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Spec Value Hunter Comment - July 3, 2012: Tuzo Deep modeled to represent at least 11 million tonnes potentially hosting 20 million carats
 Mountain Province Diamonds Inc reported on July 3, 2012 that De Beers has modeled a volume increase of 4,578,000 cubic metres for the portion of the Tuzo pipe tested by drilling last winter. Applying the average specific gravity of 2.4 to this volume generates about 11 million tonnes, at the upper end of the range I estimated in my Spec Value Hunter Comments on May 11, 2012 and May 22, 2012 based on the intervals and angles reported by De Beers. However, due to flattening of the drill core angle as it entered the kimberlite the volume estimate applied only from 350 m to 564 m rather than the 750 metre depth De Beers planned to test. The good news is that the Tuzo pipe is cylindrical from 350 m to 564 m, with an estimated diameter of 250 m at depth. If Tuzo Deep maintains the same diameter for the 186 m interval between 564-750 m as it has for the 214 m interval between 354-564 m, this would add 9.6 million tonnes, bringing the total for Tuzo Deep to about 20 million tonnes. Unfortunately, for 43-101 reporting purposes this deeper volume beyond 564 m will not exist until it is intersected by drilling.
The next step is to model the grade of the Tuzo Deep tonnage. The indicated resource for Tuzo to a 300 m depth has a grade averaging only 121 cpht due to dilution by country rock fragments. The inferred resource for the 300-350 m segment of Tuzo has a grade of 175 cpht which De Beers attributes to the absence of country rock dilution. Petrography geared toward establishing that the Tuzo Deep kimberlite is the same magmatic phase as the upper portion of the pipe is still ongoing, but De Beers has confirmed to Mountain Province management that there is no evidence of country rock dilution in Tuzo Deep. So there is good reason to be optimistic that micro diamond results will support the expectation that Tuzo Deep will average at least 175 cpht, which would bring the carat bounty for Tuzo Deep from 350-564 m to nearly 20 million carats, or at least $2 billion extra in situ value if the diamond quality is similar and the stone value runs at least $100 per carat. Micro diamond testing through SRC began early June and a grade model for the new tonnage is expected by September. The bad news in all this is that the internal scoping study De Beers did for Tuzo Deep was for a 750 m depth; so at the moment it is up in the air whether or not underground mining of Tuzo Deep will be economically feasible (apparently results are well within projections except for the total depth). And it is not clear when and if De Beers will attempt to drill another set of deep holes.
In terms of news flow, apart from the Tuzo Deep modeled grade, the Gahcho Kue project will go quiet until next winter. About two-thirds of the 40 high priority targets generated for the Gahcho Kue joint venture lie within Kennady Lake, mainly as clusters in the southern part, some not far from known pipes. This raises the concern that drilling success next winter could delay the Gahcho Kue project if several significant new open-pittable pipes are discovered in Kennady Lake. Patrick Evans tells me that the locations of the targets do not overlap with any major infrastructure footprints, so there should not be any mine engineering changes that require resubmission of an operation plan to the regulators. Any new pipes wouild not be mined until the 11 year mine life of the current cluster is over. If new pipes are found in Q1 of 2013 which yield micro diamond results indicative of high macro grades, their primary importance will be of a strategic nature signalling that Gahcho Kue will be a 20 plus year mine. This will be of importance to NWT stakeholders. In terms of expanding the time horizon for NWT stakeholders, the focus will be on the Kennady North project, whose economic value for the moment is zilch, and which is a clone of the Mountain Province shareholder base.
Friday June 29, 2012 was the last day to buy Mountain Province in order to get one share of Kennady Diamonds Inc for five shares of Mountain Province. KDI is expected to start trading on the TSXV on July 10, 2012. The drill rigs are on the property and drilling may get underway this week. One rig will test the Faraday-Kelvin-Hobbes kimberlite corridor while the other rig will test targets to the west. We will be watching for two types of news: 1) brand new kimberlites to the west with decent tonnage footprints whose significance will have to await micro diamond results, and, 2) a string of kimberlite intersections from the corridor which gradually reveal that the highly diamondiferous Faraday-Kelvin-Hobbes system is much more than a skinny dyke with small blows, but instead has cumulative tonnage potential in the 10-20 million tonne range with macro grades in the 150-200 cpht range. The dream target is an outcome of 15-40 million carats, probably not enough to be a standalone mine, but certainly worthy of a buyout from the De Beers/Mountain Province Gahcho Kue JV that extends the mine life from just more than one decade to several decades. For this reason I regard KDI as the hottest diamond play in NWT as far as NWT stakeoholders are concerned. KDI has threatened to barrage us with a news release every week or so. For now there is little information about the Kennady North property and its targets, but that should change once KDI is trading. The corridor drilling will be akin to delineating a new discovery; if KDI shares with us the geophysical modeling of the targets, their scale reveals significant tonnage potential, and reported kimberlite intervals confirm that the modeled targets map to kimberlite, KDI will qualify as a Big Anomaly play that should generate excitement this summer. Kimberlite discoveries to the west of the corridor would be a bonus. For now everybody is hoping KDI starts trading well below a buck.
*JK owns shares in Mountain Province Diamonds Inc
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