failure to discover
economically recoverable reserves will require the Company to write-off costs
capitalized to date and will result in further reported losses.
The consolidated financial statements have been prepared on a going concern
basis in accordance with Canadian generally accepted accounting principles,
which assumes that the Company will continue in operation for the foreseeable
future and be able to realize its assets and discharge its liabilities and
commitments in the normal course of business.
The Company uses the Black-Scholes option pricing model to determine the fair
value of stock-based compensation recognized. Estimates and assumptions are
required under the model, including those related to the Company's stock
volatility, expected life of options granted, and the risk free interest rate.
The Company believes that its estimates used in arriving at stock-based
compensation are reasonable under the circumstances.
79
A. Operating Results
Year ended December 31, 2004 Compared to the Year Ended December 31, 2003
The Company is showing a net loss after tax of $443,196 for year ended December
31, 2004. Pursuant to generally accepted accounting principles, an income tax
recovery in the amount of $1,068,600 was required to be posted giving a net
income amount. This income tax recovery records the effect of flow-through share
issues completed by the Company and the reflects the tax effect of expenditures
recorded by the Company in 2004 but that renouncement will take place in a later
year. This is a non-cash item and as shown in the statements of cash flow, it is
subtracted from the net income to arrive at the cash used in operations. The net
loss before income taxes was $1,511,793 or $0.03 per share compared to a net
loss of $1,015,103 or $0.02 per share for the previous year. Part of the
increased net loss in the current year is attributable to higher stock-based
compensation of $443,155 (2003 - $69,536) although general and administrative
expenses increased in almost all areas due to an increased level of corporate
and investor relations activity in the last half of 2004.
Salaries, benefits and management and management fees increased by $102,151 to
$245,151 (2003 - $138,164) due to a one-time payment of $115,000 for the
termination of management services with the former President and a management
agreement entered into with the current President and CEO.
Office expenses increased by $59,730 to $254,097 (2003 - $194,367) due to the
re-location of the Company's head office to larger space in the first quarter
and much higher levels of corporate activity in the last half of Fiscal 2004.
The significant expenditures for Fiscal 2004 include $79,954 (2003 - $51,091)
for office overhead, $70,883 (2003 - $58,256) for support staff, $58,296 (2003 -
$48,198) for administrative services and $44,694 (2003 - $36,822) for insurance,
primarily directors' and officers' liability. Subsequent to the year end, the
Company re-located its head office from Victoria to Vancouver, BC.
Promotion, public relations and travel increased by $58,533 to $462,125 (2003 -
$403,592) due to an increase in investor relations activity, travel and
attendance at trade shows in the last half of Fiscal 2004. The significant
expenditures for Fiscal 2004 include $73,244 (2003 - $52,035) for media and
communications consulting, $69,475 (2003 - $57,923) for travel and other
expenses for the directors and officers of the Company, $59,295 (2003 -
$143,667) for investor relations services, $49,833 (2003 - $53,400) for graphic
design and printing, $42,084 (2003 - $20,410) for investment conferences,
$32,448 (2003 - $nil) for road shows and analyst trips, $28,877 (2003- $14,191)
for news dissemination costs, $27,880 (2003 - $nil) to attend a diamond
conference in Antwerp, $25,342 (2003 - $nil) for a media and analyst event at
the Fort a la Corne site, $23,452 (2003 - $12,629) for advertising and
sponsorships and miscellaneous expenses of $30,195 (2003 - $49,337).
Transfer and filing increased by $39,598 to $95,002 (2003 - $55,404) due to
filing fees and other costs associated with the equity financing completed in
September 2004. The significant expenditures in Fiscal 2004 include $36,388
(2003 - $27,635) for filing fees to regulatory authorities and costs associated
with SEDAR, $23,786 (2003 - $12,590) for transfer agent services, $29,796 (2003
- - $9,520) for costs associated with the AGM, $5,032 (2003 - $4,835) for the
renewal of coverage in Standard & Poor's Market Access Program and miscellaneous
costs of $nil (2003 - $824).
Legal, accounting and professional fees were lower by $70,816 to $99,359 (2003 -
$170,175) due to fewer legal expenses, lower accounting and auditing costs and
an over accrual of accounting and auditing costs in Fiscal 2003. The significant
expenditures in Fiscal 2004 include $14,973 (2003 - $21,060) for accounting,
$71,936 (2003 - $91,125) for legal fees and $13,500 over accrued in 2003.
Interest income increased by $69,483 to $90,541, compared to $21,058 for Fiscal
2003, the increase being attributable to the proceeds of the equity financing
completed in September 2004. The Company also recognized a gain of $5,042 on the
sale of a field truck.
Mineral property and exploration costs deferred at December 31, 2004 totaled
$13,780,530, an increase of $3,252,624 since the end of the prior fiscal year,
all of which was spent on the Fort a la Corne Diamond Project. A comparison of
the mineral property expenditures for Fiscal 2004 and 2003 can be summarized as
follows:
80
Fort a la Corne Diamond Project Fiscal 2004 Fiscal 2003
- ------------------------------- ----------- -----------
Geological and exploration $635,623 $ 323,123
Land tenure 178 2,253
Drilling 1,811,544 1,231,097
Assay 132,613 188,875
Supplies 58,588 0
Transport 58,940 34,693
Rental equipment 76,124 60,841
General 12,253 11,990
Overhead 466,761 245,068
Totals
Year Ended December 31, 2003 Compared to the Year Ended December 31, 2002
The net loss for Fiscal 2003 was $1,015,103 or $0.02 per share compared to a net
loss of $695,026 or $0.02 per share for Fiscal 2002. Increases were experienced
in all categories, most notably consulting expense of $69,536 (stock-based
compensation) compared to $nil for Fiscal 2002; legal, accounting and
professional fees of $170,175 (audit and other related fees - $57,240;
accounting - $21,060; legal fees - $91,125; tax advice - $750) compared to
$50,244 (audit and other related fees - $21,900; accounting - $13,140; legal
fees - $15,204) for Fiscal 2002; and promotion, public relations and travel
expenses of $403,592 (media consulting and media training - $52,035; website and
database - $9,220; news dissemination - $14,191; registration fees, sponsorship
and equipment for trade shows - $20,410; advertising - $11,029; William Callahan
fees and investor relations expenses - $84,624; Robert Young fees and expenses -
$69,059; travel - $57,923; AGM - $9,409; printing - $53,400; graphic design and
Powerpoint consulting - $5,808; miscellaneous - $16,484), compared to $338,682
(media consulting fees and expenses - $37,899; website and database maintenance
- - $16,354; news dissemination - $11,477; registration fees for trade shows -
$27,437; advertising - $18,346; William Callahan fees and investor relations
expenses - $41,050; Robert Young fees and expenses - $67,565; travel - $68,188;
sponsorship of the 8th Annual Kimberlite Conference - $5,000; video editing -
$3,622; Lawrence Leahy settlement - $20,000; miscellaneous - $21,744) for Fiscal
2002.
During the current fiscal year, the Company changed its accounting policy on a
prospective basis with respect to the method of accounting for stock-based
compensation. In Fiscal 2003, an additional charge to earnings of $25,497 was
expensed for stock options granted to employees and directors and $44,039 was
expensed for stock options granted to non-employees and non-directors while in
Fiscal 2002, the Company did not record any compensation expense.
Legal, accounting and professional fees increased during the year due to
increased audit and accounting fees for increased activity, an accrual of
$30,000 at year end for the 2003 audit, and legal fees for two non-brokered
private placements, the settlement agreement with William Callahan and other
corporate business. Promotion, public relations and travel expenses increased
during the year due to the settlement agreement with William Callahan, printing
and production costs for a new brochure, annual report (including an accrual of
$25,000 at December 31, 2003 for the 2003 annual report) and newsletter, the
engagement of a media consultant in the first quarter of Fiscal 2002 and
increased news dissemination costs. Investor relations activities during the
current year include the redesign of the corporate website and trade show booth,
attendance and sponsorship at trade shows and conferences in Victoria,
Vancouver, Montreal, Toronto and Saskatoon, advertising in trade publications
and the production of a new brochure, annual report and newsletters.
Office expenses increased slightly to $194,367 (directors' and officers'
liability and keyman insurance - $36,822; administrative services - $48,198;
office rent, telephone, secretarial and office expenses - $109,348), compared to
$172,538 (directors' and officers' liability and keyman insurance - $50,225;
administrative services - $47,032; office rent, telephone, secretarial and
office expenses - $75,281) for Fiscal 2002 due to the hiring of administrative
support staff in the last six months of Fiscal 2002 and increased corporate
activity.
Salaries, benefits and management fees totaling $138,164 (David Stone -
$115,000; William Zimmerman - $20,489; James Rothwell - $2,675) were expensed
for Fiscal 2003, up from $111,417 (David Stone - $111,417) for Fiscal 2002.
Mineral property and exploration costs deferred at December 31, 2003 totaled
$10,527,906, an increase of $2,097,940 since December 31, 2002, all of which was
spent on the Fort a la Corne Property.
81
Year Ended December 31, 2002 Compared to the Year Ended December 31, 2001
The loss for the year ended December 31, 2002 was $695,026 for a loss per share
of $0.02. This is an increase of 32% over the previous year loss of $525,645. In
the previous year a calculation of stock-based compensation for an option to a
consultant provided a charge of $26,000. There was no stock-based compensation
in the current year. Office expenses increased $88,183 over the previous year.
Directors and officers liability insurance was brought in the current year at a
cost of $32,670. There was an increase in the cost of the office administrator
from $25,295 in the previous year to $44,698 in the current year. As well there
were additional office assistance costs of $9,534, office maintenance costs of
$10,231 and telephone expenses of $3,830 over the previous year.
Promotion, public relations and travel increased $101,296 over the previous
year. In the current year two additional persons were hired. A public relations
and news clipping service cost $36,149 and a public relations person cost
$67,565 in the current year. The public relations person has currently left the
company.
Management fees changed from an increase in the salary to the company's
president from $72,000 to $111,417. In the previous year some $20,000 was paid
to a director for services.
Mineral property and exploration costs deferred for year ended December 31, 2002
was $1,575,564 expended on the Fort a la Corne Property. In comparison, mineral
property and exploration costs deferred at Fort a la Corne during previous year
was $1,729,911.
The Company is not affected by inflation and foreign currency fluctuations
Differences Between Canadian and U.S. GAAP
The Company prepares its financial statements in accordance with Canadian GAAP
which differs in certain respects from those principles it would have followed
had its consolidated financial statements been prepared in accordance with U.S.
GAAP. The major differences between Canadian and U.S. GAAP that would affect the
measurement of the Company's financial position, loss or cash flows are set
forth below.
82
December 31
------------------------------------------------------
2004 2003 2002
$ $ $
Consolidated Balance Sheets
Total assets under Canadian GAAP 21,298,397 12,779,823 8,843,245
Decrease in mineral property due to expense of exploration
costs (a) (13,780,530) (10,527,906) (8,429,966)
Mark to market of available for sale securities (c) 18,300 82,350 45,750
------------------ ----------------- -----------------
Total assets under U.S. GAAP 7,536,167 2,334,267 459,029
================== ================= =================
Total liabilities under Canadian and U.S. GAAP 2,263,973 652,863 180,124
------------------ ----------------- -----------------
Shareholders' equity under Canadian GAAP 19,034,424 12,126,960 8,663,121
Adjustment to shareholders' equity for mark to market of 18,300 82,350 45,750
available for sale securities (c)
Cumulative mineral property adjustment (a) (13,780,530) (10,527,906) (8,429,966)
------------------ ----------------- -----------------
Shareholders' equity under U.S. GAAP 5,272,194 1,681,404 278,905
------------------ ----------------- -----------------
Total liabilities and shareholders' equity under US GAAP 7,536,167 2,334,267 459,029
================== ================= =================
Consolidated Statements of Loss and Deficit
Net loss under Canadian GAAP (443,193) (1,015,103) (695,026)
Mineral property exploration expenditures expenses (a) (3,252,624) (2,097,940) (1,575,564)
Write-down of "available for sale" securities (c) (18,300) (82,350) -
------------------ ----------------- -----------------
Net loss under U.S. GAAP (3,714,117) (3,195,393) (2,270,590)
================== ================= =================
Basic and diluted earnings (loss) per share under U.S. GAAP (0.06) (0.06) (0.05)
================== ================= =================
Consolidated Statement of Cash Flows
Operating activities
Operating activities under Canadian GAAP 1,104,115 (863,432) (1,059,133)
Exploration (a) (3,252,624) (2,097,940) (1,575,564)
------------------ ----------------- -----------------
Operating activities under U.S. GAAP (2,148,509) (2,961,372) (2,634,697)
================== ================= =================
Financing activities
Financing activities under Canadian and U.S. GAAP 6,907,502 4,409,406 2,785,700
================== ================= =================
Investing activities
Investing activities under Canadian GAAP (6,794,614) (2,863,895) (1,585,406)
Deferred exploration (a) 3,252,624 2,097,940 1,575,564
------------------ ----------------- -----------------
Investing activities under U.S. GAAP (3,541,990) (765,955) (9,842)
================== ================= =================
(a) Exploration expenses
Canadian GAAP allows exploration costs to be capitalized during the search
for a commercially mineable body of ore. Under U.S. GAAP, expenditures on
mineral property costs can only be deferred subsequent to the establishment
of mining reserves. For U.S. GAAP purposes, the Company has expensed
exploration expenditures and acquisition costs related to exploration in
the period incurred.
(b) Restricted cash
Under US GAAP, the restricted cash of $92,000 held as security for a
corporate credit card would not be shown as a current asset, but as
non-current.
83
(c) Available for sale securities
Under U.S. GAAP, the Company's marketable securities would have been
classified as "available for sale". Accordingly, the write-down to market
values would be recorded as an unrealized holding loss and included as a
separate component of shareholders' equity until realized.
(d) Amalgamation
On November 3, 1993, the Company was formed by the amalgamation of Rattler
Resource Ltd. and Reimer Resources Ltd. Under Canadian GAAP, this
transaction was accounted for using the purchase method whereas under U.S.
GAAP, the transaction would be accounted for as a pooling of interests.
Under U.S. GAAP, capital stock and accumulated deficit would increase by
$1,318,696 at both December 31, 2001 and 2000. There is no effect on the
reported loss for the years ended December 31, 2004, 2003 and 2002. The
financial information presented for the period from date of inception to
December 31, 2004 is in accordance with U.S. GAAP.
(e) Flow-through Shares and Future Income Tax Recovery
Under Canadian GAAP flow-through shares are recorded at the value of
compensation received less an amount equal to future income tax liability
resulting from the related renunciation of qualified exploration
expenditures as a reduction in share capital. The Company also recognizes
in operations the realization of future income tax benefits of previously
unrecorded future income tax assets on the date of renouncement of the
expenditures to the flow-through share investors. Under US GAAP
flow-through shares have a carrying value equal to that of non flow-through
shares and the difference between the fair value of the shares and the
value of compensation received is reported as a recovery of deferred tax
benefit on the statement of operations. As the value of the compensation
received for flow-through shares issued during the year was equal to the
fair value of non flow-through shares on the date issued, no recovery of
deferred tax benefit is required for US GAAP purposes.
(f) Warrants
Under US GAAP warrants to purchase common shares in the Company pursuant to
a private placement are given a fair value and shown separately under
shareholders' equity. The total of the fair value of the warrants is
subtracted from the total of the private placement to arrive at the value
of the common shares. Under Canadian GAAP the value of the warrants is
considered a part of the common shares.
(g) Stock-based compensation
Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting
for Stock Based Compensation" ("SFAS 123") encourages, but does not
require, companies to record compensation cost for stock-based employee
compensation plans at fair value. Effective January 1, 2002 the Company has
chosen under Canadian GAAP to account for stock-based compensation using
the fair value method.
The Company accounts for stock-based compensation issued to non-employees
in accordance with the provisions of SFAS 123 and the consensus in Emerging
Issues Task Force No. 96-18, "Accounting for Equity Instruments that are
Issued to Other Than Employees for Acquiring or in Conjunction with
Selling, Goods or Services".
Year Ended December 31,
------------------------------------------------------------
2004 2003 2002
$ $ $
Net loss for the period U.S. GAAP (3,714,117) (2,237,256) (2,270,590)
Additional stock based compensation cost - - (603,414)
-------------------- ------------------- -------------------
Pro forma net loss (3,714,117) (2,237,256) (2,874,004)
==================== =================== ===================
Pro forma basic loss per share (0.06) (0.06) (0.06)
==================== =================== ===================
84
(h) Income taxes
Under United States GAAP, the Company would have initially recorded an
income tax asset for the benefit of the resource deduction pools and losses
carried forward. This asset would have been reduced to $nil by a valuation
allowance.
(i) Comprehensive Income
In June 1997, the FASB issued SFAS No. 130 "Reporting comprehensive
income", SFAS 130 requires that total comprehensive income and
comprehensive income per share be disclosed with equal prominence as net
income and net income per share. Comprehensive income is defined as changes
in shareholders' equity exclusive of transactions with owners such as
capital contributions and dividends. Comprehensive income items includes
the write-down of "available for sale" securities.
(j) New accounting pronouncements
In March 2004, the Emerging Issues Task Force ("EITF") issued EITF 04-3,
"Mining Assets: Impairment and Business Combinations." EITF 04-3 requires
mining companies to consider cash flows related to the economic value of
mining assets (including mineral properties and rights) beyond those assets
proven and probable reserves, as well as anticipated market price
fluctuations, when assigning value in a business combination in accordance
with SFAS 141 and when testing the mining assets for impairment in
accordance with SFAS 144. The consensus is effective for fiscal periods
beginning after March 31, 2004. The adoption of EITF 04-3 did not have a
material impact on the Company's financial position, results of operations
or cash flows.
On December 16, 2004, the Financial Accounting Standards Board ("FASB")
issued FASB Statement No. 123 (revised 2004), "Share-Based Payment" (SFAS
123(R)), which is a revision of FASB Statement No. 123, "Accounting for
Stock-Based Compensation." SFAS 123(R) supersedes APB Opinion No. 24,
"Accounting for Stock Issued to Employees," and amends FASB Statement No.
95, "Statement of Cash Flows." Generally, the approach in SFAS 123(R)
requires all share-based payments to employees, including grants of
employee stock options, to be recognized in the income statement based on
their fair values. Pro forma disclosure is no longer an alternative. The
Company currently uses the fair value method to account for all stock
option grants and is assessing the effect of SFAS 123(R) on the Company's
financial statements as presented herein.
In December 2004, the FASB issued SFAS 153, "Exchanges of Non-Monetary
Assets - An Amendment of APB Opinion No. 29." The guidance in APB No. 29,
"Accounting for Non-Monetary Transactions" is based on the principle that
exchanges of non-monetary assets should be measured based on the fair value
of the assets exchanged. The guidance in that Opinion, however, included
certain exceptions to that principle. This Statement amends APB No. 29 to
eliminate the exception for exchanges of similar productive assets and
replaces it with a general exception for exchanges of non-monetary assets
that do not have commercial substance. A non-monetary exchange has
commercial substance if the future cash flows of the entity are expected to
change significantly as a result of the exchange. This Statement will be
effective for fiscal periods beginning after June 15, 2005. Earlier
application is permitted for non-monetary asset exchanges incurred during
fiscal years beginning after the date this Statement is issued. The Company
believes this Statement will have no impact on the financial statements of
the Company once adopted.
On March 17, 2005 the EITF issued EITF 04-6, "Accounting for Stripping
Costs in the Mining Industry." The consensus indicated that costs of
removing overburden and waste materials ("stripping costs") after
production begins, represent variable production costs and should be
considered a component of mineral inventory cost subject to the guidance in
Chapter 4 of Accounting Research Bulletin No. 43, "Restatement and Revision
of Accounting Research Bulletins." EITF 04-6 is effective for fiscal years
beginning after December 15, 2005 and upon adoption, can be applied by
either retroactively restating prior periods or using a cumulative catch-up
adjustment. The Company does not believe that adoption of this Statement
will have a material effect on the Company's financial statements.
The adoption of these new pronouncements is not expected to have a material
effect on the Company's consolidated financial position or results of
operations.
85
B. Liquidity and Capital Resources
Six Months Ended June 30, 2005
At June 30, 2005, the Company had working capital of $34,217,786, compared to
working capital of $4,091,329 at December 31, 2004. The primary source of this
working capital is an equity financing completed in the second quarter of Fiscal
2005. A total of 4,255,400 flow-through common shares were issued at a price of
$2.35 per flow-through share and a total of 10,000,000 non-flow through units
were issued at a price of $2.10 per unit. Each non flow-through unit consists of
one non flow-through common share and one half of one share purchase warrant.
Each whole warrant entitles the holder thereof to purchase one additional non
flow-through common share for a period of twelve months from closing at a price
of $2.50 per share. During the first half of Fiscal 2005, the exercise of stock
options and warrants provided additional proceeds of $3,066,691.
The Company has met a commitment to incur a minimum of $2 million in flow
through expenditures by March 31, 2005. While no cash calls have been received
from the operator for the 2005 program at Fort a la Corne, expenditures to June
24, 2005 were estimated to be $1.99 million. The Company's share of these
expenditures, approximately $934,000, will be sufficient to satisfy a commitment
to incur an additional $1 million in flow through expenditures by December 31,
2005.
Year Ended December 31, 2004
The Company is presently exploring the Fort a la Corne Diamond Project for
sufficient reserves to justify production. This property does not produce any
revenue. The Company received minor amounts of interest ($90,541 for Fiscal 2004
compared to $21,058 for Fiscal 2003) and $5,042 on the sale of a vehicle;
however, its capital needs have historically been met by the issuance of
securities either through private placements, the exercise of stock options or
warrants, shares issued for debt or shares issued for property. Fluctuations in
the Company's share price may affect our ability to obtain future financing and
the rate of dilution to existing shareholders.
At December 31, 2004, the Company had working capital of $4,091,329, compared to
working capital of $1,584,489 at December 31, 2003. The primary sources of this
working capital are the equity financing completed in the third quarter of
Fiscal 2004 and in the fourth quarter of Fiscal 2003. During the year, the
exercise of stock options and warrants provided additional proceeds of
$1,369,000. Subsequent to the year end, the Company received $1,906,343 from the
exercise of stock options and warrants.
Included in current assets at December 31, 2004 is $32,025 (2003 - $32,025) in
marketable securities which represents the book value of 457,500 common shares
of China Diamond Corp. Included in current liabilities at December 31, 2004 is
$2,082,119 (2003 - $537,968) due to the FALC-JV. This amount was paid in the
subsequent period.
The Company has met commitments to incur a minimum of $1,055,340 in flow through
expenditures by the end of Fiscal 2004 and a further $2 million by March 2005.
An additional $1 million in flow through expenditures must be incurred by the
end of Fiscal 2005 and the Company expects to meet this commitment in the second
quarter of Fiscal 2005.
The Company's portion of the 2005 advanced exploration and evaluation program
program budget is $12 million and the Company will be required to raise
additional funds to meet this commitment. On March 30, 2005, the Company
announced that it had entered into an agreement with LOM to act as lead agent in
a syndicate to market a private placement financing of up to $35 million on a
commercially reasonable best efforts basis. $5 million of the offering will
consist of flow-through common shares and $30 million of the offering will
consist of non flow-through units. Each non flow-through unit shall consist of
one non flow-through common share and one half of one share purchase warrant.
Each whole warrant shall entitle the holder thereof to purchase one additional
non flow-through common share for a period of twelve months from closing.
Pricing will be determined following the marketing of the offering. The gross
proceeds of the offering of the flow-through shares will be used by the Company
to incur exploration expenses on the Fort a la Corne Project that qualify as
"Canadian exploration expenses" under the Income Tax Act (Canada). The proceeds
of the offering of the units will be used for exploration programs on the Fort a
la Corne Project and for general corporate purposes.
86
C. Research and Development, Patents and Licences, etc.
The Company does not engage in research and development activities.
D. Trend Information
Factors which may have a material effect on the Company's future financial
condition are set forth in "Item 3 - Key Information, Risk Factors".
E. Off-Balance sheet Arrangements
The Company does not have any off-balance sheet arrangements that have or are
reasonably likely to have a current or future effect on the Company's financial
condition, changes in financial condition, revenues or expenses, results of
operations, liquidity, capital expenditures or capital resources that are
material to investors.
F. Tabular Disclosure of Contractual Obligations
As at December 31, 2004, we had the following contractual obligations and
commitments:
------------------------------------ ----------------- ------------ --------------- -------------- --------------
Contractual Obligations
Payments due by period (Expressed Less than
in thousands of Canadian dollars) Total 1 year 1 - 3 years 4 - 5 years After 5 years
------------------------------------ ----------------- ------------ --------------- -------------- --------------
Capital Lease Obligations 16 1 15 Nil Nil
------------------------------------ ----------------- ------------ --------------- -------------- --------------
Operating Lease Obligations 200 5 96 66 33
------------------------------------ ----------------- ------------ --------------- -------------- --------------
Purchase Obligations Nil Nil Nil Nil Nil
------------------------------------ ----------------- ------------ --------------- -------------- --------------
Total Contractual Obligations 216 6 111 66 33
------------------------------------ ----------------- ------------ --------------- -------------- --------------
ITEM 6 - DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
A. Directors and Senior Management
The following table sets out certain information concerning the directors and
executive officers of the Company. Each director holds office until the next
annual general meeting of the Company or until his successor is elected or
appointed, unless his office is earlier vacated in accordance with the By-Laws
of the Company, or with the provisions of the Yukon Act. The officers are
appointed at the pleasure of the board of directors.
William E. Stanley and Tony Pezzotti, both directors of the Company, are related
by the marriage of their children. Other than discussed above, there are no
family relationships between any two or more directors or executive officers.
There are no arrangements or understandings between any of the directors or
executive officers, major shareholders, customers, suppliers or others pursuant
to which any person referred to above was selected as a director or executive
officer.
87
- ------------------------------------------- ----------------------------------------- -------------------- ------------ -----------
Name, Position, Age and Principal Occupation or Period as a Director No. of % of Issued
Municipality of Residence Employment for Past Five Years (1) Director of Kensington Capital (2)
Kensington Shares
- ------------------------------------------- ----------------------------------------- -------------------- ------------ -----------
JAMES R. ROTHWELL (3)(5)(6) Retired. President and CEO of Dia Met June 17, 2002 to 53,332 0.07%
Chairman and Director Minerals Ltd. from 2000 to 2001; present
Resident of Ferndale, WA, USA President of BHP Diamonds from 1997 to
Age: 56 2000.
- ------------------------------------------- ----------------------------------------- -------------------- ------------ -----------
ROBERT A. McCALLUM President of the Company from June 1, May 13, 2004 to 20,000 0.03%
President, CEO and Director 2004 to present; Professional present
Resident of West Vancouver, BC, Canada consulting engineer and President of
Age: 68 Robert A. McCallum Inc. from 1999 to
present; Director of Miramar Mining
Corporation from 1999 to 2002.
- ------------------------------------------- ----------------------------------------- -------------------- ------------ -----------
CHRISTOPHER G. BALDWIN (4) (5) Corporate/commercial lawyer, Partner of June 13, 2005 to 4,000 0.01%
Secretary and Director Lawson Lundell LLP, Barristers and present
Resident of Vancouver, BC, Canada Solicitors from 1982 to present
Age: 54
- ------------------------------------------- ----------------------------------------- -------------------- ------------ -----------
TONY PEZZOTTI (3) (4) (6) Retired. General Manager and Co-owner October 23, 1998 844,892 1.07%
Director of PSL Steel Ltd. from 1979 to 2000. to present
Resident of Burnaby, BC, Canada
Age: 64
- ------------------------------------------- ----------------------------------------- -------------------- ------------ -----------
WILLIAM E. STANLEY (4) (5) (6) Retired mining engineer and industry July 16, 2004 to Nil 0.00%
Director consultant. Adjunct Professor at the present
Resident of West Vancouver, BC, Canada University of British Columbia's
Age: 65 Department of Mining and Mineral
Process Engineering from 1999 to
present; Director of Miramar Mining
Corporation from 1995 to present.
- ------------------------------------------- ----------------------------------------- -------------------- ------------ -----------
WILLIAM E. ZIMMERMAN (3) (6) Minerals Consultant from June 2004 to June 1, 2001 to 10,000 0.01%
Director present; Director of Kensington from June 11, 2004;
Resident of Florissant, CO, USA June 2001 to June 2004; Executive, BHP reappointed June
Age: 63 Diamonds, Inc. from April 1997 to May 13, 2005 to present
2001
- ------------------------------------------- ----------------------------------------- -------------------- ------------ -----------
(1) The information as to principal occupation and shares beneficially owned
has been furnished by the respective individuals.
(2) Based upon the 79,887,416 shares issued and outstanding as of September 22,
2005.
(3) Member of the Audit Committee
(4) Member of the Compensation Committee
(5) Member of the Corporate Governance Committee
(6) Member of the Special Committee
James R. Rothwell
- -----------------
Mr. Rothwell was President and CEO of Dia Met Minerals Ltd. between 2000 and
2001 where he successfully implemented the Board of Directors' decision to sell
the company at a significant premium for its shareholders. Prior to that, he
worked for BHP Minerals between 1986 and 2000 where he held the position of
President of BHP Diamonds from 1997 to 2000. Mr. Rothwell led BHP's entry into
the diamond industry via development of the EKATI Diamond Mine in the Northwest
Territories, Canada's first producing diamond mine. Mr. Rothwell has over 25
years' experience in corporate strategic planning and business development in
Canada, the United States, Australia and Brazil. He is a graduate of Stanford
University where he completed the Marketing Management Program and received his
MBA.
88
Robert A. McCallum
- ------------------
Mr. McCallum has a solid foundation in diamonds coupled with extensive
professional management skills and a proven record in investor and joint venture
relations in the mining industry. He has over 45 years of international mining
experience in diamonds, gold, uranium, industrial minerals and base metals and
more than 20 years in corporate management as an officer and/or director of
companies. Prior to Kensington, Mr. McCallum was President and COO of Philex
Mining Corporation in Manila, Philippines, until the end of 1998. Since then, he
has been engaged as a consultant and as a Director of Miramar Mining Corporation
until June 2002. Mr. McCallum has a BSc. Degree in Mining Engineering from the
University of the Witwatersrand and completed the Program for Management
Development at the Harvard School of Business in Boston, Massachusetts.
Christopher Baldwin
- -------------------
Mr. Baldwin is a corporate/commercial lawyer and partner in the Vancouver office
of Lawson Lundell LLP. He has been practicing law for almost 30 years, and has
significant experience advising mining companies.
William E. Stanley
- ------------------
Mr. Stanley is a retired partner with Coopers & Lybrand Consulting
(PricewaterhouseCoopers) and a former Director of the firm's Canadian and
International mining practices. Over the past 35 years, his consulting career
has incorporated both international mining assignments and a variety of projects
for most of the major mining companies in Canada. Currently, he is an Adjunct
Professor at the University of British Columbia's Department of Mining and
Mineral Process Engineering and he is on the Board of Directors of Miramar
Mining Corporation. He is a former Director of Westmin Resources Limited,
Gibraltar Mines Limited, Teck Corporation and Luscar Limited and a past
President of the Canadian Institute of Mining, Metallurgy & Petroleum (CIM). Mr.
Stanley is a graduate of the Provincial Institute of Mining, Haileybury,
Northern Ontario and holds a B.Sc. in Mine Engineering from Michigan
Technological University.
William E. Zimmerman
- --------------------
Mr. Zimmerman has more than 30 years' experience in international mining with
BHP and Utah International. He entered the diamond industry in 1994 and was
instrumental in the development of the marketing program for the EKATI Diamond
Mine. He later served as President of BHP Diamonds and retired from service with
BHP in May 2001. He has a B.Sc. in Mineral Economics from the Pennsylvania State
University and an MBA from the University of San Francisco.
Tony Pezzotti
- -------------
Mr. Pezzotti (retired) was General Manager and co-owner of a steel company in
British Columbia. Mr. Pezzotti has also been a director of Offshore Systems
International Ltd. since 1990 and is a past director of First Quantum Minerals
Ltd., both listed on the Toronto Stock Exchange.
B. Director and Executive Compensation
For the purpose of this annual report, the following words and phrases shall
have the following meanings:
"Equity security" means securities of a company that carry a residual right to
participate in earnings of that company and, upon liquidation or winding up of
that company, its assets;
"Option" means all options, share purchase warrants and rights granted by a
company or any of its subsidiaries (if any) as compensation for services
rendered or otherwise in connection with office or employment;
89
"LTIP" means a long-term incentive plan, which is any plan providing
compensation intended to serve as incentive for performance to occur over a
period longer than one financial year, whether the performance is measured by
reference to financial performance of the company or an affiliate of the
company, the price for the company's securities, or any other measure, but does
not include Option or SAR plans or plans for compensation through restricted
shares or restricted share units.
The total compensation we paid during the last fiscal period to all of our
directors and officers as a group for services in all capacities was $113,218.
The following table details the compensation paid to our directors and officers
for the year ended December 31, 2004:
- ----------------------- -------------------------------- ------------------------------------------------- ---------------
Annual Compensation Long Term Compensation
- ----------------------- -------------------------------- ------------------------------------- ----------- ---------------
Awards Payouts
- ----------------------- ----------- -------- ----------- ------------------- ----------------- ----------- ---------------
Other
Annual Securities Under Restricted All Other
Compen- Options/SARs Shares/Units LTIP Compen-
Name and Principal Salary Bonus sation Granted Awarded Payouts sation
Position ($) ($) ($) (#) ($) ($) ($)
- ----------------------- ----------- -------- ----------- ------------------- ----------------- ----------- ---------------
Robert A. McCallum $89,218 $Nil $24,000(2) 400,000(3) $Nil $Nil $Nil
President, CEO and
Director (1)
- ----------------------- ----------- -------- ----------- ------------------- ----------------- ----------- ---------------
James R. Rothwell $Nil $Nil $Nil 50,000(4) $Nil $Nil $Nil
Chairman and Director
- ----------------------- ----------- -------- ----------- ------------------- ----------------- ----------- ---------------
William Zimmerman $Nil $Nil $Nil Nil $Nil $Nil $Nil
Director
- ----------------------- ----------- -------- ----------- ------------------- ----------------- ----------- ---------------
Christopher Baldwin $Nil $Nil $Nil Nil $Nil $Nil $Nil
Secretary and Director
- ----------------------- ----------- -------- ----------- ------------------- ----------------- ----------- ---------------
Tony Pezzotti $Nil $Nil $Nil Nil $Nil $Nil $Nil
Director
- ----------------------- ----------- -------- ----------- ------------------- ----------------- ----------- ---------------
William E. Stanley $Nil $Nil $Nil 150,000(5) $Nil $Nil $Nil
Director
- ----------------------- ----------- -------- ----------- ------------------- ----------------- ----------- ---------------
(1) Robert A. McCallum was appointed President of the Company on June 1, 2004.
(2) Robert A. McCallum receives an annual housing allowance of $24,000.
(3) Options granted on May 25, 2004 are exercisable at a price of $0.84 per
share and expire on May 25, 2007.
(4) Options granted on March 26, 2004 are exercisable at a price of $1.13 per
share and expire on March 26, 2009.
(5) Options granted on July 16, 2004 are exercisable at a price of $0.77 per
share and expire on July 16, 2009.
Termination of Employment, Change in Responsibilities and Employment Contracts
The Company entered into an Employment Agreement dated May 19, 2004 pursuant to
which Robert A. McCallum was retained as President for a two-year term for a
salary of $150,000 per year, a housing allowance of $24,000 per year and annual
bonuses which shall be determined at the absolute discretion of the Board of
Directors with respect to achieving aims and goals mutually agreed upon by the
parties. During the year ended December 31, 2004, Mr. McCallum was paid $83,291
pursuant to the employment agreement and received $24,000 for the housing
allowance. In the fourth quarter of Fiscal 2004, the term of the Employment
Agreement was extended from two years to three years.
During the year ended December 31, 2004, the Company paid $151,097 to David H.
Stone, former President of the Company, which included a one-time payment of
$115,000 for the termination of management services. Pursuant to the terms of a
Management Agreement executed on February 1, 2002, Mr. Stone was retained as
President for a fee of $115,000 per annum. The Management Agreement could be
terminated by Mr. Stone with three months' written notice or by the Company at
any time with cause, or without cause, by providing twelve months' notice or
payment in lieu of notice of not less than $115,000.
90
With the exception of the Employment Agreement with Mr. McCallum, the Company
does not have any agreements with its directors or officers of the Company
providing for benefits upon termination of employment.
C. Board Practices
The Board of Directors presently consists of six Directors. Each Director was
elected at the annual general and extraordinary meeting of the shareholders of
the Company held on June 13, 2005. Each Director holds office until the next
annual general meeting of the Company or until his successor is elected or
appointed, unless his office is earlier vacated in accordance with the Articles
of the Company, or within the provisions of the Yukon Act.
Board Committees
Audit Committee
The Audit Committee reviews the annual and quarterly financial statements of the
Company, oversees the annual audit process, the Company's internal accounting
controls, the resolution of issues identified by the Company's auditors and
recommends to the Board the firm of independent auditors to be nominated for
appointment by the shareholders at the next annual general meeting. In addition,
the Audit Committee meets annually with the external auditors of the Company,
without the presence of any other members of management.
The Company is required to have an Audit Committee comprised of not less than
three directors, a majority of whom are independent of the Company as defined by
the TSX or any other regulatory body to which the Company reports. The Company's
current Audit Committee consists of William E. Zimmerman, Tony Pezzotti and
James R. Rothwell, all of whom are directors of the Company.
The Audit Committee mandate is available on the Company's website at
www.kensington-resources.com or upon request to the Company's Corporate
Secretary.
Since the commencement of the Company's most recently completed financial year,
the Audit Committee has not made any recommendations to nominate or compensate
an external auditor which were not adopted by the Board of Directors of the
Company.
The Board of Directors has adopted a pre approval policy requiring that the
Audit Committee pre-approve the audit and non-audit services performed by the
independent auditor in order to assure that the provision of such services do
not impair the auditor's independence.
Compensation Committee
The Compensation Committee has the general responsibility for developing the
Company's approach to Board, executive and employee compensation and to
executive succession. The Compensation Committee is comprised of not less than
three directors, a majority of whom are independent of the Company as defined by
the TSX or any other regulatory body to which the Company reports. The Company's
current Compensation Committee consists of Tony Pezzotti, William E. Stanley and
Christopher G. Baldwin, all of whom are directors of the Company.
The Compensation Committee mandate is available on the Company's website at
www.kensington-resources.com or upon request to the Company's Corporate
Secretary.
Corporate Governance Committee:
The Corporate Governance Committee is responsible for developing the Company's
approach to corporate governance issues, including specifically the Company's
approach to the recommendations set out in the TSX's corporate governance
guidelines and the Sarbanes Oxley Act. The Corporate Governance Committee also
assists the Board to fulfill its duty to meet the applicable legal, regulatory
and self-regulatory business principles and codes of best practice of corporate
behaviour and conduct.
91
The Corporate Governance Committee is comprised of not less than three
directors, a majority of whom are independent of the Company as defined by the
TSX or any other regulatory body to which the Company reports. The Company's
current Corporate Governance Committee consists of James R. Rothwell, William E.
Stanley and Christopher G. Baldwin, all of whom are directors of the Company.
The Corporate Governance Committee mandate is available on the Company's website
at www.kensington-resources.com or upon request to the Company's Corporate
Secretary.
D. Employees
The average number of employees was as follows:
-------------------------------------------- ---------------- ----------------- -----------------
Year ended Year ended Year ended
December 31, December 31, December 31,
Location 2004 2003 2002
-------------------------------------------- ---------------- ----------------- -----------------
Head office, British Columbia, Canada 3 2 2
-------------------------------------------- ---------------- ----------------- -----------------
Field office, Saskatchewan, Canada 2 1 1
-------------------------------------------- ---------------- ----------------- -----------------
The following table discloses the incentive stock options outstanding to the
aforementioned directors and officers of the Company as of October 24, 2005.
- --------------------------------- ----------------------- -------------------- --------------- ------------------------
# Common Exercise
Name of Person(s) Date of Grant or Shares Subject Price Per Expiry Date
Issuance to Issuance Share
$
- --------------------------------- ----------------------- -------------------- --------------- ------------------------
James R. Rothwell June 20, 2002 100,000 1.11 June 20, 2007
Chairman and Director October 7, 2002 150,000 0.80 October 7, 2007
February 24, 2003 50,000 0.82 February 24, 2008
March 26, 2004 50,000 1.13 March 26, 2009
January 20, 2005 118,500 1.04 January 20, 2010
March 18, 2005 30,000 2.75 March 18, 2010
June 20, 2005 100,000 2.10 June 20, 2010
- --------------------------------- ----------------------- -------------------- --------------- ------------------------
Robert A McCallum May 24, 2004 400,000 0.84 May 24, 2007
President, CEO and Director January 20, 2005 200,000 1.04 January 20, 2010
May 20, 2005 100,000 1.91 May 20, 2010
- --------------------------------- ----------------------- -------------------- --------------- ------------------------
Tony Pezzotti December 1, 2000 100,000 0.38 December 1, 2005
Director July 17, 2001 100,000 0.81 July 17, 2006
January 30, 2002 100,000 0.78 January 30, 2007
January 20, 2005 118,500 1.04 January 20, 2010
- --------------------------------- ----------------------- -------------------- --------------- ------------------------
William E. Stanley July 16, 2004 150,000 0.77 July 16, 2009
Director January 20, 2005 118,500 1.04 January 20, 2010
- --------------------------------- ----------------------- -------------------- --------------- ------------------------
William E. Zimmerman June 11, 2001 150,000 0.71 June 11, 2006
Director July 16, 2001 100,000 0.81 July 16, 2006
January 30, 2002 150,000 0.78 January 30, 2007
June 20, 2005 100,000 2.10 June 20, 2010
- --------------------------------- ----------------------- -------------------- --------------- ------------------------
Christopher G. Baldwin June 20, 2005 100,000 2.10 June 20, 2010
Secretary and Director
- --------------------------------- ----------------------- -------------------- --------------- ------------------------
In the third quarter of Kensington's 2004 fiscal year, the Kensington Board
adopted a Shareholder Rights Plan (the "Rights Plan") to protect Kensington's
shareholders from unfair, abusive or coercive take-over strategies, including
the acquisition of control of Kensington through a take-over bid that may not
treat all shareholders equally or fairly. The terms of the Rights Plan are
identical to Kensington's previous shareholder rights plan which expired on June
29, 2004. The shareholders of Kensington ratified the adoption of the Rights
Plan at the Special Meeting held on April 4, 2005.
92
To implement the Rights Plan, the Kensington Board authorized the issue of one
right (a "Right") in respect of each Kensington Share outstanding to holders of
record on the date that Computershare Trust Company of Canada executed the
agreement implementing the Rights Plan. Initially, the Rights attach to and
trade with the Kensington Shares and are represented by certificates
representing common shares.
On the occurrence of certain triggering events, including the acquisition by a
person or group of persons of 20% or more of the votes attached to all
outstanding voting shares of Kensington in a transaction not approved by the
Kensington Board, the Rights separate from the Kensington Shares and will
entitle holders (other than the acquiring person or group persons) to acquire
Kensington Shares at a 50% discount to the prevailing market price of the
shares. The Rights are not triggered by purchases of voting shares made pursuant
to a "Permitted Bid" made to all holders of Kensington Shares on identical
terms. A Permitted Bid must be made by way of a take-over bid circular prepared
in compliance with applicable securities laws and must comply with certain other
conditions set out in the agreement signed to implement the Rights Plan.
The Arrangement will not trigger the separation of the Rights under the Rights
Plan. Pursuant to the Plan of Arrangement, the Rights Plan will be terminated on
the Effective Date.
Kensington Warrants
Kensington issued 1,428,573 Kensington Warrants on September 24, 2004 in
connection with a private placement of 2,307,692 flow-through common shares and
2,857,143 units, with each unit comprised of one Kensington Share and one-half
of one Kensington Warrant. Each Kensington Warrant is exercisable to acquire one
Kensington Share at a price of $1.55 until March 24, 2006.
Kensington issued 4,999,999 Kensington Warrants on May 6, 2005 in connection
with a private placement of 4,255,400 flow-through common shares and 10,000,000
units, with each unit comprised of one Kensington Share and one-half of one
Kensington Warrant. Each Kensington Warrant is exercisable to acquire one
Kensington Share at a price of $2.50 until May 6, 2006. The Kensington Warrants
were issued pursuant to the Kensington Warrant Indenture. These Kensington
Warrants are listed for trading on the TSX Venture Exchange and the closing
price for these Kensington Warrants on October 24, 2005 was $2.48.
Kensington Broker Warrants
In connection with Kensington's private placement which completed on September
24, 2004, Kensington issued to its agent 161,539 Kensington Warrants, each
exercisable to acquire one Kensington Share at a price of $1.05 until March 24,
2006, and 200,000 Kensington Broker Warrants, each exercisable to acquire one
unit at a price of $1.05 until March 24, 2006. Each unit is comprised of one
Kensington Share and one-half of one Kensington Underlying Warrant. Each whole
Kensington Underlying Warrant is exercisable to acquire one additional
Kensington Share at a price of $1.55 until March 24, 2006.
In connection with Kensington's private placement which completed on May 6,
2005, Kensington issued to its agents 255,324 Kensington Warrants, each
exercisable to acquire one Kensington Share at a price of $2.10 until May 6,
2006, and 600,000 Kensington Broker Warrants, each exercisable to acquire one
unit at a price of $2.10 until May 6, 2006. Each unit is comprised of one
Kensington Share and one-half of one Kensington Underlying Warrant. Each whole
Kensington Underlying Warrant is exercisable to acquire one additional
Kensington Share at a price of $2.50 until May 6, 2006. When issued, these
Kensington Underlying Warrants will be subject to the Kensington Warrant
Indenture.
The following table sets out details of Kensington Options outstanding as of
September 21, 2005.
93
- ---------------------------- --------------- --------------- ----------------- -------------------
Market Price
Holders No. of Shares Exercise Price at Date of Grant Expiry Dates
- ---------------------------- --------------- --------------- ----------------- -------------------
Officers of Kensington: 400,000 $0.84 $0.84 May 25, 2007
200,000 $1.04 $0.97 January 20, 2010
100,000 $1.91 $1.88 May 20, 2010
100,000 $2.10 $2.18 June 20, 2010
Directors of Kensington 100,000 $0.38 $0.36 December 1, 2005
(who are not also 150,000 $0.71 $0.75 June 11, 2006
Officers): 200,000 $0.81 $0.85 July 17, 2006
250,000 $0.78 $0.80 January 30, 2007
100,000 $1.11 $1.15 June 20, 2007
150,000 $0.80 $0.79 October 7, 2007
50,000 $0.82 $0.87 February 24, 2008
50,000 $1.13 $1.12 March 26, 2009
150,000 $0.77 $0.78 July 16, 2009
355,500 $1.04 $0.97 January 20, 2010
30,000 $2.75 $2.75 March 18, 2010
200,000 $2.10 $2.18 June 20, 2010
Employees of Kensington: 40,000 $0.37 $0.39 November 28, 2005
25,000 $0.54 $0.60 April 26, 2006
30,000 $0.76 $0.80 July 13, 2006
260,000 $0.78 $0.80 January 30, 2007
25,000 $0.82 $0.87 February 24, 2008
250,000 $1.10 $1.30 September 20, 2009
147,500 $1.04 $0.97 January 20, 2010
10,000 $2.75 $2.75 March 18, 2010
100,000 $1.91 $1.88 May 20, 2010
250,000 $2.13 $2.13 June 13, 2010
Consultants of Kensington: 100,000 $0.37 $0.39 November 28, 2005
100,000 $0.38 $0.36 December 1, 2005
50,000 $0.54 $0.60 April 26, 2006
200,000 $0.81 $0.78 July 17, 2006
200,000 $0.78 $0.80 January 30, 2007
100,000 $1.10 $1.30 September 20, 2009
257,000 $1.04 $0.97 January 20, 2010
50,000 $1.91 $1.88 May 20, 2010
Total Options: 4,780,000
In addition to incentive stock options, the following Kensington Warrants, and
Kensington Broker Warrants are outstanding as of September 21, 2005.
- ------------------------------ ----------------------- ----------------------------------
Number of Warrants Exercise Price Expiry Dates
- ------------------------------ ----------------------- ----------------------------------
404,763 $1.25/1.55 September 24, 2005/March 24, 2006
161,539 $1.05 March 24, 2006
5,014,499 $2.50 May 6, 2006
219,579 $2.10 May 6, 2006
- ------------------------------ ----------------------- ----------------------------------
Number of
Broker Warrants Exercise Price Expiry Dates
- ------------------------------ ----------------------- ----------------------------------
200,000 $1.05 March 24, 2006
516,000 $2.10 May 6, 2006
94
Prior sales
During the 12 months preceding September 21, 2005, Kensington issued 2,307,692
Kensington Shares at a price of $1.30 per share, 2,857,143 Kensington Shares at
a price of $1.05 per share, 4,255,400 Kensington Shares at a price of $2.35 per
share and 10,000,000 Kensington Shares at a price of $2.10 per share, pursuant
to private placements. In addition, Kensington Options and Kensington Warrants
were exercised as follows:
- ----------------------------------------- ----------------------------
Stock options Exercise Price
- ----------------------------------------- ----------------------------
10,000 $0.65
240,000 $0.30
270,000 $0.42
50,000 $0.54
40,000 $0.57
10,000 $0.82
17,500 $1.04
55,000 $1.13
100,000 $0.38
152,250 $0.37
- ----------------------------------------- ----------------------------
Warrants Exercise Price
- ----------------------------------------- ----------------------------
3,904,308 $1.25
35,745 $2.10
27,500 $2.50
In addition, Kensington Broker Warrants were exercised at a price of $2.10 per
Kensington Broker Warrant resulting in the issuance of 84,000 Kensington Shares
and 42,000 Kensington Underlying Warrants.
ITEM 7 - MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
A. Major Shareholders
To the best of the Company's knowledge, it is not directly or indirectly owned
or controlled by another corporation, any natural or legal person(s) or by any
foreign government.
Except for the Plan of Arrangement with Shore Gold, there are presently no
arrangements known to the Company, the operation of which may at a subsequent
date result in a change in control of the Company.
There have been no significant changes in the percentage ownership held by any
major shareholders during the past three years.
B. Share Ownership
As at the date of this Form 20-F Annual Report, no persons or groups are known
to us to each own more than 5% of our issued and outstanding common shares.
Registered shareholders in the United States account for 95 holders having
8,342,792 shares at September 30, 2005.
C. Related Party Transactions
There are no material transactions since the beginning of the last fiscal year
up to the date of this Form 20-F Annual Report to which we were or are to be a
party, in which any director or officer or person related thereto had or will
have a material interest, either directly or indirectly.
95
D. Interests of Experts and Counsel
Not applicable.
ITEM 8 - FINANCIAL INFORMATION
Financial Statements and Other Financial Information
See the audited consolidated financial statements listed in Item 17 hereof and
filed as part of this Form 20-F Annual Report. These financial statements
include the consolidated balance sheets of the Company as at December 31, 2004
and 2003 and statements of loss and cash flows for each of the three years ended
December 31, 2004, 2003 and 2002.
These financial statements were prepared in accordance with accounting
principles generally accepted in Canada. Differences between accounting
principles generally accepted in Canada and in the United States, as applicable
to the Company, are set forth in Note 13 to the accompanying audited
consolidated financial statements of the Company.
Legal Proceedings
There are no actual or pending material legal proceedings to which the Company
is or is likely to be a party or of which any of its properties is or is likely
to be the subject.
Dividend Policy
The Company has not declared any dividends and does not anticipate that it will
do so in the foreseeable future. The present policy of the Company is to retain
future earnings for use in its operations and the expansion of its business.
Significant Changes
In May 2005, the Company completed a private placement of flow-through shares
and units. The securities were sold on a best efforts agency basis by a
syndicate of agents led by Loewen, Ondaatje, McCutcheon Limited, including
Westwind Partners Inc., National Bank Financial Inc., Research Capital
Corporation and Wellington West Capital Markets Inc. (collectively, the
"Agents"). A total of 4,255,400 flow-through common shares were issued at a
price of $2.35 per flow-through share and a total of 10,000,000 non-flow through
units were issued at a price of $2.10 per unit. Each non flow-through unit
consists of one non flow-through common share and one half of one share purchase
warrant. Each whole warrant entitles the holder thereof to purchase one
additional non flow-through common share for a period of twelve months from
closing at a price of $2.50 per share. The Company has agreed to use its
commercially reasonable efforts to list the warrants on the Exchange, such
listing to be effective as of the date on which all applicable resale
restrictions in respect of the warrants have expired. The Agents received a
commission of 5.5% of the gross proceeds of the offering. In addition, the
Agents received warrants entitling the Agents to purchase for a period of twelve
months from closing: (i) 255,324 non-flow through common shares at a price of
$2.10 per share; and (ii) 600,000 units on the same terms as the offering at a
price of $2.10 per unit. All of the securities are subject to a four-month hold
period in Canada in accordance with applicable securities laws, expiring
September 7, 2005. The gross proceeds of the offering of the flow-through shares
will be used for Canadian Exploration Expenses (as such terms are defined in the
Income Tax Act (Canada)) on the Fort a la Corne Diamond Project in Saskatchewan.
The proceeds of the offering of the units will be used for exploration programs
on the Fort a la Corne Diamond Project and for general corporate purposes.
ITEM 9 - THE OFFER AND LISTING
The Company's stock is listed on the TSX Venture Exchange and trades under the
symbol "KRT". The Kensington Warrants issued pursuant to the Warrant Indenture
were listed on the TSX Venture Exchange on September 7, 2005 under the symbol
"KRT.WT".
96
Trading History
The following table sets forth the high and low market prices for the common
shares on the TSX Venture Exchange for each full quarterly period within the two
most recent fiscal years ended December 31, 2004 and the six months ended June
30, 2005:
---------------------- ------------------- --------------------
Quarter Ended High Low
$CDN $CDN
---------------------- ------------------- --------------------
June 30, 2005 2.60 1.61
---------------------- ------------------- --------------------
Mar 31, 2005 4.06 0.90
---------------------- ------------------- --------------------
Dec 31, 2004 1.30 0.89
---------------------- ------------------- --------------------
Sept 30, 2004 1.44 0.75
---------------------- ------------------- --------------------
June 30, 2004 1.10 0.75
---------------------- ------------------- --------------------
Mar 31, 2004 1.54 0.83
---------------------- ------------------- --------------------
Dec 31, 2003 1.09 0.85
---------------------- ------------------- --------------------
Sept 30, 2003 1.15 0.84
---------------------- ------------------- --------------------
June 30, 2003 1.70 0.67
---------------------- ------------------- --------------------
Mar 31, 2003 0.97 0.69
---------------------- ------------------- --------------------
The following table sets forth the annual high and low market prices of the
common shares on the TSX Venture Exchange for the five fiscal years ending
December 31, 2004:
---------------------- ------------------- --------------------
Year Ended High Low
$CDN $CDN
---------------------- ------------------- --------------------
Dec 31, 2004 1.54 0.75
---------------------- ------------------- --------------------
Dec 31, 2003 1.70 0.67
---------------------- ------------------- --------------------
Dec 31, 2002 2.36 0.70
---------------------- ------------------- --------------------
Dec 31, 2001 1.04 0.32
---------------------- ------------------- --------------------
Dec 31, 2000 0.80 0.21
---------------------- ------------------- --------------------
The following table sets forth the high and low market prices for the common
shares for the most recent six months:
---------------------- ------------------- --------------------
Month ended High Low
$CDN $CDN
---------------------- ------------------- --------------------
Sept 30, 2005 4.32 3.02
---------------------- ------------------- --------------------
Aug 31, 2005 3.31 2.10
---------------------- ------------------- --------------------
July 31, 2005 2.39 2.02
---------------------- ------------------- --------------------
June 30, 2005 2.31 1.83
---------------------- ------------------- --------------------
May 31, 2005 2.24 1.77
---------------------- ------------------- --------------------
Apr 30, 2005 2.60 1.61
---------------------- ------------------- --------------------
The following table summarizes the high and low market prices for the Kensington
Warrants issued pursuant to the Warrant Indenture between the period September 7
to September 30, 2005:
---------------------- ------------------- --------------------
Month ended High Low
$CDN $CDN
---------------------- ------------------- --------------------
Sept 30, 2005 2.11 0.90
---------------------- ------------------- --------------------
There have been no significant trading suspensions in the prior three years.
97
ITEM 10 - ADDITIONAL INFORMATION
A. Share Capital
Not applicable.
B. Memorandum and Articles of Association
Objects and Purposes of the Company
The Company does not have any stated "objects" or "purposes" as such are not
required by the corporate laws of the Yukon Territory. Rather, the Company is,
by such corporate laws, entitled to carry on any activities whatsoever, which
are not specifically precluded by other statutory provisions of the Yukon
Territory.
Powers and Functions of the Directors
Section 7.01 of the By-Laws provides that a director or officer who is a party
to, or who is a director or officer of or has a material interest in any person
who is a party to, a material contract or proposed material contract with the
Company shall disclose the nature and extent of his interest at the time and in
the manner provided by the Yukon Act. Any such contract or proposed contract
shall be referred to the board or shareholders approval even if such contract is
one that in the ordinary course of the Company's business would not require
approval by the board or shareholders, and a director whose interest in a
contract is so referred to the board shall not vote on any resolution to approve
the same except as provided by the Yukon Act.
The foregoing prohibitions shall not apply to:
(i) an arrangement by way of security for money lent to or obligations
undertaken by said director, or by a body corporate in which he has an
interest, for the benefit of the Company or an affiliate of the Company;
(ii) a contract relating primarily to said director's remuneration as a
director, officer, employee or agent of the Company or an affiliate of the
Company;
(iii) a contract for purchasing and maintaining indemnity or insurance to cover
directors against liability incurred by them as directors; or
(iv) a contract with an affiliate of the Company.
Directors' Powers
Section 4.01 of the By-Laws provides that the quorum necessary for the
transaction of the business of the Directors shall be a majority of the
Directors in office.
Section 4.17 of the By-Laws provides that the directors shall be paid such
remuneration for their services as the board may from time to time determine.
The directors shall also be entitled to be reimbursed for traveling or other
expenses properly incurred by them in attending meetings of the board of any
committee thereof.
Borrowing Powers
Section 3.01of the By-Laws provides that, without limiting the borrowing powers
of the Company as set forth in the Act, but subject to the articles and any
unanimous shareholders agreement, the board may, from time to time on behalf of
the Company, without authorization of the shareholders:
(a) borrow money upon the credit of the Company in such amounts, and on such
terms as they think fit, by obtaining loans or advances or by way of
overdraft or otherwise;
(b) issue, re-issue, sell or pledge bonds, debentures, notes or other evidences
of indebtedness or guarantee of the Company, whether secured or unsecured,
for sums and at such prices as may be deemed expedient;
98
(c) to the extent permitted by the Act, give a guarantee on behalf of the
Company to secure performance of any past, present or future indebtedness,
liability or obligation of the Company, present or future; and
(d) delegate to a committee of the board, a director or officer of the Company
all or any of the powers conferred aforesaid or by the Act to such extent
and in such manner as the directors may determine.
Nothing in this section limits or restricts the borrowing of money by the
Company on bills of exchange or promissory notes made, drawn, accepted or
endorsed by or on behalf of the Company.
Variation of these borrowing powers would require an amendment to the By-Laws of
the Company which would, in turn, require the approval of the shareholders of
the Company by way of a Special Resolution, as described below.
Retirement and Non-Retirement of Directors under an Age Limit Requirement.
There is no provision in the By-Laws imposing a requirement for retirement or
non-retirement of directors under an age limit requirement.
Qualifications of Directors
Section 4.02 of the By-Laws provides that no person shall be qualified for
election as a director if he is less than nineteen years of age; if he is a
minor as defined in the Age of Majority Act (Yukon Territory); if he is a
mentally disordered person as defined in the Mental Health Act (Yukon
Territory); if he has been found to be a person of unsound mind by a court
elsewhere than the Yukon Territory; if he is not an individual; or if he has the
status of a bankrupt. A director need not be a shareholder.
Rights, Preference and Restrictions
The Company has only one class of shares, common shares without par value
("Common Shares") and is authorized to issue an unlimited number of Common
Shares.
All of the authorized Common Shares are of the same class and, once issued, rank
equally as to dividends, voting powers, and participation in assets and in all
other respects, on liquidation, dissolution or winding up of the Company,
whether voluntary or involuntary, or any other distribution of the assets of the
Company among its shareholders for the purpose of winding up its affairs after
the Company has paid out its liabilities. The issued Common Shares are not
subject to call or assessment rights or any pre-emptive or conversion rights.
The holders of Common Shares are entitled to one vote for each share on all
matters to be voted on by the shareholders. There are no provisions for
redemption, purchase for cancellation, surrender or purchase funds.
Under Section 9 of the By-Laws of the Company, the Board of Directors of the
Company may from time to time declare dividends payable to the shareholders
according to their respective rights and interest in the Company. Dividends may
be paid in money or property or by issuing fully paid shares of the Company.
The Board of Directors may fix in advance a date, preceding by not more than
fifty days the date for the payment of any dividend or the date for the issue of
any warrant or other evidence of right to subscribe for securities of the
Company, as a record date for the determination of the persons entitled to
receive payment of such dividend or to receive the right to subscribe for such
securities, provided that if the Company is a distributing corporation, notice
of any such record date is given, not less than seven days before such record
date, in the manner provided in the Act. Where no record date is fixed in
advance as aforesaid, the record date for the determination of the persons
entitled to receive payment of any dividend or to receive the right to subscribe
for securities of the Company shall be at the close of business on the day on
which the resolution relating to such dividend or right to subscribe is passed
by the Board of Directors of the Company.
Any dividend unclaimed after a period of six years from the date on which the
same has been declared to be payable shall be forfeited and shall revert to the
Company.
99
Action Necessary to Change the Rights of Holders of the Company's Stock
A Special Resolution is required to effect a change in the rights of
shareholders. A Special Resolution means a resolution passed by a two-thirds
majority of the votes cast by shareholders of the Company who, being entitled to
do so, vote in person or by proxy at a general meeting of the Company for which
notice, as the By-Laws of the Company provide, and not being less than 21 days'
notice specifying the intention to propose the resolution as a special
resolution, has been duly given (or, if every shareholder entitled to attend and
vote at the general meeting agrees, at a meeting of which less than 21 day's
notice has been given), or a resolution consented to in writing by every
shareholder of the Company who would have been entitled to vote in person or by
proxy at a general meeting of the Company, and a resolution so consented to is
deemed to be a Special Resolution passed at a general meeting of the Company.
Annual General Meetings and Extraordinary General Meetings
The Yukon Act provides that the Company must hold an annual general meeting not
more than 15 months after the date that the last annual general meeting was
held. If the Company fails to hold an annual general meeting, the Supreme Court
of the Yukon Territory may, on the application of a shareholder of the Company,
call or direct an annual general meeting. The Company must give to its members
entitled to receive notice of a general meeting not less than 21 days' notice of
any general meeting of the Company, but those members may waive or reduce the
period of notice for a particular meeting by unanimous consent in writing. The
Company must give to its members entitled to receive notice of a general meeting
not less than 21 days and not more than 50 days' notice of any general meeting
of the Company, but those members may waive or reduce the period of notice for a
particular meeting by unanimous consent in writing. The Yukon Act requires the
directors of a reporting company to provide with notice of a general meeting a
form of proxy for use by every member entitled to vote at such meeting as well
as an information circular containing prescribed information regarding the
matter to be dealt with and conduct of the general meeting. Prior to each annual
general meeting of its members the directors of the Company must place
comparative financial statements, made up to a date not more than six months
before the annual general meeting, the report of the auditor, and the report of
the directors to the members.
The directors of the Company may, whenever they see fit, convene an
extraordinary general meeting. One or more shareholders of the Company may also
requisition an extraordinary general meeting so long as such shareholders own
not less than 5% of the issued and outstanding shares at the date such
shareholders requisition an extraordinary general meeting. After receiving such
requisition, the Company's directors must immediately give notice of the
extraordinary general meeting which must be held within four months after the
date of delivery of the requisition to the Company.
The only persons entitled to be present at a meeting of the shareholders shall
be those entitled to vote thereat, the directors and the auditors of the Company
and others who, although not entitled to vote, are entitled or required under
any provision of the Yukon Act or Articles or By-Laws to be present at the
meeting. Any other person may be admitted only on the invitation of the Chairman
of the meeting or with consent of the meeting.
Limitations on Ownership of Securities
There are no limitations on the rights to own securities, including the rights
of non-resident or foreign shareholders to hold or exercise voting rights on the
securities imposed by the Act or by the constating documents of the Company.
Change in Control of Company
There is no provision in the Company's By-Laws that would have an effect of
delaying, deferring or preventing a change in control of the Company and that
would operate only with respect to a merger, acquisition or corporate
restructuring involving the Company.
Ownership Threshold
There are no provisions in the Company's By-Laws requiring share ownership to be
disclosed. The securities laws of the Provinces of British Columbia, Albert and
Ontario require disclosure of shareholdings by:
(a) insiders who are directors or senior officers of the Company; and
100
(b) a person who has direct or indirect beneficial ownership of, control or
direction over, or a combination of direct or indirect beneficial ownership
of and of control or direction over securities of the Company carrying more
than 10% of the voting rights attached to all the Company's outstanding
voting securities.
Securities legislation in the Canada requires that shareholder ownership must be
disclosed once a person owns beneficially or has control or direction over
greater than 10% of the issued shares of the Company. This threshold is higher
than the 5% threshold under U.S. securities legislation at which shareholders
must report their share ownership.
C. Material Contracts
The following material contracts have been entered into by the Company since
January 1, 2003, copies of which may be inspected between the hours of 9:00 am
and 4:00 p.m. at the head office of the Company located at Suite 2100, 650 W.
Georgia Street, Vancouver, British Columbia, Canada, V6B 4N9:
1. Shareholder Rights Plan dated as of October 6, 2004 between the Company and
Computershare Trust Company of Canada as Rights Agent;.
2. Management Agreement dated May 14, 2004 between the Company and Robert A.
McCallum pursuant to which Mr. McCallum was retained as President of the
Company. See "Item 6 - Directors, Senior Management and Employees".
3. Amended and Restated Combination Agreement between Kensington and Shore
Gold dated September 19, 2005 pursuant to which Kensington and Shore Gold
have agreed to implement the Arrangement in accordance with the Combination
Agreement and the Plan of Arrangement. The Arrangement provides for the
acquisition by Shore Gold of all of the issued and outstanding Kensington
shares in consideration for the issuance of 0.64 Shore Gold shares for each
Kensington share. Pursuant to the Arrangement, Kensington and Shore Gold
Subco will amalgamate and the amalgamated corporation will be a
wholly-owned subsidiary of Shore Gold.
4. Warrant Indenture dated May 6, 2005 between Kensington and Computershare
Trust Company of Canada pursuant to which 4,999,999 Kensington Warrants
were issued on May 6, 2005.
5. Agency Agreement dated May 6, 2005 among Kensington and Loewen, Ondaatje,
McCutcheon Limited, Westwind Partners Inc., National Bank Financial Inc.,
Research Capital Corporation and Wellington West Capital Markets Inc. in
connection with the private placement of 4,255,400 flow-through common
shares and 10,000,000 units.
6. Agency Agreement dated September 24, 2004 between Kensington and Loewen,
Ondaatje, McCutcheon Limited in connection with the private placement of
2,307,692 flow-through common shares and 2,857,143 units.
7. Consulting Agreement dated February 1, 2003 between the Company and James
R. Rothwell pursuant to which Mr. Rothwell provides consulting services.
See "Item 6 - Directors, Senior Management and Employees".
8. Employee Stock Option Plan dated June 13, 2005.
D. Exchange Controls
There are no governmental laws, decrees or regulations in Canada relating to
restrictions on the export or import of capital, or affecting the remittance of
interest, dividends or other payments to non-resident holders of Common Shares.
Any remittances of dividends to United States residents are, however, subject to
a 15% withholding tax (5% if the shareholder is a corporation owning at least
10% of the outstanding Common Shares) pursuant to Article X of the reciprocal
tax treaty between Canada and the United States.
Except as provided in the Investment Canada Act (the "Act"), which has
provisions which govern the acquisition of a control block of voting shares by
non-Canadians of a corporation carrying on a Canadian business, there are no
limitations specific to the rights of non-Canadians to hold or vote the Common
Shares under the laws of Canada or the Province of British Columbia or in the
charter documents of the Company.
101
The following describes those provisions of the Act pertinent to an investment
in the Company by a person who is not a Canadian resident (a "non-Canadian").
The Act requires a non-Canadian making an investment which would result in the
acquisition of control of the Canadian business to notify the Investment Review
Division of Industry Canada, the federal agency created by the Act; or in the
case of an acquisition of a Canadian business, the gross value of the assets of
which exceeds certain threshold levels of the business activity of which is
related to Canada's cultural heritage or national identity, to file an
application for review with the Investment Review Division.
The notification procedure involves a brief statement of information about the
investment on a prescribed form, which is required to be filed with Investment
Canada by the investor at any time up to 30 days following implementation of the
investment. It is intended that investments requiring only notification will
proceed without government intervention unless the investment is in a specific
type of business activity related to Canada's cultural heritage and national
identity.
If an investment is reviewable under the Act, an application for review in the
form prescribed is required to be filed with Investment Canada prior to the
investment taking place and the investment may not be implemented until the
review has been completed and the Minister responsible for the Investment Canada
Act is satisfied that the investment is likely to be of net benefit to Canada.
If the Minister is not satisfied that the investment is likely to be of net
benefit to Canada, the non-Canadian must not implement the investment or, if the
investment has been implemented, may be required to divest himself of control of
the business that is the subject of the investment.
The following investments by non-Canadians are subject to notification under the
Act:
1. an investment to establish a new Canadian business; and
2. an investment to acquire control of a Canadian business that is not
reviewable pursuant to the Act.
The following investments by a non-Canadian are subject to review under the Act:
1. direct acquisitions of control of Canadian businesses with assets of $5
million or more, unless the acquisition is being made by a World Trade
Organization ("WTO") member country investor (the United States being a
member of the WTO);
2. direct acquisitions of control of Canadian businesses with assets of
$250,000,000 or more by a WTO investor;
3. indirect acquisitions of control of Canadian businesses with assets of $5
million or more is such assets represent more than 50% of the total value
of the assets of the entities, the control of which is being acquired,
unless the acquisition is being made by a WTO investor, in which case there
is no review;
4. indirect acquisitions of control of Canadian businesses with assets of $50
million or more even if such assets represent less than 50% or the total
value of the assets of the entities, the control of which being acquired,
unless the acquisition is being made by a WTO investor, in which case there
is no review; and
5. an investment subject to notification that would not otherwise be
reviewable if the Canadian business engages in the activity of publication,
distribution or sale for books, magazines, periodicals, newspapers, film or
video recordings, audio or video music recordings, or music in print or
machine-readable form.
An acquisition is direct if it involves the acquisition of control of the
Canadian business or of its Canadian parent or grandparent and an acquisition is
indirect if it involves the acquisition of control of a non-Canadian parent or
grandparent of an entity carrying on the Canadian business. Control may be
acquired through the acquisition of actual voting control by the acquisition of
voting shares of a Canadian corporation or through the acquisition of
substantially all of the assets of the Canadian business. No change of voting
control will be deemed to have occurred if less than one-third of the voting
control of a Canadian corporation is acquired by an investor.
102
A WTO investor, as defined in the Act, includes an individual who is a national
of a member country of the World Trade Organization or who has the right of
permanent residence in relation to that WTO member, a government or government
agency of a WTO investor-controlled corporation, limited partnership, trust or
joint venture and a corporation, limited partnership, trust or joint venture
that is neither WTO-investor controlled or Canadian controlled of which
two-thirds of its board of directors, general partners or trustees, as the case
may be, are any combination of Canadians and WTO investors.
The higher thresholds for WTO investors do not apply if the Canadian business
engages in activities in certain sectors such as uranium, financial services,
transportation services or communications.
The Act specifically exempts certain transactions from either notification or
review. Included among this category of transactions is the acquisition of
voting shares or other voting interests by any person in the ordinary course of
that person's business as a trader or dealer in securities.
The Regulations under the Act specifies the remedies, offences and punishment
applicable. Section 39 states that "When the Minister believes that a
non-Canadian, contrary to this act (a) has failed to give notice; or (b) has
implemented an investment which is prohibited", then the Minister may send a
demand requiring the default to be remedied and if this demand is not complied
with, the Minister may apply for a Court Order require divestiture or other
remedies, as the circumstances require. Civil penalties apply for non-compliance
with any provision, and criminal penalties may also apply.
E. Taxation
Canadian Federal Income Tax Consequences
The following is a discussion of the material Canadian federal income tax
consequences applicable to a holder of Common Shares who is a resident of the
United States and who is not a resident of Canada and who does not use or hold,
and is not deemed to use or hold, his Common Shares in connection with carrying
on a business in Canada (a "non-resident holder"). Accordingly, shareholders and
prospective investors should consult their own tax advisors for advice regarding
their individual tax consequences.
This summary is based upon the current provisions of the Income Tax Act (Canada)
(the "ITA"), the regulations thereunder (the "Regulations"), the current
publicly announced administrative and assessing policies of Canada Revenue
Agency, and all specific proposals (the "Tax Proposals") to amend the ITA and
Regulations announced by the Minister of Finance (Canada) prior to the date
hereof. This summary assumes that the Tax Proposals will be enacted in their
form as of the date of this Annual Report.
Dividends
Dividends paid on the Common Shares to a non-resident holder will be subject to
withholding tax. The Canada-U.S. Income Tax Convention (1980) (the "Treaty")
provides that the normal 25% withholding tax rate under the ITA is reduced to
15% on dividends paid on shares of a corporation resident in Canada (such as the
Company) to beneficial owners of the dividends who are residents of the United
States, and also provides for a further reduction of this rate to 5% where the
beneficial owner of the dividends is a corporation that is a resident of the
United States which owns at least 10% of the voting shares of the corporation
paying the dividend.
Capital Gains
Under the ITA, a taxpayer's capital gain (or capital loss) from a disposition of
a Common Share is the amount, if any, by which his proceeds of disposition
exceed (or are exceeded by) the aggregate of his adjusted cost base of the share
and reasonable expenses of disposition. One-half of a capital gain (the "taxable
capital gain") is included in income, and one-half of a capital loss in a year
(the "allowable capital loss") is deductible from taxable capital gains realized
in the same year. The amount by which a shareholder's allowable capital loss
exceeds his taxable capital gains in a year may be deducted from a taxable
capital gain realized by the shareholder in the three previous or any subsequent
year, subject to certain restrictions in the case of a corporate shareholder.
103
A non-resident of Canada is not subject to tax under the ITA in respect of a
capital gain realized upon the disposition of a share of a public corporation
unless the share represents "taxable Canadian property" to the holder thereof.
The Company is a public corporation for purposes of the ITA and a Common Share
will be taxable Canadian property to a non-resident holder if, at any time
during the period of five years immediately preceding the disposition, the
non-resident holder, persons with whom the non-resident holder did not deal at
arm's length, or the non-resident holder and persons with whom he did not deal
at arm's length together owned not less than 25% of the issued shares of any
class of shares of the Company. The Common Shares may also be taxable Canadian
property to a holder if the holder acquired them pursuant to certain "rollover"
transactions. This would include transactions under Sections 85 and 87 of the
ITA which apply to share for share and amalgamation transactions.
Where a U.S. resident holder realizes a capital gain on a disposition of Common
Shares that constitute taxable Canadian property, the Treaty relieves the
non-resident shareholder from liability for Canadian tax on such capital gains
unless:
(a) the value of the shares is derived principally from "real property" in
Canada, including the right to explore for or exploit natural resources and
rights to amounts computed by reference to production from natural
resources. It is a question of fact as to whether the value of the
Company's common shares results principally from real property in Canada.
Although a tax opinion on this matter has not been obtained, given the
nature of the Company's business and its stage of development, we have
concluded that the value of our shares would likely fall into this
category;
(b) the non-resident holder is an individual who was resident in Canada for not
less than 120 months during any period of 20 consecutive years preceding,
and at any time during the 10 years immediately preceding, the disposition
and the shares were owned by him when he ceased to be resident in Canada or
are property substituted for property that was owned at that time; or
(c) the shares formed part of the business property of a "permanent
establishment" or pertained to a fixed base used for the purpose of
performing independent personal services that the shareholder has or had in
Canada within the 12 months preceding the disposition.
Notwithstanding the potential exemption from Canadian tax provided under the
Treaty, where a non-resident of Canada disposes of Common Shares that are
taxable Canadian property, the non-resident is required to file a Canadian
income tax return in respect of such dispositions.
United States Federal Income Tax Consequences
The following is a discussion of all material United States Federal income tax
consequences, under current law, that may be applicable to a U.S. Holder (as
defined below) of Common Shares of the Registrant. This discussion does not
address all potentially relevant Federal income tax matters and it does not
address consequences peculiar to persons subject to special provisions of
Federal income tax law, such as those described below as excluded from the
definition of a U.S. Holder. In addition, this discussion does not cover any
state, local or foreign tax consequences. (See "Canadian Federal Income Tax
Consequences" above.)
The following discussion is based upon the sections of the Internal Revenue Code
of 1986, as amended to the date hereof (the "Code"), Treasury Regulations,
published Internal Revenue Service ("IRS") rulings, published administrative
positions of the IRS and court decisions that are currently applicable, any or
all of which could be materially and adversely changed, possibly on a
retroactive basis, at any time. In addition, this discussion does not consider
the potential effects, both adverse and beneficial, of any future legislation
which, if enacted, could be applied, possibly on a retroactive basis, at any
time. Shareholders and prospective investors should consult their own tax
advisors for advice regarding their individual tax consequences.
U.S. information reporting requirements may apply with respect to the payment of
dividends to U.S. Holders of the Company's shares. Under Treasury regulations
currently in effect, non-corporate holders may be subject to backup withholding
at a 31% rate with respect to dividends when such holder (1) fails to furnish or
certify a correct taxpayer identification number to the payor in the required
manner; and (2) is notified by the IRS that it has failed to report payments of
interest or dividends properly; or (3) fails, under certain circumstances, to
certify that it has been notified by the IRS that it is subject to backup
withholding for failure to report interest and dividend payments.
104
U.S. Holders
As used herein, a "U.S. Holder" is a holder of Common Shares of the Registrant
who or which is a citizen or individual resident (or is treated as a citizen or
individual resident) of the United States for federal income tax purposes, a
corporation or partnership created or organized (or treated as created or
organized for federal income tax purposes) in or under the laws of the United
States or any political subdivision thereof, or a trust or estate the income of
which is includable in its gross income for federal income tax purposes without
regard to its source, if, (i) a court within the United States is able to
exercise primary supervision over the administration of the trust and (ii) one
or more United States trustees have the authority to control all substantial
decisions of the trust. For purposes of this discussion, a U.S. Holder does not
include persons subject to special provisions of Federal income tax law, such as
tax-exempt organizations, qualified retirement plans, financial institutions,
insurance companies, real estate investment trusts, regulated investment
companies, broker-dealers and Holders who acquired their stock through the
exercise of employee stock options or otherwise as compensation.
Distributions on Common Shares of the Registrant
U.S. Holders receiving dividend distributions (including constructive dividends)
with respect to Common Shares of the Registrant are required to include in gross
income for United States Federal income tax purposes the gross amount of such
distributions to the extent that the Registrant has current or accumulated
earnings and profits, without reduction for any Canadian income tax withheld
from such distributions. Such Canadian tax withheld may be credited, subject to
certain limitations, against the U.S. Holder's United States Federal income tax
liability or, alternatively, may be deducted in computing the U.S. Holder's
United States Federal taxable income by those who itemize deductions. (See more
detailed discussion at "Foreign Tax Credit" below). To the extent that
distributions exceed current or accumulated earnings and profits of the
Registrant, they will be treated first as a return of capital up to the U.S.
Holder's adjusted basis in the Common Shares and thereafter as gain from the
sale or exchange of the Common Shares. Preferential tax rates for long-term
capital gains are applicable to a U.S. Holder which is an individual, estate or
trust. There are currently no preferential tax rates for long-term capital gains
for a U.S. Holder which is a corporation.
Dividends paid on the Common Shares of the Registrant will not be eligible for
the dividends received deduction provided to corporations receiving dividends
from certain United States corporations. A U.S. Holder which is a corporation
may, under certain circumstances, be entitled to a 70% deduction of the United
States source portion of dividends received from the Registrant (unless the
Registrant qualifies as a "foreign personal holding company" or a "passive
foreign investment company", as defined below) if such U.S. Holder owns shares
representing at least 10% of the voting power and value of the Registrant. The
availability of this deduction is subject to several complex limitations which
are beyond the scope of this discussion.
Foreign Tax Credit
A U.S. Holder who pays (or has withheld from distributions) Canadian income tax
with respect to the ownership of Common Shares of the Registrant may be
entitled, at the option of the U.S. Holder, to either a deduction or a tax
credit for such foreign tax paid or withheld. It will be more advantageous to
claim a credit because a credit reduces United States Federal income taxes on a
dollar-for-dollar basis, while a deduction merely reduces the taxpayer's income
subject to tax. This election is made on a year-by-year basis and applies to all
foreign taxes paid by (or withheld from) the U.S. Holder during that year. There
are significant and complex limitations which apply to the credit, among which
is the general limitation that the credit cannot exceed the proportionate shares
of the U.S. Holder's United States income tax liability that the U.S. Holder's
foreign source income bears to his or its worldwide taxable income. In the
determination of the application of this limitation, the various items of income
and deduction must be classified into foreign and domestic sources. Complex
rules govern this classification process. There are further limitations on the
foreign tax credit for certain types of income such as "passive income", "high
withholding tax interest", "financial services income", "shipping income", and
certain other classifications of income. The availability of the foreign tax
credit and the application of the limitations on the credit are fact specific
and holders and prospective holders of Common Shares of the Registrant should
consult their own tax advisors regarding their individual circumstances.
105
Disposition of Common Shares of the Registrant
A U.S. Holder will recognize gain or loss upon the sale of Common Shares of the
Registrant equal to the difference, if any, between the amount of cash plus the
fair market value of any property received, and the Holder's tax basis in the
Common Shares of the Registrant. This gain or loss will be capital gain or loss
if the Common Shares are a capital asset in the hands of the U.S. Holder unless
the Registrant were to become a controlled foreign corporation. For the effect
on the Registrant of becoming a controlled corporation, see "Controlled Foreign
Corporation Status" below. Any capital gain will be a short-term or long-term
capital gain or loss depending upon the holding period of the U.S. Holder. Gains
and losses are netted and combined according to special rules in arriving at the
overall capital gain or loss for a particular tax year. Deductions for net
capital losses are subject to significant limitations. For U.S. Holders which
are individuals, any unused portion of such net capital loss may be carried over
to be used in later tax years until such net capital loss is thereby exhausted.
For U.S. Holders which are corporations (other than corporations subject to
Subchapter S of the Code), an unused net capital loss may be carried back three
years from the loss year and carried forward five years from the loss year to be
offset against capital gains until such net capital loss is thereby exhausted.
Other Considerations for U.S. Holders
In the following circumstances, the above sections of this discussion may not
describe the United States Federal income tax consequences resulting from the
holding and disposition of Common Shares of the Registrant:
Foreign Personal Holding Company
If at any time during a taxable year more than 50% of the total combined voting
power or the total value of the Registrant's outstanding shares is owned,
actually or constructively, by five or fewer individuals who are citizens or
residents of the United States and 60% or more of the Registrant's gross income
for such year was derived from certain passive sources (e.g., from dividends
received from its subsidiaries), the Registrant would be treated as a "foreign
personal holding company." In that event, U.S. Holders that hold Common Shares
of the Registrant would be required to include in income for such year their
allocable portion of the Registrant's passive income which would have been
treated as a dividend had that passive income actually been distributed. To the
best knowledge of the Registrant, it is not and has never been a Foreign
Personal Holding Company.
Foreign Investment Company
If 50% or more of the combined voting power or total value of the Registrant's
outstanding shares are held, actually or constructively, by citizens or
residents of the United States, United States domestic partnerships or
corporations, or estates or trusts other than foreign estates or trusts (as
defined by the Code Section 7701(a)(31)), and the Registrant is found to be
engaged primarily in the business of investing, reinvesting, or trading in
securities, commodities, or any interest therein, it is possible that the
Registrant might be treated as a "foreign investment company" as defined in
Section 1246 of the Code, causing all or part of any gain realized by a U.S.
Holder selling or exchanging Common Shares of the Registrant to be treated as
ordinary income rather than capital gains. To the best knowledge of the
Registrant, it is not and has never been a Foreign Investment Company.
Passive Foreign Investment Company
A U.S. Holder who holds stock in a foreign corporation during any year in which
such corporation qualifies as a passive foreign investment company ("PFIC") is
subject to U.S. federal income taxation of that foreign corporation under one of
two alternative tax methods at the election of each such U.S. Holder. The
directors of the Registrant believe that the Company has and does qualify as a
Passive Foreign Investment Company for U.S. shareholders.
Section 1296 of the Code defines a PFIC as a corporation that is not formed in
the United States and, for any taxable year, either (i) 75% or more of its gross
income is "passive income," which includes interest, dividends and certain rents
and royalties or (ii) the average percentage, by value (or, if the company is a
controlled foreign corporation or makes an election, adjusted tax basis), of its
assets that produce or are held for the production of "passive income" is 50% or
more. For taxable years of U.S. persons beginning after December 31, 1997, and
for tax years of foreign corporations ending with or within such tax years, the
Taxpayer Relief Act of 1997 provides that publicly traded corporations must
apply this test on a fair market value basis only. The Registrant believes that
it is a PFIC.
106
As a PFIC, each U. S. Holder must determine under which of the alternative tax
methods it wishes to be taxed. Under one method, a U.S. Holder who elects in a
timely manner to treat the Registrant as a Qualified Electing Fund ("QEF"), as
defined in the Code, (an "Electing U.S. Holder") will be subject, under Section
1293 of the Code, to current federal income tax for any taxable year in which
the Registrant's qualifies as a PFIC on his pro-rata share of the Registrant's
(i) "net capital gain" (the excess of net long-term capital gain over net
short-term capital loss), which will be taxed as long-term capital gain to the
Electing U.S. Holder and (ii) "ordinary earnings" (the excess of earnings and
profits over net capital gain), which will be taxed as ordinary income to the
Electing U.S. Holder, in each case, for the U.S. Holder's taxable year in which
(or with which) the Registrant taxable year ends, regardless of whether such
amounts are actually distributed.
A QEF election also allows the Electing U.S. Holder to (i) treat any gain
realized on the disposition of his Common Shares (or deemed to be realized on
the pledge of his Common Shares) as capital gain; (ii) treat his share of the
Registrant's net capital gain, if any, as long-term capital gain instead of
ordinary income, and (iii) either avoid interest charges resulting from PFIC
status altogether (see discussion of interest charge below), or make an annual
election, subject to certain limitations, to defer payment of current taxes on
his share of the Registrant's annual realized net capital gain and ordinary
earnings subject, however, to an interest charge. If the Electing U.S. Holder is
not a corporation, such an interest charge would be treated as "personal
interest" that is not deductible at all in taxable years beginning after 1990.
The procedure a U.S. Holder must comply with in making a timely QEF election
will depend on whether the year of the election is the first year in the U.S.
Holder's holding period in which the Registrant is a PFIC. If the U.S. Holder
makes a QEF election in such first year, (sometimes referred to as a "Pedigreed
QEF Election"), then the U.S. Holder may make the QEF election by simply filing
the appropriate documents at the time the U.S. Holder files its tax return for
such first year. If, however, the Registrant qualified as a PFIC in a prior
year, then in addition to filing documents, the U.S. Holder must also elect to
recognize as an "excess distribution" (i) under the rules of Section 1291
(discussed below), any gain that he would otherwise recognize if the U.S. Holder
sold his stock on the application date or (ii) if the Registrant is a controlled
foreign corporation ("CFC"), the Holder's pro rata share of the corporation's
earnings and profits. (But see "Elimination of Overlap Between Subpart F Rules
and PFIC Provisions"). Either the deemed sale election or the deemed dividend
election will result in the U.S. Holder being deemed to have made a timely QEF
election.
With respect to a situation in which a Pedigreed QEF election is made, if the
Registrant no longer qualifies as a PFIC in a subsequent year, normal Code rules
and not the PFIC rules will apply.
If a U.S. Holder has not made a QEF Election at any time (a "Non-electing U.S.
Holder"), then special taxation rules under Section 1291 of the Code will apply
to (i) gains realized on the disposition (or deemed to be realized by reason of
a pledge) of his Common Shares and (ii) certain "excess distributions", as
specially defined, by the Registrant.
A Non-electing U.S. Holder would be required to pro-rate all gains realized on
the disposition of his Common Shares and all excess distributions over the
entire holding period for the Common Shares. All gains or excess distributions
allocated to prior years of the U.S. Holder (other than years prior to the first
taxable year of the Registrant during such U.S. Holder's holding period and
beginning after January 1, 1987 for which it was a PFIC) would be taxed at the
highest tax rate for each such prior year applicable to ordinary income. The
Non-electing U.S. Holder also would be liable for interest on the foregoing tax
liability for each such prior year calculated as if such liability had been due
with respect to each such prior year. A Non-electing U.S. Holder that is not a
corporation must treat this interest charge as "personal interest" which, as
discussed above, is wholly non-deductible. The balance of the gain or the excess
distribution will be treated as ordinary income in the year of the disposition
or distribution, and no interest charge will be incurred with respect to such
balance.
If the Registrant is a PFIC for any taxable year during which a Non-electing
U.S. Holder holds Common Shares, then the Registrant will continue to be treated
as a PFIC with respect to such Common Shares, even if it is no longer by
definition a PFIC. A Non-electing U.S. Holder may terminate this deemed PFIC
status by electing to recognize gain (which will be taxed under the rules
discussed above for Non-Electing U.S. Holders) as if such Common Shares had been
sold on the last day of the last taxable year for which it was a PFIC.
107
Under Section 1291(f) of the Code, the Department of the Treasury has issued
proposed regulations that would treat as taxable certain transfers of PFIC stock
by Non-electing U.S. Holders that are not otherwise taxed, such as gifts,
exchanges pursuant to corporate reorganizations, and transfers at death.
If a U.S. Holder makes a QEF Election that is not a Pedigreed Election (i.e., it
is made after the first year during which the Registrant is a PFIC and the U.S.
Holder holds shares of the Registrant) (a "Non-Pedigreed Election"), the QEF
rules apply prospectively but do not apply to years prior to the year in which
the QEF first becomes effective. U.S. Holders should consult their tax advisors
regarding the specific consequences of making a Non-Pedigreed QEF Election.
Certain special adverse rules will apply with respect to the Common Shares while
the Registrant is a PFIC whether or not it is treated as a QEF. For example
under Section 1297(b)(6) of the Code (as in effect prior to the Taxpayer Relief
Act of 1997), a U.S. Holder who uses PFIC stock as security for a loan
(including a margin loan) will, except as may be provided in regulations, be
treated as having made a taxable disposition of such stock.
The foregoing discussion is based on currently effective provisions of the Code,
existing and proposed regulations thereunder, and current administrative rulings
and court decisions, all of which are subject to change. Any such change could
affect the validity of this discussion. In addition, the implementation of
certain aspects of the PFIC rules requires the issuance of regulations which in
many instances have not been promulgated and which may have retroactive effect.
There can be no assurance that any of these proposals will be enacted or
promulgated, and if so, the form they will take or the effect that they may have
on this discussion. Accordingly, and due to the complexity of the PFIC rules,
U.S. Holders of the Registrant are strongly urged to consult their own tax
advisors concerning the impact of these rules on their investment in the
Registrant. For a discussion of the impact of the Taxpayer Relief Act of 1997 on
a U.S. Holder of a PFIC, see "Mark-to-Market Election For PFIC Stock Under the
Taxpayer Relief Act of 1997" and "Elimination of Overlap Between Subpart F Rules
and PFIC Provisions" below.
Mark-to-Market Election for PFIC Stock Under the Taxpayer Relief Act of 1997
The Taxpayer Relief Act of 1997 provides that a U.S. Holder of a PFIC may make a
mark-to-market election with respect to the stock of the PFIC if such stock is
marketable as defined below. This provision is designed to provide a current
inclusion provision for persons that are Non-Electing Holders. Under the
election, any excess of the fair market value of the PFIC stock at the close of
the tax year over the Holder's adjusted basis in the stock is included in the
Holder's income. The Holder may deduct any excess of the adjusted basis of the
PFIC stock over its fair market value at the close of the tax year. However,
deductions are limited to the net mark-to-market gains on the stock that the
Holder included in income in prior tax years, or so called "unreversed
inclusions."
For purposes of the election, PFIC stock is marketable if it is regularly traded
on (1) a national securities exchange that is registered with the SEC, (2) the
national market system established under Section 11A of the Securities Exchange
Act of 1934, or (3) an exchange or market that the IRS determines has rules
sufficient to ensure that the market price represents legitimate and sound fair
market value.
A Holder's adjusted basis of PFIC stock is increased by the income recognized
under the mark-to-market election and decreased by the deductions allowed under
the election. If a U.S. Holder owns PFIC stock indirectly through a foreign
entity, the basis adjustments apply to the basis of the PFIC stock in the hands
of the foreign entity for the purpose of applying the PFIC rules to the tax
treatment of the U.S. owner. Similar basis adjustments are made to the basis of
the property through which the U.S. persons hold the PFIC stock.
Income recognized under the mark-to-market election and gain on the sale of PFIC
stock with respect to which an election is made is treated as ordinary income.
Deductions allowed under the election and loss on the sale of PFIC with respect
to which an election is made, to the extent that the amount of loss does not
exceed the net mark-to-market gains previously included, are treated as ordinary
losses. The U.S. or foreign source of any income or losses is determined as if
the amount were a gain or loss from the sale of stock in the PFIC.
108
If PFIC stock is owned by a CFC (discussed below), the CFC is treated as a U.S.
person that may make the mark-to-market election. Amounts includable in the
CFC's income under the election are treated as foreign personal holding company
income, and deductions are allocable to foreign personal holding company income.
The above provisions apply to tax years of U.S. persons beginning after December
31, 1997, and to tax years of foreign corporations ending with or within such
tax years of U.S. persons.
The rules of Code Section 1291 applicable to nonqualified funds do not apply to
a U.S. Holder for tax years for which a mark-to-market election is in effect. If
Code Section 1291 is applied and a mark-to-market election was in effect for any
prior tax year, the U.S. Holder's holding period for the PFIC stock is treated
as beginning immediately after the last tax year of the election. However, if a
taxpayer makes a mark-to-market election for PFIC stock that is a nonqualified
fund after the beginning of a taxpayer's holding period for such stock, a
coordination rule applies to ensure that the taxpayer does not avoid the
interest charge with respect to amounts attributable to periods before the
election.
Controlled Foreign Corporation Status
If more than 50% of the voting power of all classes of stock or the total value
of the stock of the Registrant is owned, directly or indirectly, by U.S.
Holders, each of whom own 10% or more of the total combined voting power of all
classes of stock of the Registrant, the Registrant would be treated as a
"controlled foreign corporation" or "CFC" under Subpart F of the Code. This
classification would bring into effect many complex results including the
required inclusion by such 10% U.S. Holders in income of their pro rata shares
of "Subpart F income" (as defined by the Code) of the Registrant and the
Registrant's earnings invested in "U.S. property" (as defined by the Code). In
addition, under Section 1248 of the Code, gain from the sale or exchange of
Common Shares of the Registrant by such a 10% U.S. Holder of Registrant at any
time during the five year period ending with the sale or exchange is treated as
ordinary dividend income to the extent of earnings and profits of the Registrant
attributable to the stock sold or exchanged. Because of the complexity of
Subpart F, and because the Registrant may never be a CFC, a more detailed review
of these rules is beyond of the scope of this discussion.
Elimination of Overlap Between Subpart F Rules and PFIC Provisions
Under the Taxpayer Relief Act of 1997, a PFIC that is also a CFC will not be
treated as a PFIC with respect to certain 10% U.S. Holders. For the exception to
apply, (i) the corporation must be a CFC within the meaning of section 957(a) of
the Code and (ii) the U.S. Holder must be subject to the current inclusion rules
of Subpart F with respect to such corporation (i.e., the U.S. Holder is a
"United States Shareholder," see "Controlled Foreign Corporation," above). The
exception only applies to that portion of a U.S. Holder's holding period
beginning after December 31, 1997. For that portion of a United States Holder
before January 1, 1998, the ordinary PFIC and QEF rules continue to apply.
As a result of this new provision, if the Registrant were ever to become a CFC,
U.S. Holders who are currently taxed on their pro rata shares of Subpart F
income of a PFIC which is also a CFC will not be subject to the PFIC provisions
with respect to the same stock if they have previously made a Pedigreed QEF
Election. The PFIC provisions will however continue to apply to PFIC/CFC U.S.
Holders for any periods in which they are not subject to Subpart F and to U.S.
Holders that did not make a Pedigreed QEF Election unless the U.S. Holder elects
to recognize gain on the PFIC shares held in the Registrant as if those shares
had been sold.
F. Dividends and Paying Agents
Not applicable.
G. Statement by Experts
Not applicable.
H. Documents on Display
Copies of all filings made with the Securities and Exchange Commission can be
obtained from www.sec.gov. Copies of all documents filed with the Securities
Commissions in Canada can be obtained from www.sedar.com.
109
The material contracts listed herein may be inspected between the hours of 9:00
a.m. and 4:00 p.m. at the head office of the Company located at Suite 2100, 650
W. Georgia Street, Vancouver, British Columbia, Canada, V6B 4N9.
I. Subsidiary Information
The Company does not have any subsidiaries.
ITEM 11 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
(a) Transaction Risk and Currency Risk Management
The Company does not have any financial instruments or derivatives that are
market sensitive.
(b) Exchange Rate Sensitivity
The Company has mineral properties located in Canada and is not exposed to the
effects of exchange rate fluctuations. Its assets and liabilities are
denominated in Canadian dollars and the financial statements are reported in
Canadian dollars.
(c) Interest Rate Risk and Equity Price Risk
The Company is equity financed and does not have any debt which would be subject
to interest rate change risks.
(d) Commodity Price Risk
While the value of the Company's mineral properties can always be said to relate
to the price of diamonds, the Company does not have any operating mines nor
economic ore and has no nor does it need any hedging or other commodity based
risks instruments respecting its operations.
ITEM 12 - DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
Not applicable.
PART II
ITEM 13 - DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
Not applicable.
ITEM 14 - MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF
PROCEEDS
Not applicable.
ITEM 15 - CONTROLS AND PROCEDURES
The Company maintains disclosure controls and procedures that are designed to
ensure that the information required to be disclosed in the Company's periodic
filings with the securities commissions in Canada and to ensure that this
information is recorded, processed, summarized and reported within the time
periods specified in the SEC's rules and forms, and that such information is
accumulated and communicated to management, including the Company's Chief
Executive Officer and Principal Accounting Officer, as appropriate, to allow
timely decisions regarding required disclosure in Canada. While these disclosure
controls and procedures are sufficient for the purposes of complying with
Canadian disclosure standards, after evaluating the effectiveness of the
Company's disclosure controls and procedures (as defined in Exchange Act Rules
13a-14(c)) as of the end of the period covered by this Annual Report, the Chief
Executive Officer and Principal Financial Officer have concluded that as of such
date, the Company's disclosure controls and procedures were inadequate based on
the fact that the Company failed to comply with its continuous reporting
obligations under the U.S. Exchange Act in a timely manner. Due to certain
financial constraints to which the Company was subject in the late 1990's, but
which have since been resolved, the Company failed to comply with its continuous
reporting obligations under the U.S. Exchange Act since 1996. Additionally, the
Company was required to restate and reissue its interim financial statements for
the six-month period ended June 30, 2005. This restatement was required to
correct the accounting for income taxes and stock-based compensation. The
Company's Principal Executive Officer and Principal Financial Officer, are
developing disclosure controls and procedures (as defined in Exchange Act Rules
13a-15(e)) to ensure that the Company's disclosure controls and procedures are
adequate and effective.
There were no significant changes in the Company's internal controls or in other
factors that could significantly affect these disclosure controls and procedures
during the period covered by this Annual Report, including any significant
deficiencies or material weaknesses of internal controls that would require
corrective action.
ITEM 16A - AUDIT COMMITTEE FINANCIAL EXPERT
The Company does not have an "audit committee financial expert" as defined in
Item 16A of Form 20-F.
ITEM 16B - CODE OF ETHICS
The Company has not adopted a Code of Ethics.
ITEM 16C - PRINCIPAL ACCOUNTANT FEES AND SERVICES
The following table sets forth the fees paid by the Company to Deloitte &
Touche, LLP, Chartered Accountants, for services rendered in the last two fiscal
years:
111
---------------------------- -------------------- ---------------------
Fiscal 2004 Fiscal 2003
$ $
---------------------------- -------------------- ---------------------
Audit Fees $27,500 $31,500
---------------------------- -------------------- ---------------------
Audit Related Fees - -
---------------------------- -------------------- ---------------------
Tax Fees(1) 3,950 2,240
---------------------------- -------------------- ---------------------
All Other Fees(2) - 6,000
---------------------------- -------------------- ---------------------
Totals $31,450 $39,740
---------------------------- -------------------- ---------------------
(1) For advice relating to flow through share issues.
(2) For advice relating to U.S. GAAP issues.
The Board of Directors has adopted a pre approval policy requiring that the
Audit Committee pre-approve the audit and non-audit services performed by the
independent auditor in order to assure that the provision of such services do
not impair the auditor's independence.
ITEM 16D - EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
Not applicable.
ITEM 16E - PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED
PURCHASERS
There were no purchases made by or on behalf of the Company or any "affiliated
purchaser" of the Company's equity securities.
PART III
ITEM 17 - FINANCIAL STATEMENTS
See the Consolidated Financial Statements and Exhibits listed in Item 19 hereof
and filed as part of this Annual Report.
These financial statements were prepared in accordance with accounting
principles generally accepted in Canada. Differences between accounting
principles generally accepted in Canada and in the United States, as applicable
to the Company are set forth in Note 13 to the accompanying Consolidated
Financial Statements of the Company.
ITEM 18 - FINANCIAL STATEMENTS
Not applicable.
ITEM 19 - EXHIBITS
(a) Financial Statements
1. The audited consolidated financial statements which include the
consolidated balance sheets as at December 31, 2004 and 2003 and statements
of loss and cash flows for each of the three years ended December 31, 2004,
2003 and 2002 with the notes thereto.
(b) Exhibits
1. Certificate of Incorporation, Name Changes and Articles/By-Laws of
Kensington Resources Ltd.(1)
112
2. Shareholder Rights Plan dated as of October 6, 2004 between the
Company and Computershare Trust Company of Canada as Rights Agent.(2)
3. Management Agreement dated May 14, 2004 between the Company and Robert
A. McCallum pursuant to which Mr. McCallum was retained as President
of the Company. See "Item 6 - Directors, Senior Management and
Employees."
4. Consulting Agreement dated February 1, 2003 between the Company and
James R. Rothwell pursuant to which Mr. Rothwell provides consulting
services. See "Item 6 - Directors, Senior Management and Employees".
5. Amended and Restated Combination Agreement between the Company and
Shore Gold dated September 19, 2005 pursuant to which Kensington and
Shore Gold have agreed to implement the Arrangement in accordance with
the Combination Agreement and the Plan of Arrangement.(3)
6. Warrant Indenture dated May 6, 2005 between the Company and
Computershare Trust Company of Canada pursuant to which 4,999,999
Kensington Warrants were issued on May 6, 2005.(4)
7. Agency Agreement dated May 6, 2005 among the Company and Loewen,
Ondaatje, McCutcheon Limited, Westwind Partners Inc., National Bank
Financial Inc., Research Capital Corporation and Wellington West
Capital Markets Inc. in connection with the private placement of
4,255,400 flow-through common shares and 10,000 units.(5)
8. Agency Agreement dated September 24, 2004 between Kensington and
Loewen, Ondaatje, McCutcheon Limited in connection with the private
placement of 2,307,692 flow-through common shares and 2,857,143
units.(6)
9. Employee Stock Option Plan dated June 13, 2005.
10. Consent of Brent C. Jellicoe, P. Geo.
12.1 302 Certifications
13.1 906 Certifications
- -------------------------
(1) Incorporated by reference to Form 20-FR filed October, 1994.
(2) Incorporated by reference to Form 6-K filed October 13, 2005.
(3) Incorporated by reference to Form 6-K filed October 20, 2005.
(4) Incorporated by reference to Form 6-K filed October 20, 2005.
(5) Incorporated by reference to Form 6-K filed October 20, 2005.
(6) Incorporated by reference to Form 6-K filed October 20, 2005.
113
SIGNATURE PAGE
The registrant hereby certifies that it meets all of the requirements for filing
on Form 20-F and that it has duly caused and authorized the undersigned to sign
this Annual Report on its behalf.
KENSINGTON RESOURCES LTD.
-------------------------------------
(Registrant)
October 28, 2005. /s/ Robert A. McCallum
- ---------------- -------------------------------------
Date Robert A. McCallum
President, CEO and Director
114
KENSINGTON RESOURCES LTD.
FINANCIAL STATEMENTS
December 31, 2004
115
DELOITTE. Deloitte & Touche LLP
2800 - 1055 Dunsmuire Street
4 Bentall Centre
P.O. Box 49279
Vancouver BC V7X 1P4
Canada
Tel: (604) 669-4466
Fax: (604) 685-0395
www.deloitte.ca
REPORT OF INDEPENDENT REGISTERED CHARTERED ACCOUNTANTS
To the Directors of
Kensington Resources Ltd.
We have audited the balance sheets of Kensington Resources Ltd. as at December
31, 2004 and 2003 and the statements of operations, cash flows and shareholders'
equity for each of the years in the three year period ended December 31, 2004
and for the period from date of incorporation to December 31, 2004. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audit in accordance with Canadian generally accepted auditing
standards and the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform an audit to
obtain reasonable assurance whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the Company as at December 31, 2004 and 2003
and the results of its operations and its cash flows for each of the years in
the three year period ended December 31, 2004 and for the period from date of
incorporation to December 31, 2004 in accordance with Canadian generally
accepted accounting principles.
The Company is not required to have, nor have we been engaged to perform, an
audit of its internal control over financial reporting. Our audits included
consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of the Company's
internal control over financial reporting. Accordingly, we express no such
opinion.
(Signed) Deloitte & Touche LLP
Independent Registered Chartered Accountants
Vancouver, British Columbia
April 1, 2005
Member of
Deloitte Touche Tohmatsu
116
KENSINGTON RESOURCES LTD.
(an exploration stage company)
BALANCE SHEET
(Canadian dollars)
================================================================================
December 31, December 31
- --------------------------------------------------------------------------------
ASSETS
Current
Cash $ 81,005 $ 1,001,202
Short-term investments 6,192,000 1,175,000
GST and other receivables 39,020 23,188
Prepaid expenses 11,252 5,937
Marketable Securities (quoted market
value $50,325; 2003 - $114,375) 32,025 32,025
- --------------------------------------------------------------------------------
Total current assets 6,355,302 2,237,352
Deposits 12,000 -
Future income taxes (Notes 3 and 9) 1,068,600 -
Property, plant and equipment (Note 4) 81,965 14,565
Mineral properties (Note 5) 13,780,530 10,527,906
- --------------------------------------------------------------------------------
Total Assets $ 21,298,397 $ 12,779,823
================================================================================
LIABILITIES
Current
Accounts payable and accrued liabilities $ 181,854 $ 114,895
Cash calls payable (Note 5) 2,082,119 537,968
- --------------------------------------------------------------------------------
Total liabilities 2,263,973 652,863
SHAREHOLDERS' EQUITY
Capital stock
Authorized
Unlimited common shares of no par value
Issued and fully paid (Note 4) 33,450,717 26,543,215
Additional paid-in capital 105,121 105,121
Contributed surplus 512,691 69,536
Deficit accumulated during the development stage (15,034,105) (14,590,912)
-----------------------------------------------------------------------------
Total shareholders' equity 19,034,424 12,126,960
- --------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $ 21,298,397 $ 12,779,823
================================================================================
(signed) "Robert A. McCallum"
-------------------------------------
(signed) "James R. Rothwell"
-------------------------------------
117
KENSINGTON RESOURCES LTD.
(an exploration stage company)
STATEMENTS OF OPERATIONS AND DEFICIT FOR THE YEARS ENDED DECEMBER 31
(Canadian dollars)
============================================================================================================================
Cumulative from
inception to
December 31, 2003 2004 2003 2002
- ----------------------------------------------------------------------------------------------------------------------------
Expenses
Amortization $ 61,017 $ 6,783 $ 3,812 $ 3,607
Bank charges and interest 57,825 1,213 1,111 1,055
Consulting 570,656 - - -
Exploration 663,728 - - -
Financing costs 582,391 - - -
Interest income and gain on sale of truck (294,185) (95,583) (21,058) (22,374)
Legal, accounting and professional 1,288,326 99,359 170,175 50,244
Office 1,691,574 254,588 194,367 172,538
Promotion, public relations and travel 3,022,535 462,125 403,592 338,682
Salaries, benefits and management fees 1,488,003 245,151 138,164 111,417
Stock-based compensation 512,691 443,155 69,536 -
Transfer and filing 449,805 95,002 55,404 39,857
Write-down of mineral properties 5,187,819 - - -
Amalgamation and acquisition costs 157,340 - - -
- ----------------------------------------------------------------------------------------------------------------------------
Loss from continuing operations (15,439,525) (1,511,793) (1,015,103) (695,026)
- ----------------------------------------------------------------------------------------------------------------------------
Other items
Loss on settlement of debt (2,273) - - -
Gain on sale of marketable securities 15,490 - - -
Write-down of marketable securities (1,238,564) - - -
Loss from discontinued operations (756,529) - - -
- ----------------------------------------------------------------------------------------------------------------------------
Total other items (1,981,876) - - -
- ----------------------------------------------------------------------------------------------------------------------------
Loss before tax (17,421,401) (1,511,793) (1,015,103) (695,026)
Future income tax recovery (Notes 3 and 9) 1,068,600 1,068,600 - -
- ----------------------------------------------------------------------------------------------------------------------------
Net loss for the period (16,352,801) (443,193) (1,015,103) (695,026)
Elimination of deficit at date of business
combination 1,318,696 - - -
Deficit, beginning of period - (14,590,912) (13,575,809) (12,880,783)
- ----------------------------------------------------------------------------------------------------------------------------
Deficit, end of period $ (15,034,105) $ (15,034,105) $ (14,590,912) $(13,575,809)
============================================================================================================================
Net loss per share $ (0.01) $ (0.02) $ (0.02)
============================================================================================================================
Weighted average number of shares outstanding 59,528,895 50,276,560 45,718,457
============================================================================================================================
118
KENSINGTON RESOURCES LTD.
(an exploration stage company)
STATEMENTS OF CASH FLOW FOR THE FOR THE YEARS ENDED DECEMBER 31
(Canadian dollars)
- -----------------------------------------------------------------------------------------------------------------------------------
Cumulative from
inception to
December 31, 2004 2004 2003 2002
- -----------------------------------------------------------------------------------------------------------------------------------
Operating activities
Net loss for the period $ (16,352,801) $ (443,193) $ (1,015,103) $ (695,026)
Items not involving cash
Amortization 61,0176,783 3,812 3,607 50,422
Stock-based compensation (Note 6(d)(ii)) 512,691 443,155 69,536 -
Future income tax recovery 1,068,600 1,068,600 - -
Gain on sale of vehicle (5,042) (5,042)
Financing costs settled by common stock or
warrants 449,328 - - -
Write-down of mineral properties 5,817,819 - - -
Write-down of marketable securities 1,238,585 - - -
Loss on settlement of debt 2,273 - - -
Gain on sale of marketable securities (15,490) - - -
Non-cash consulting expense 111,121 - - -
Net change in non-cash working capital items
affecting operations (note 10) 490,108 33,812 78,323 (367,714)
-------------------------------------------------------------------------------------------------------------------------------
Total cash used in operating activities (7,251,791) 1,104,115 (863,432) (1,059,133)
-------------------------------------------------------------------------------------------------------------------------------
Financing activities
Issuance of capital stock for cash 29,567,388 6,907,502 4,409,406 2,785,700
Share subscriptions received 300,000 - - -
Special warrants issued 3,171,875 - - -
Proceeds from loans payable 1,131,388 - - -
Repayment of loans payable (971,388) - - -
-------------------------------------------------------------------------------------------------------------------------------
Total cash from financing activities 33,199,263 6,907,502 4,409,406 2,785,700
-------------------------------------------------------------------------------------------------------------------------------
Investing activities
Expenditures and advances on resource
properties, net of unpaid cash calls (17,407,198) (1,708,473) (1,688,895) (1,575,564)
Purchase of capital assets (161,975) (69,141) - (9,842)
Proceeds on disposal of capital assets 19,508 - - -
Purchase of short=term investments (6,192,000) (5,017,000) (1,175,000)
Expenditues on oil and gas properties (8,325) - - -
Proceeds from sale of marketable securities 20,910 - - -
Incorporation costs (187) - - -
-------------------------------------------------------------------------------------------------------------------------------
(23,729,267) (6,794,614) (2,863,895) (1,585,406)
-------------------------------------------------------------------------------------------------------------------------------
Increase in cash 2,218,205 682,079 141,161 141,161
Cash position at beginning of period - 1,001,202 319,123 177,962
-------------------------------------------------------------------------------------------------------------------------------
Cash position at end of period $ 2,218,205 $ 2,218,205 $ 1,001,202 $ 319,123
================================================================================================================================
119
KENSINGTON RESOURCES LTD.
(an exploration stage company)
Statement of Shareholders' Equity
From inception to December 31, 2004
(Canadian dollars)
- -------------------------------------------------------------------------------------------------------------------------
Common shares to
Common shares be issued and Deficit accumulated Total
without par value additional paid-in the exploration Shareholders'
Shares Amounts capital Warrants stage equity
- -----------------------------------------------------------------------------------------------------------------------------------
Issuance for cash 1,750,501 $ 327,375 - - $ - $ 327,375
Net loss - - - - (61,206) (61,206)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, February 28, 1989 1,750,501 327,375 - - (61,206) 266,169
Net loss - - - - (43,832) (43,832)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, February 28, 1990 1,750,501 327,375 - - (105,038) 222,337
Net loss - - - - (38,956) (38,956)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, February 28, 1991 1,750,501 327,375 - - (143,994) 183,381
Net loss - - - - (297,028) (297,028)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, February 28, 1992 1,750,501 327,375 - - (441,022) (113,647)
Issuance for debt 1,171,967 178,408 - - - 178,408
Issuance for mineral property 150,000 33,000 - - - 33,000
Net loss - - - - (159,452) (159,452)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, February 28, 1993 3,072,468 538,783 - - (600,474) (61,691)
Issuance for mineral property 610,000 557,000 - - - 557,000
Issuance for cash 684,750 314,884 3,171,875 - - 3,486,759
Issued to acquire Reimer Resources
Ltd. 3,020,914 154,235 - - - 154,235
Net loss - - - - (519,138) (519,138)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1993 7,388,132 1,564,902 3,171,875 - (1,119,612) 3,617,165
Issuance for cash 5,442,150 3,559,771 (3,171,875) - - 387,896
Issuance for mineral property 250,000 266,000 - - - 266,000
Issuance for loans bonus 22,500 18,000 - - - 18,000
Issuance for debt 237,500 180,000 - - - 180,000
Net loss - - - - (1,445,345) (1,445,345)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1994 13,340,282 5,588,673 - - (2,564,957) 3,023,716
Issuance for cash 263,800 187,285 - - - 187,285
Issuance for loans bonus 170,298 172,001 - - - 172,001
Subscriptions - - 1,806,223 - - 1,806,223
Net loss - - - - (3,197,893) (3,197,893)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1995 13,774,380 5,947,959 1,806,223 - (5,762,850) 1,991,332
Issuance for cash 9,081,043 7,491,931 (1,806,223) - - 5,685,708
Issuance for loan bonus 67,382 60,000 - - - 60,000
Issuance for finders' fee 85,667 76,150 - - - 76,150
Net loss - - - - (2,383,141) (2,383,141)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1996 23,008,472 13,576,040 - - (8,145,991) 5,430,049
Issuance for cash 1,061,963 974,338 - - - 974,338
Net loss - - - - (2,098,610) (2,098,610)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1997 24,070,435 14,550,378 - - (10,244,601) 4,305,777
Issuance for cash 2,787,334 588,950 - - - 588,950
Net loss - - - - (1,344,121) (1,344,121)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1998 26,857,769 15,139,328 - - (11,588,722) 3,550,606
Issuance for cash 2,351,191 609,673 - - - 609,673
Settlement of debt 1,341,991 201,299 - - - 201,299
Warrants - - - 61,177 - 61,177
Net loss - - - - (323,504) (323,504)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1999 30,550,951 15,950,300 - 61,177 (11,912,226) 4,099,251
Issuance for private placements,
net of issue costs 2,439,181 604,239 - - - 604,239
Issuance on exercise of stock options
and warrants 1,955,068 567,305 - - - 567,305
Stock options issued to consultants - - 85,121 - - 85,121
Subscription for special warrants - - 300,000 - - 300,000
Warrants converted - - - (61,177) - (61,177)
Net loss - - - - (442,912) (442,912)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2000 34,945,200 17,121,844 385,121 - (12,355,138) 5,151,827
Issuance for private placements,
net of issue costs 3,381,250 1,037,000 (300,000) - - 737,000
Issuance on exercise of stock options
and warrants 3,241,181 1,183,265 - - - 1,183,265
Stock options issued to consultants - - 26,000 - - 26,000
Net loss - - - - (525,645) (525,645)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2001 41,567,631 19,342,109 111,121 - (12,880,783) 6,572,447
Issuance for private placements,
net of issue costs 2,166,667 1,255,000 - - - 1,255,000
Issuance on exercise of stock options
and warrants 3,137,500 1,530,700 - - - 1,530,700
Net loss - - - - (695,026) (695,026)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2002 46,871,798 22,127,809 111,121 - (13,575,809) 8,663,121
Issuance for private placements,
net of issue costs 4,103,164 3,207,723 - - - 3,207,723
Issuance on exercise of stock options
and warrants 2,327,583 1,207,683 - - 1,207,683
Exercise of stock options by
non-employee 6,000 (6,000) -
Stock-based compensation - - 69,536 - 69,536
Net loss - - - - (1,015,103) (1,015,103)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2003 53,302,545 26,543,215 174,657 - (14,590,912) 12,126,960
Issuance for private placements,
net of issue costs 5,164,835 5,538,502 - - - 5,538,502
Issuance on exercise of stock options
and warrants 2,178,333 1,369,000 - - - 1,369,000
Stock-based compensastion - - 443,155 - - 443,155
Net loss - - - - (443,193) (443,193)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2004 60,645,713 33,450,717 617,812 - (15,034,105) 19,034,424
- -----------------------------------------------------------------------------------------------------------------------------------
120
KENSINGTON RESOURCES LTD.
Notes to the Financial Statements
December 31, 2004
================================================================================
1. NATURE OF OPERATIONS AND GOING CONCERN ASSUMPTION
The Company is an exploration stage company at December 31, 2004 since it
has not, as yet, achieved commercial production on any of its concessions.
The Company's emergence from the exploration stage and the recoverability
of the amounts shown for mineral concessions and deferred exploration costs
is dependent upon the quantity of economically recoverable reserves,on the
ability of the Company to obtain financing to complete exploration and
development of the concessions, on the timing of legislative or regulatory
developments relating to environmental protection, and on future profitable
operations or proceeds from the disposition thereof.
2. SIGNIFICANT ACCOUNTING POLICIES
These financial statements have been prepared in accordance with generally
accepted accounting principles in Canada ("Canadian GAAP") and reflect the
significant accounting policies outlined below. These policies conform, in
all material respects, with accounting principles generally accepted in the
United States ("U.S. GAAP"), except as discussed in Note 13.
(a) Cash
Cash consists of cash on hand, deposits in banks.
(b) Short-term investments
Short-term investments consist of highly liquid investments with
maturities of greater than 90 days and less than one year. The Company
has $92,000 of restricted term deposits. This cash is held as
collateral for a corporate credit card limit of $80,000.
(c) Marketable securities
Marketable securites are carried at the lower of cost and market.
(d) Property, plant and equipment
Property, plant and equipment are recorded at cost and are amortized
using the declining balance method at 20% per annum for field,
computer and furniture equipment and 30% per annum for automobiles.
(e) Mineral properties
Acquisition costs of mineral properties together with direct
exploration and development expenditures thereon are deferred in the
accounts. These costs will be amortized using the unit-of-production
method based on proven and probable reserves on the commencement of
production or written-off as the properties are sold, allowed to lapse
or are abandoned. Mineral property costs not directly attributable to
specific properties are expensed during the year. When deferred
expenditures on individual producing properties exceed the estimated
net recoverable amount, the properties are written down to the
estimated net recoverable amount. The Company accounts for its mineral
properties in accordance with Canadian Institute of Chartered
Accountants ("CICA") Accounting Guideline 11.
(f) Stock based compensation
The Company uses the fair value method for accounting for stock-based
compensation as defined by accounting principles generally accepted in
Canada. Stock-based compensation expense is calculated using the
Black-Scholes option pricing model and is charged to operations with
an offsetting credit to contributed surplus, on a straight-line over
the vesting period.
(g) Income taxes
The Company accounts for income taxes using the future income tax
method of accounting. This method requires the recognition of future
income taxes for the expected future tax consequences of differences
between the carrying amount of balance items and their corresponding
tax values. This method also requires the Company to compute future
income taxes using the substantively enacted corporate income tax
rates in effect each year. If management believes it is not likely
that the Company will generate sufficient taxable income to allow the
realization of future tax assets, the Company reduces the future
income tax asset by recording a valuation allowance.
121
KENSINGTON RESOURCES LTD.
Notes to the Financial Statements
December 31, 2004
================================================================================
(h) Loss per common share
The Company uses the treasury stock method for calculation of fully
diluted loss per share in accordance with the Canadian Institute of
Chartered Accountants accounting standard. For all periods presented,
the effect of outstanding stock options is anti-dilutive. (i) Use of
estimates The preparation of financial statements in conformity with
Canadian generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts of
assets and liabilities, other than market securities for which the
fair value is disclosed on the balance sheet, and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during
the reporting periods. Actual results could differ from those
estimates.
(j) Financial instruments
The Company's financial instruments include cash, GST and other
receivable, marketable securities, accounts payable and cash calls.
The carrying values of these financial instruments, other than
marketable securities for which the fair value is disclosed on the
balance sheet, approximate fair values given the short term to
maturity. Due to the nature of the Company's operations, there is no
significant credit or interest rate risk.
3. FLOW-THROUGH SHARES
On September 24, 2004, the Company issued 2,307,693 flow-through
shares as part of a private placement for proceeds of $3 million. The
exploration expenditures funded by the flow-through share issue will
be renounced for tax purposes in fiscal 2005. Under CICA Emerging
Issues Abstract 146, Flow-Through Shares, the renouncement of the tax
deduction for the benefit of investors gives rise to a future income
tax liability and a corresponding reduction in shareholders' equity.
The tax effect of the flow-through shares will be recorded in the
three month period ended March 31, 2005 when the expenditures are
renounced. The Company has income tax losses and other income tax
assets that previously have been subject to a 100% valuation
provision. The Company now considers it to be more likely than not
that these tax assets can offset the expected future income tax
liability. Accordingly, a future income tax asset and income tax
recovery of $1,068,600 has been recorded as at December 31, 2004.
4. PROPERTY, PLANT AND EQUIPMENT
Accumulated Net book
For the year ended December 31, 2004 Cost amortization value
--------------------------------------------------------------------------------
Automobiles $ 29,346 $ 4,402 $ 24,944
Field equipment 7,499 3,977 3,522
Computer equipment 16,377 5,787 10,590
Furniture and equipment 51,129 8,220 42,909
--------------------------------------------------------------------------------
$ 104,351 $ 22,386 $ 81,965
================================================================================
Accumulated Net book
For the year ended December 31, 2003 Cost amortization value
--------------------------------------------------------------------------------
Automobiles $ 26,906 $ 25,948 $ 958
Field equipment 5,606 3,333 2,273
Computer equipment 11,801 3,711 8,090
Furniture and equipment 6,336 3,092 3,244
--------------------------------------------------------------------------------
$ 50,649 $ 36,084 $ 14,565
================================================================================
122
KENSINGTON RESOURCES LTD.
Notes to the Financial Statements
December 31, 2004
================================================================================
4. MINERAL PROPERTIES
Acquisition and exploration costs as at December 31 are as follows:
2004 2003
----------------------------------------------------------------------
Geological and exploration $ 2,735,476 $ 2,099,853
Land tenure 51,326 51,148
Drilling 6,950,014 5,138,470
Assay 1,594,785 1,462,172
Supplies 108,506 49,918
Transport 292,856 233,916
Rental equipment 245,247 169,123
General 127,095 114,842
Overhead 1,675,225 1,208,464
----------------------------------------------------------------------
$ 13,780,530 $ 10,527,906
----------------------------------------------------------------------
The Company has earned a 42.245% interest in certain mineral claims
consisting of 22,544 hectares in the Fort a la Come area of Saskatchewan
through a joint venture relationship. The other partners are De Beers
Canada Inc. ("De Beers"), UEM Inc. and Cameco Corporation ("Cameco"). This
joint venture relationship entails an agreement on annual budget between
the parties, with dissenting parties losing a proportionate share. Cash
calls are requested periodically to cover expenditure incurred by the
operator. Cash calls outstanding at December 31, 2004 total $2,082,119
(2003 - $537,968). No joint venture entity exists and the Company's
proportionate share of the deferred exploration costs is $13,780,530 (2003
- $10,527,906).
Upon the completion of the exploration phase, the feasibility and
development stage commences. The Company is committed to fund a maximum of
$8.5 million on a priority basis during the feasibility and development
stage. De Beers has a similar liability to a maximum of $6.38 million.
5. SHARE CAPITAL
(a) Authorized
Unlimited common shares of no par value
(b) Issued
Shares Amount
------------------------------------------------------------------------------------------------------
Balance - December 31, 2002 46,874,798 $22,127,809
Issuance for private placements, net of issue costs 4,103,164 3,207,723
Issuance on exercise of stock options and warrants 2,327,583 1,207,683
------------------------------------------------------------------------------------------------------
Balance - December 31, 2003 53,305,545 26,543,215
Issuance for private placements, net of issue costs of $461,498 5,164,835 5,538,502
Issuance on exercise of stock options and warrants 2,178,333 1,369,000
------------------------------------------------------------------------------------------------------
Balance - December 31, 2004 60,648,713 $33,450,717
------------------------------------------------------------------------------------------------------
(c) Private placement
On September 24, 2004, the Company completed a $6 million private placement
consisting of 2,307,692 flow-through shares issued at a price of $1.30 per
flow through share, and 2,857,143 Units of the Company at a price of $1.05
per Unit. Each Unit consists of one common share and one half of one
warrant, and each whole warrant entitles the holder thereof to purchase one
common share at any time from the date of issue of the warrant until the
date which is for a period of eighteen months after the closing date of the
private placement, at an exercise price of $1.25 per warrant share for the
first 12 months and $1.55 thereafter. The securities were sold on a best
efforts agency basis by Loewen, Ondaatje, McCutcheon Limited who received
non-transferable warrants which entitle the agency to purchase 161,539 non
flow-through shares and 200,000 Units at a price of $1.05 per share or Unit
under the same terms, period and prices mentioned above.
123
KENSINGTON RESOURCES LTD.
Notes to the Financial Statements
December 31, 2004
================================================================================
(d) Stock options
The Company's stock option plan provides for the issuance of options to
directors, officers, employees and consultants of the Company to purchase
common shares. Stock options are issuable at the discretion of the Board of
Directors, up to 5,500,000 common shares.
i) The changes in stock options were as follows:
Weighted Weighted
December 31, Average December 31, Average
2004 Exercise Price 2003 Exercise Price
---------------------------------------------------------------------------------------------------------
Balance outstanding, beginning of year 3,992,726 $ 0.58 4,273,226 $ 0.54
Activity during the year
Options granted 1,005,000 0.95 345,000 0.82
Options exercised (840,000) 0.34 (490,500) 0.31
Options cancelled/expired (260,476) 0.80 (135,000) 0.78
---------------------------------------------------------------------------------------------------------
Balance outstanding, end of year 3,897,250 $ 0.71 3,992,726 $ 0.58
---------------------------------------------------------------------------------------------------------
(ii) During the year ended December 31, 2004, 150,000 (2003 - 260,000)
stock options were issued to non-employees and non-directors. Using
the fair value method for stock based compensation, consulting costs
of $79,313 were recorded for the year ended December 31, 2004 (2003 -
$44,039). The Company also recorded a charge to operations of $363,842
for the period ended December 31, 2004 (2003 - $25,497) for stock
options granted to employees and directors. This amount was determined
using Black-Scholes, assuming no dividends were paid, a weighted
average volatility of the Company's share price of 157.57%, a weighted
average annual risk free interest rate of 4% and an expected live of
three to five years.
The fair value of each option granted is estimated using the
Black-Scholes option pricing model with weighted average assumptions
for grants as follows:
2004 2003
----------------------------------------------------------------------
Risk free interest rate 4% 4%
Expected life of options in years 3 to 5 years 2 to 5 years
Expected volatility 158% - 171% 34%
Dividend per share $nil $nil
(iii)As at December 31, 2004, directors' and employees' stock options were
outstanding as follows:
Range of exercise Number exercisable at Weighted average remaining
prices December 31, 2003 contractual life (years)
--------------------------------------------------------------------------------------------
$0.00 - $0.50 1,102,250 0.52
$0.51 - $1.00 2,240,000 2.21
$1.00 - $1.50 555,000 3.80
--------------------------------------------------------------------------------------------
3,897,250 $1.97
--------------------------------------------------------------------------------------------
(e) Warrants
(i) The changes in warrants were as follows:
Weighted Weighted
December 31, Average December 31, Average
2004 Exercise Price 2003 Exercise Price
---------------------------------------------------------------------------------------------------------
Balance outstanding, beginning of year 4,803,498 $ 0.89 3,070,417 $ 0.68
Activity during the year
Warrants granted 1,428,573 1.21 3,570,164 0.91
Warrants exercised (1,338,333) 0.80 (1,837,083) 0.57
Warrants expired (584,667) 1.21 - -
---------------------------------------------------------------------------------------------------------
Balance outstanding, end of year 4,309,071 $ 1.11 4,803,498 $ 0.89
---------------------------------------------------------------------------------------------------------
124
KENSINGTON RESOURCES LTD.
Notes to the Financial Statements
December 31, 2004
================================================================================
(ii) As at December 31, 200, share purchase warrants were outstanding as
follows:
Number of Exercise Price
Warrants per Security Expiry Date
---------------------------------------------------------------
2,880,498 $ 1.05 July 6, 2005
1,428,573 1.25 September 24, 2005
or 1.55 March 24, 2006
-----------------
4,309,071
-----------------
(iii)Pursuant to the private placement dated September 24, 2004, there are
outstanding broker's warrants to purchase 361,539 shares at $1.05 per
share and 100,000 at $1.25 per share until March 24, 2006.
(f) Shareholder Rights Plan
During 2004, the Company proposed to update its Shareholder Rights Plan
which was originally adopted on June 29, 2001. Under the terms of the new
Plan, rights are attached to the common shares of the Company. These rights
become marketable and exercisable only after certain specified events
related to the acquisition of, or announcement of an intention to acquire
20% or more or the outstanding common shares of the Company. At an
Extraordinary General Meeting on April 4, 2005, the shareholders of the
Company ratified the adoption of the Shareholder Rights Plan.
7. RELATED PARTY TRANSACTIONS
The Company incurred costs with individuals or companies controlled by
individuals who were shareholders, directors or officers of the Company as
follows:
Year ended December 31
----------------------------------------
2004 2003 2002
---------------------------------------------------------------------------
Salaries and management fees $ 245,151 $ 139,671 $ 111,417
As at December 31, 2004, accounts payable include $3,448 (2003 - $9,583)
due to directors, a former director and companies controlled by directors.
8. SEGMENTED INFORMATION
Industry information
The Company operates in one reportable operating segment, being the
acquisition and development of resource properties.
Geographic information
Revenue from operations in the years ended December 31, 2004 were derived
from interest income which was earned in Canada. The Company's non-current
assets are located in Canada.
9. INCOME TAXES
The provision for income taxes reported differs from the amount computed by
applying the cumulative Canadian Federal and provincial income tax rates to
loss before tax provision due to the following:
2004 2003 2002
---------------------------------------------------------------------------
Statutory tax rate 35.6% 39.62% 39.62%
Recovery of income taxes computed
at standard rate $ 538,198 $ 381,679 $ 275,369
Non-deductible stock option expense (157,763) (26,145) -
Tax benefit not recognized in prior
year 688,165 - -
Tax losses not recognized in the
period that the benefit arose - (355,534) (275,369)
---------------------------------------------------------------------------
$1,068,600 $ - $ -
===========================================================================
125
KENSINGTON RESOURCES LTD.
Notes to the Financial Statements
December 31, 2004
================================================================================
The Company, subject to the approval of the tax authority, has non-capital
losses for tax purposes of approximately $4,565,000 available to reduce
future income tax which expire as follows:
2005 $ 395,000
2006 190,000
2007 466,000
2008 547,000
2009 735,000
2010 1,078,000
2014 1,154,000
-----------------------------------------------------------------
$ 4,565,000
=================================================================
Temporary differences and carryforwards gave rise to the following future
income tax assets at year end:
2004 2003
------------------------------------
Future income tax asset
Tax loss carryforwards $ 1,626,074 $ 1,553,632
Capital assets 5,980 5,657
Mineral properties 986,085 1,297,502
Investments 68,738 72,559
Financing fees 72,490 76,520
---------------------------------------------------------------------------
2,759,367 3,005,870
Less: Valuation allowance (1,690,767) (3,005,870)
---------------------------------------------------------------------------
$ 1,068,600 $ -
---------------------------------------------------------------------------
9. FINANCIAL INSTRUMENTS
The Company's financial instruments include cash, accounts receivable,
subscriptions receivable, marketable securities and accounts payable and
accrued liabilities. The carrying values of these financial instruments
approximate fair values given the short term to maturity. Due to the nature
of the Company's operations, there is no significant credit or interest
rate risk.
10. NET CHANGE IN NON-CASH OPERATING WORKING CAPITAL ITEMS
Cumulative 2004 2003 2002
-----------------------------------------------------
GST and other receivables $ (15,832) $ 20,566 $ (21,494)
Prepaid expenses (17,315) (5,937) 6,000
Accounts payable and accrued liabilities 66,959 63,694 (15,112)
---------------------------------------------------------------------------------
$ 33,812 $ 78,323 $ (30,606)
---------------------------------------------------------------------------------
11. LEASE COMMITMENTS
As at December 31, 2004 the Company is committed under leases for office
space and office equipment in the following amounts for the next six years:
2005 $ 33,971
2006 36,585
2007 36,585
2008 38,276
2009 33,210
2010 33,210
126
KENSINGTON RESOURCES LTD.
Notes to the Financial Statements
December 31, 2004
================================================================================
12. SUBSEQUENT EVENTS
Subsequent to the year end, the Company granted 977,500 stock options
exercisable at a price of $1.04 per share for a five year period to
directors, officers, employees and consultants of the Company, and a
further 40,000 stock options exercisable at a price of $2.75 per share for
a five year period to a director and officer and an employee of the
Company.
Subsequent to the year end, the Company entered into an agreement with a
syndicate of agents led by Loewen, Ondaatje, McCutcheon Limited, including
Westwind Partners Inc., National Bank Financial Inc., Research Capital
Corporation and Wellington West Capital Markets Inc. (collectively, the
"Agents") to act as agents for a $35 million offering of flow through
shares and non-flow through units on a commercially reasonable best efforts
basis. The closing of the offering, currently expected in early May 2005,
is subject to certain conditions, including completion of satisfactory due
diligence by the Agents, and regulatory approval.
13. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (GAAP)
These consolidated financial statements have been prepared in accordance
with GAAP in Canada which differ in certain respects from GAAP in the
United States. The material differences between Canadian and United States
GAAP affecting the Company's consolidated financial statements are
summarized as follows:
Consolidated Balance Sheets
2004 2003
-----------------------------------------------------------------------------------------------------------
Total assets under Canadian GAAP $ 21,298,397 $ 12,779,823
Decrease in mineral property due to expensing of exploration costs (a) (13,780,530) (10,527,906)
Mark to market of available for sale securities (c) 18,300 82,350
-----------------------------------------------------------------------------------------------------------
Total assets under U.S. GAAP $ 7,536,167 $ 2,334,267
===========================================================================================================
Total liabilities under Canadian and U.S. GAAP 2,263,973 652,863
-----------------------------------------------------------------------------------------------------------
Shareholders' equity under Canadian GAAP 19,034,424 12,126,960
Adjustment to shareholders' equity for mark to market
of available for sale securities (c) 18,300 82,350
Cumulative mineral property adjustment (a) (13,780,530) (10,527,906)
-----------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity under U.S. GAAP $ 7,536,167 $ 2,334,267
===========================================================================================================
Consolidated Statements of Loss and Deficit
2004 2003 2002
----------------------------------------------------------------------------------------------------------------------
Net loss under Canadian GAAP $ (443,193) $ (1,015,103) $ (695,026)
Mineral property exploration expenditures expenses (a) (3,252,624) (2,097,940) (1,575,564)
Write-down of "available for sale" securities (c) (18,300) (82,350) -
----------------------------------------------------------------------------------------------------------------------
$ (3,714,117) $ (3,195,393) $ (2,270,590)
======================================================================================================================
Basic and diluted earnings (loss) per share under U.S. GAAP $ (0.06) $ (0.06) $ (0.05)
======================================================================================================================
127
KENSINGTON RESOURCES LTD.
Notes to the Financial Statements
December 31, 2004
================================================================================
Consolidated Statements of Cash Flows
2004 2003 2002
---------------------------------------------------
Operating activities
Operating activities under Canadian GAAP $ 1,104,115 $ (863,432) $ (1,059,133)
Exploration (a) (3,252,624) (2,097,940) (1,575,564)
----------------------------------------------------------------------------------------------------------------------
$(2,148,509) $ (2,961,372) $ (2,634,697)
======================================================================================================================
Financing activities
Financing activities under Canadian and
U.S. GAAP $ 6,907,502 $ 4,409,406 $ 2,785,700
======================================================================================================================
Investing activities
Investing activities under Canadian GAAP $(6,794,614) $ (2,863,895) $ (1,585,406)
Deferred Exploration (a) 3,252,624 2,097,940 1,575,564
----------------------------------------------------------------------------------------------------------------------
Investing activities under U.S. GAAP $(3,541,990) $ (765,955) $ (9,842)
======================================================================================================================
(a) Exploration expenses
Canadian GAAP allows exploration costs to be capitalized during the search
for a commercially mineable body of ore. Under U.S. GAAP expenditures on
mineral property costs can only be deferred subsequent to the establishment
of mining reserves. For U.S. GAAP purposes the Company has expensed
exploration expenditures and acquisition costs related to exploration in
the period incurred.
(b) Restricted cash
Under US GAAP, the restricted cash of $92,000 held as security for a
corporate credit card would not be shown as a current asset, but as
non-current.
(c) Available for sale securities
Under U.S. GAAP, the Company's marketable securities would have been
classified as "available for sale". Accordingly, the write-down to market
values would be recorded as an unrealized holding gain and included as a
separate component of shareholders' equity until realized (Note 13 (e)).
(d) Amalgamation
On November 3, 1993, the Company was formed by the amalgamation of Rattler
Resources Ltd. And Reimer Resources Ltd. Under Canadian GAAP, this
transaction was accounted for using the purchase method whereas under
United States GAAP, the transaction would be accounted for as a pooling of
interests. Under U.S. GAAP, capital stock and accumulated deficit would
increase by $1,318,696 at both December 31, 2001 and 2000. There is no
effect on the reported loss for the years ended December 31, 2004, 2003 and
2002. The financial information presented for the period from date of
inception to December 31, 2004 is in accordance with GAAP in the United
States of America.
128
KENSINGTON RESOURCES LTD.
Notes to the Financial Statements
December 31, 2004
================================================================================
(e) Flow-through Shares and Future Income Tax Recovery
Under Canadian GAAP flow-through shares are recorded at the value of
compensation received less an amount equal to future income tax liability
resulting from the related renounciation of qualified exploration
expenditures as a reduction in share capital. The Company also recognizes
in operations the realization of future income tax benefits of previously
unrecorded future income tax assets on the date of renouncement of the
expenditures to the flow-through share investors. Under US GAAP
flow-through shares have a carrying value equal to that of non flow-through
shares and the difference between the fair value of the shares and the
value of compensation received is reported as a recovery of deferred tax
benefit on the statement of operations. As the value of the compensation
received for flow-through shares issued during the year was equal to the
fair value of non flow-through shares on the date issued, no recovery of
deferred tax benefit is required for US GAAP purposes.
(f) Warrants
Under US GAAP warrants to purchase common shares in the Company pursuant to
a private placement are given a fair value and shown separately under
shareholders' equity. The total of the fair value of the warrants is
subtracted from the total of the private placement to arrive at the value
of the common shares. Under Canadian GAAP the value of the warrants is
considered a part of the common shares.
(g) Stock-based compensation
Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting
for Stock Based Compensation" ("SFAS 123") encourages, but does not
require, companies to record compensation cost for stock-based employee
compensation plans at fair value. Effective January 1, 2002 the Company has
chosen under Canadian GAAP to account for stock-based compensation using
the fair value method. The Company accounts for stock-based compensation
issued to non-employees in accordance with the provisions of SFAS 123 and
the consensus in Emerging Issues Task Force No. 96-18, "Accounting for
Equity Instruments that are Issued to Other Than Employees for Acquiring or
in Conjunction with Selling, Goods or Services".
(h) Income taxes
Under United States GAAP, the Company would have initially recorded an
income tax asset for the benefit of the resource deduction pools and losses
carried forward. This asset would have been reduced to $nil by a valuation
allowance.
(i) Comprehensive Income
In June 1997, the FASB issued SFAS No. 130 "Reporting comprehensive
income", SFAS 130 requires that total comprehensive income and
comprehensive income per share be disclosed with equal prominence as net
income and net income per share. Comprehensive income is defined as changes
in shareholders' equity exclusive of transactions with owners such as
capital contributions and dividends. Comprehensive income items includes
the write-down of "available for sale" securities.
(j) New accounting pronouncements
In March 2004, the Emerging Issues Task Force ("EITF") issued EITF 04-3,
"Mining Assets: Impairment and Business Combinations." EITF 04-3 requires
mining companies to consider cash flows related to the economic value of
mining assets (including mineral properties and rights) beyond those assets
proven and probable reserves, as well as anticipated market price
fluctuations, when assigning value in a business combination in accordance
with SFAS 141 and when testing the mining assets for impairment in
accordance with SFAS 144. The consensus is effective for fiscal periods
beginning after March 31, 2004. The adoption of EITF 04-3 did not have a
material impact on the Company's financial position, results of operations
or cash flows. \
On December 16, 2004, the Financial Accounting Standards Board ("FASB")
issued FASB Statement No. 123 (revised 2004), "Share-Based Payment" (SFAS
123(R)), which is a revision of FASB Statement No. 123, "Accounting for
Stock-Based Compensation." SFAS 123(R) supersedes APB Opinion No. 24,
"Accounting for Stock Issued to Employees," and amends FASB Statement No.
95, "Statement of Cash Flows." Generally, the approach in SFAS 123(R)
requires all share-based payments to employees, including grants of
employee stock options, to be recognized in the income statement based on
their fair values. Pro forma disclosure is no longer an alternative. The
Company currently uses the fair value method to account for all stock
option grants and is assessing the effect of SFAS 123(R) on the Company's
financial statements as presented herein.
129
KENSINGTON RESOURCES LTD.
Notes to the Financial Statements
December 31, 2004
================================================================================
In December 2004, the FASB issued SFAS 153, "Exchanges of Non-Monetary
Assets - An Amendment of APB Opinion No. 29." The guidance in APB No. 29,
"Accounting for Non-Monetary Transactions" is based on the principle that
exchanges of non-monetary assets should be measured based on the fair value
of the assets exchanged. The guidance in that Opinion, however, included
certain exceptions to that principle. This Statement amends APB No. 29 to
eliminate the exception for exchanges of similar productive assets and
replaces it with a general exception for exchanges of non-monetary assets
that do not have commercial substance. A non-monetary exchange has
commercial substance if the future cash flows of the entity are expected to
change significantly as a result of the exchange. This Statement will be
effective for fiscal periods beginning after June 15, 2005. Earlier
application is permitted for non-monetary asset exchanges incurred during
fiscal years beginning after the date this Statement is issued. The Company
believes this Statement will have no impact on the financial statements of
the Company once adopted.
On March 17, 2005 the EITF issued EITF 04-6, "Accounting for Stripping
Costs in the Mining Industry." The consensus indicated that costs of
removing overburden and waste materials ("stripping costs") after
production begins, represent variable production costs and should be
considered a component of mineral inventory cost subject to the guidance in
Chapter 4 of Accounting Research Bulletin No. 43, "Restatement and Revision
of Accounting Research Bulletins." EITF 04-6 is effective for fiscal years
beginning after December 15, 2005 and upon adoption, can be applied by
either retroactively restating prior periods or using a cumulative catch-up
adjustment. The Company does not believe that adoption of this Statement
will have a material effect on the Company's financial statements.
The adoption of these new pronouncements is not expected to have a material
effect on the Company's consolidated financial position or results of
operations.
130