Diagem Inc.

Diagem Inc.

August 20, 2007 10:41 ET

Since You Asked: Questions and Answers about Diagem's Strategy and Activities

MONTREAL, QUEBEC--(Marketwire - Aug. 20, 2007) - Diagem Inc. (TSX VENTURE:DGM)

Diagem's principal objectives are to explore, develop and eventually bring to production (alone or with a partner) a primary source diamond mine. Of late we've received a number of comments and queries about our operations in Juina, Brazil. This communique is intended to respond to the broadest audience in the most transparent manner.

Primary source diamond mining versus alluvial recovery: what is the difference?

Exploration of kimberlite and alluvial diamonds require very different mining methods. Primary source diamonds are generally mined by open pit mining vertically at depths that can reach several hundred metres down into the kimberlite pipes, as opposed to dredging or excavating diamonds from secondary or alluvial deposits at shallow depths of a few metres. Alluvial mining recovers diamonds from current and/or historic river beds which can stretch over several kilometres.

Alluvial operations have been outlined by Diagem on its properties and may be developed as a prerequisite to preserving mining rights and to generate cash flow, if proven feasible. Diagem does not currently have an alluvial mining operation.

Why primary if alluvial mining finds stones?

Diagem has made tremendous progress in the area of kimberlite exploration, particularly in the last year, after decades of exploration by De Beers (10 to 15 years), Rio Tinto (10 to 15 years) and Diagem (10 years). The Company now has scientific evidence that kimberlite bodies on its properties have fed the regional drainage systems that garimpeiro (small miners) have been mining for several decades.

Although the Juina area is known for small diamonds of relatively lower value occurrences of large diamonds, and sometimes very valuable stones - the 9.32 carat pink stone purchased by Diagem, March 2007, for example - is also a characteristic of the Juina area. The primary source kimberlite pipes should inevitably contain such large and valuable diamonds. The discovery of an economic primary diamond deposit (Diagem has not proven this yet) is a costly proposal for any company, but the expected rewards would be of great significance not only for Diagem but also for the local economy and even Brazil as a whole.

What is the environmental effect of mining?

Open pit kimberlite mining is confined to the surface area of the kimberlite and then spirals vertically into the ground following the carrot-shaped body of the kimberlite pipe. Such pipes extend several kilometres below the earth's surface and can be mined down to several hundreds of metres.

By comparison, alluvial mining operations cause large surface disturbances to access shallow ore, which is usually not more than three metres thick and follows the regional drainage system over several kilometres, whereas kimberlite bodies have restricted surface areas of 0.5 to 30 hectares (one hectare is 100 metres by 100 metres).

Diagem is a public company committed to following permitting and environmental guidelines while exploring and developing its projects, sometimes to the detriment of the advancement of the projects. However, due to the relaxed regulatory regime for artisanal mining and the limited enforcement on the part of regulatory bodies which often ill-equipped to enforce mining and environmental regulations, artisanal miners rarely restore the land which they mine and occasionally extend their activities outside their legal claim areas. Diagem has identified instances of illegal encroachment on its claim areas and is taking direct legal action against the offending parties.

What is the expected potential of the Collier-04 project?

Diagem has not yet made public any figures relating to the resources or the feasibility of its Collier-04 project. Studies are progressing based on results of the large-scale bulk sampling in 2006 which is continuing at an elevated pace in 2007. A qualified report in accordance with National Instrument 43-101 is being prepared.

Collier-04 is to be developed in stages. In the initial stages, the pilot plant is designed to recover the top weathered portion of the kimberlitic material, down to a maximum depth of 20 metres. In these first stages of the operation/evaluation, the economic parameters may be comparable to those of alluvial operations, while providing necessary data (geological, ore type and quality, operating cost, etc) to be used in assessing the feasibility of the project. To reduce operating costs during this phase, Diagem has delineated three zones, each exposed at surface where no stripping is required and where higher grades are indicated by sampling.

The initial operation is restricted to a modest near-surface deposit. However, should the current project prove feasible, deepening of the pit(s) and the addition of an attrition mill to the operation flowchart would allow access to more than 10 million tonnes of kimberlite material (up to a maximum depth of 95 metres) based on the historical resource estimates made by Rio Tinto on the strength of more than 100 drill holes (see also Diagem's August 2005 43-101 report and the Cautionary Statement below). Increasing the size of the operation to benefit from the economy of scale will be investigated.

How are the diamonds recovered from Collier-04?

Diagem has all the necessary permits in Brazil to extract, process and market its diamonds from Collier-04. It could thus use any cash flow resulting from the sale of the diamonds to reduce the evaluation and feasibility study costs. Accordingly, Diagem recently announced it is ramping up diamond recovery by adding a second shift at the concentration plant, while upgrading the electronic diamond sorting facility in Juina, both of which should take effect in September 2007.

The 22 cubic metre per hour pilot concentration plant is expected to recover over 90% of the diamonds processed through it. Quality control methods such as the use of tracers are being implemented. This should not be compared with garimpeiro jigs that have considerably lower rates of recoveries.

Are there alternatives for increasing revenue from Collier-04?

Previous testing has indicated that recovering diamonds between the sizes of 1.0 to 1.7 millimetres (currently only diamonds larger than 1.7 millimetres are recovered) could potentially more than double the carats of diamonds recovered from Collier-04. This would require additional components to the diamond recovery flowchart in order to recover these smaller diamonds. Diagem will investigate whether the economic benefit would outweigh the incremental costs. In addition, as some diamonds are non-fluorescent and not recovered by the electronic sorting facility, Diagem will be adding a grease table to increase recoveries even further.

What is the cost of operation at Collier-04?

The cost of Collier-04 operation is being studied and documented and will be disclosed in due time. Some comments and inquiries compare Juina operating costs to Canadian operations where costs are much higher by a factor of 15 to 20 times. This is due to the difficulty of accessing remote areas, the thick overlying glacial deposits found in such environments or the necessity to access the deposits from underground. The extraction costs in Juina are expected to be much lower due to the ease of access to exposed or outcropping deposits, reduced labor cost, and milder climates. Thus lower value ore could be mined at a profit.

What is the significance of the ore value at Collier-04?

As noted earlier, the Juina diamonds generally carry a lower dollar value per carat. In a 2002 article, Dr. Felix Kaminsky documented that the Juina diamonds are unique and super-deep in origin that have been somewhat downgraded by extreme internal stress. He also pointed out that the same phenomenon is also responsible for occasionally enhancing the value of the diamonds. The coarser and occasionally very valuable pink diamonds are possibly a separate and distinct diamond population. Although larger stones are usually eliminated in arriving at a feasibility decision, the frequency of large stones recovered in the Juina Diamond Province (say between 5 and 20 carats) warrant giving them a strong consideration in a "to mine or not to mine" decision. The Diavik diamond mine in the North West Territories can serve as a good example. At the PDAC 2006 annual convention, management of the Aber Diamond Corporation indicated that more than 70% of the revenue at Diavik comes from less than 10% of the diamond population. Through its development work and the diamond recovery process in place at Collier-04 for commercial size stones (those larger than 1.7mm), Diagem is starting to have sufficient statistical data on the frequency of occurrence of the larger stones (say greater than 1 carat) to predict with more confidence their occurrences. Diagem has nearly accumulated enough diamonds (3 to 5 thousand carats) for a price evaluation in order to determine with more certainty the ore value of Collier-04.

What differentiates Diagem's mineral properties?

Although Collier-04 is the most advanced development stage project of the Company, the two recently discovered kimbertlite clusters are Diagem's highest priority targets as they are believed to be the main sources of the Juina Province's historical alluvial diamond production. The 9.32 carat pink stone purchased by Diagem was recovered downstream close to the Chapadao cluster. Occurrences of such diamonds in the kimberlites would have a significant impact on the ore value and economic value of those kimberlites.

About Diagem

Diagem Inc. is a Canadian exploration mining company focused on diamondiferous resources in the Juina Diamond Province of Mato Grosso, Brazil, where it controls a large portfolio of mineral properties. The Company has one advanced development stage project and recently discovered two clusters of kimberlite pipes believed to be the main sources of the Juina Province historical alluvial diamond production.

This press release has been reviewed by Mousseau Tremblay, Ph.D, P. Eng., Diagem's Chairman and a qualified person under National Instrument 43-101.

Cautionary Statement: A qualified person has not done sufficient work to classify the historical estimate as current mineral resources, the issuer is not treating the historical estimate as current mineral resources and the historical estimate should not be relied upon.

Forward-looking statements: Except for statements of historical fact, all statements in this news release, without limitation, regarding new projects, acquisitions, future plans and objectives are forward-looking statements which involve risks and uncertainties. There can be no assurance that such statements will prove to be accurate; actual results and future events could differ materially from those anticipated in such statements.


Contact Information

  • Diagem Inc.
    Denis Francoeur
    514-866-6001 (ext 265)
    Diagem Inc.
    Paul Einarson
    514-866-6001 (ext 251)
    Nicole Blanchard
    Investor Relations