SouthernEra Diamonds

SouthernEra tracks Congo kimberlites

2006-12-27 15:38 ET - Street Wire

by Will Purcell

SouthernEra Diamonds Inc. plans a multimillion-dollar drill program on its kimberlite hunt in the Kasai region of the Democratic Republic of Congo (DRC). The company's joint venture partner, BHP Billiton Inc., will cover the cost of the work again next year.

The plan

In 2003, the politically unstable DRC warmed to foreign investors -- or at least their cash. The country rejigged its onerous mining regulations to attract explorers willing to endure the risks of working in the unstable region. SouthernEra was one of the first outside companies to nibble, and that allowed it to pick up big blocks of what it thinks is the best ground in the region during the brief land grab.

The diamond majors apparently agreed with the assessment, as SouthernEra soon had De Beers, BHP and Rio Tinto PLC jostling for a piece of its play. BHP offered the best terms, agreeing to take the play to feasibility in exchange for a 65-per-cent interest. The mining giant also bought $8-million (U.S.) worth of SouthernEra's shares.

With BHP picking up the tab, SouthernEra started preliminary work. The company's president, Alasdair MacPhee, said stream sampling would be complete across the entire 1.3 million-hectare property by the end of the year, with a testing density significantly higher than most of its rivals are attempting. "We are coming up with quite spectacular results," he added.

As well as the expected indicator mineral grains, some of the samples are producing diamonds, and a few stones exceed one millimetre. The largest find measures a promotable 4.5 millimetres in length, proving the area capable of delivering commercial gems.

SouthernEra and BHP spent the fall flying geophysics over their Kasai properties and the work produced about 70 potential drill targets by early November. SouthernEra is ground testing the features and about 10 of the anomalies appear particularly promising. The partners expect to add to their tally over the next few months.

Drilling will be a key part of the 2007 program on Kasai as a result. Mr. MacPhee said one drill was already on the property and a second is on the way. SouthernEra expects to keep both rigs busy through much of next year. The budget is not yet firm, but Mr. MacPhee expects the program will cost about $5-million (U.S.), with much of the cash going to drilling.

The encouragement

SouthernEra's DRC permits are scattered throughout the alluvial diamond district in the southeastern part of the country. The Kasai region is at the northeastern end of a wide swath of kimberlites and alluvial deposits that traverses the prolific Lunda Norte district of northeastern Angola.

Diamondiferous kimberlite pipes dot Lunda Norte, but finds are few in the DRC. A recent tally credits Angola with over 700 kimberlites, while explorers scored just 11 kinds north of the border. Despite the lopsided pipe count, the DRC leads all countries with its historical diamond production of about one billion carats over the past century. The country is currently producing about 20 million carats per year from alluvial deposits.

Safety from robbers, warlords and other riff-raff is always a worry in the peace-loving DRC. SouthernEra suspended work for a few weeks on its projects, in anticipation of potential problems surrounding the country's runoff election at the end of October. The United States government updated its travel warning this week, authorizing the families of its embassy staff to return, but sustaining the warning against travel to the country. The government acknowledges conditions are improving since the election, but it remains worried about rural areas in the eastern part of the country.

SouthernEra closed unchanged at 30 cents Friday, on 74,500 shares.