Stornoway Diamond Corporation ANNUAL REPORT 2004

Transcription

1 Annual Report 2004

2 table of contents victoria island coronation diamond district melville peninsula ldg properties churchill property otish mountains region Stornoway Diamond Corporation ANNUAL REPORT 2004 OUR MISSION PRESIDENT S REPORT PRINCIPAL PROJECTS EASTERN ARCTIC MELVILLE PENINSULA AVIAT PROJECT GEM, FURY, SARCPA AND KINGORA ALEXIS WALES ISLAND CHURCHILL PROPERTY WESTERN ARCTIC CORONATION DIAMOND DISTRICT VICTORIA ISLAND LDG PROPERTIES QUEBEC PROPERTIES OTISH MOUNTAINS CORPORATE INFORMATION

3 1 our mission Stornoway Diamond Corporation is a well-funded Canadian diamond exploration company with an aggressive acquisition, exploration and development philosophy. The Company is focussed on the discovery and development of the country s first Canadian owned diamond mine.

4 It is with great pleasure that I present to you our Annual Report for 2004, a pivotal year for your Company. Stornoway Diamond Corporation was created in 2003 as a result of a plan of arrangement between Northern Empire Minerals Ltd. and Stornoway Ventures Ltd. We have since evolved to become the largest publicly traded diamond exploration company in Canada. In addition to having a board of directors experienced in creating shareholder value, the Company has a strong technical team whose members have been instrumental in the discovery of over 120 kimberlites since 1991, including the lucrative pipes of Diavik Diamond Mines, which represent some of the highest value diamond deposits in the world. president s report 2 Since 2002, Stornoway has participated in the discovery of 22 kimberlites in northern Canada, including the diamondiferous AV-1 body. The Company capitalized on this early success by raising substantial funds and acquiring additional properties in geologically prospective, underexplored regions. By May of 2004, Stornoway had expanded its Canadian landholdings to more than 20 million acres and increased its treasury to more than $43 million. Aggressive work programs are underway in six project areas throughout northern Canada, and new opportunities in regions with high geological potential are being assessed. Our Company was one of the first to acquire mineral rights in eastern Nunavut, and remains a dominant landholder in a region that has attracted a large number of companies in the last two years, including De Beers Canada Exploration Inc., BHP Billiton plc and Kennecott Canada Exploration Inc. In 2004, diamond exploration expenditures in the eastern Arctic are expected to exceed $100 million. Stornoway and our partners will account for roughly one fifth of these expenditures, with Stornoway s direct contribution totalling more than $15 million. The multiphase AV-1 kimberlite, discovered in outcrop during a brief reconnaissance program on the Aviat project in 2002, recently returned a promising diamond grade of 0.88 carats per tonne from 7.4 tonnes of material and will undergo further assessment to determine its overall size and geological variability. Kimberlite AV-2 was discovered by prospecting in 2003 and also returned positive preliminary diamond counts. Partial till sampling results from 2003 continue to confirm the presence of a 70 km east-west trending corridor that contains elevated kimberlitic indicator mineral counts suggesting additional kimberlite bodies. The Company is highly encouraged by these promising early results, and optimistic that systematic exploration efforts will result in the delineation of a new kimberlite field and further diamond discoveries. Exploration work at Aviat in 2004 will include airborne and ground geophysics, till sampling, prospecting and drilling under a budget of approximately $12 million. At the Churchill Project, 18 kimberlites were discovered in 2003, and represent a new

5 3 president s report kimberlite field. Stornoway and its partners will continue with an aggressive exploration effort to locate the source of high interest mineral chemistry initially identified in 2002 and confirmed by 2003 till sampling. Budgets at Churchill will approach $8 million in In addition to the two premier properties, Stornoway also maintains varying interests in close to one million acres in western Nunavut, 185,000 acres in the central Slave Province in the Northwest Territories and 580,000 acres in Quebec. Field work in 2004 will focus on additional till sampling, airborne and ground geophysics as well as drilling. Development of the country s first two diamond mines, Ekati and Diavik, has positioned Canada as the world s third largest producer of diamonds by value. Moreover, Canada is underexplored relative to Botswana and Russia, the number one and two diamond producers, respectively. Kimberlites are continually being found in Canada and high potential exists for the discovery of new diamond mines. Diamond exploration requires significant commitment of capital, technical skills and time. Though risky, the rewards can be enormous. Stornoway has exposure to one of the largest, most diversified land portfolios in the country and has raised the necessary capital to attract an experienced technical team to aggressively evaluate these landholdings as quickly as possible. Our goal is to discover and develop the country s first Canadian owned diamond mine. We are looking forward to a busy and exciting year and we would like to thank our shareholders for their continued support in Eira Thomas, B.Sc. President

6 EASTERN ARCTIC DIAMOND EXPLORATION 2004 principal projects 4

7 5 principal projects The AV-1 diamond discovery precipitated a major land rush in the eastern Arctic where close to 90 million acres have been acquired for diamond exploration since 2001.

8 EASTERN ARCTIC PROJECTS Melville Peninsula Stornoway is currently participating in five separate joint ventures on the Melville Peninsula of eastern Nunvaut, holding varying interests in more than 12.5 million acres. Exploration properties include the Aviat Project, as well as the Fury, Sarcpa, Gem and Kingora properties, the Alexis Joint Venture and Wales Island. Total expenditures for these properties are expected to exceed $12 million in principal projects 6 MELVILLE PENINSULA LANDHOLDINGS 2004 AVIAT Baffin Island ALEXIS WALES ISLAND GEM, FURY, SARCPA KINGORA Igloolik qilalugaq

9 Aviat Project 7 principal projects The Aviat Joint Venture is a partnership between Stornoway (70%), BHP Billiton (20%) and Hunter Exploration Group (10%) that covers close to 5.5 million acres of the Melville Peninsula and remains Stornoway s principal focus for Two diamondiferous kimberlites, AV-1 and AV-2 (see map on page 6) have been discovered at Aviat so far. Approximately $5.5 million was spent at Aviat in 2003 on an aggressive program that included the collection of roughly 2,600 till samples for kimberlitic indicator minerals, 55,000 line km of airborne magnetics, 1,900 line km of airborne electromagnetics, prospecting, ground geophysical surveying, the collection of approximately 7.4 tonnes of kimberlite from the surface exposure of the AV-1 kimberlite and 1,102 m of core drilling. The AV-1 kimberlite, which is located approximately 50 km west of Igloolik on the Melville Peninsula, was discovered during a regional reconnaissance sampling and prospecting program in Samples collected from both surface exposures and drill core were processed using caustic fusion analysis, and returned a total of 2,350 diamonds from approximately 1.7 tonnes of kimberlite. The exposed portion of the AV-1 discovery outcrop measures 13.5 m x 76.5 m and is associated with a prominent magnetic signature. A second, equally prominent, magnetic response lies under a small shallow lake immediately west of the outcrop. Drilling in 2003 was designed to better determine the shape and size of the AV-1 kimberlite. AV-1 was tested with seven angled holes from four set-ups. Hypabyssal kimberlite, similar in character to the outcrop, was intercepted in all holes except one and shows a good correlation with the double lobed magnetic high anomaly identified from ground geophysical surveying. A second, non-magnetic kimberlite phase was intercepted in five holes and has been described as transitional magmatic to tuffisitic kimberlite. Results from the 2003 program, and drilling currently underway in 2004, has intersected kimberlite over a horizontal distance of more than 225 m, and a geological interpretation suggests a complex body measuring up to 50 m in width.

10 Both the hypabyssal and transitional phases from AV-1 returned comparable diamond counts on a stones per kilogram basis (1.44 stones/kg and 1.32 stones/kg, respectively); however, from the initial sieve results tabulated below, the transitional phase appears to potentially have a coarser diamond distribution. Previously reported sieve results from outcropping hypabyssal material at AV-1 are also included in the table below, and show diamond counts of 1.42 stones/kg. principal projects 8 AV-1 MICRODIAMOND RESULTS (CAUSTIC FUSION) WEIGHT (KG) SIEVE SIZE IN MM NUMBER OF DIAMONDS RETAINED ON THE SIEVE HYPABYSSAL (2003 DRILLING) BRECCIA (2003 DRILLING) OUTCROP (PREVIOUSLY REPORTED) TOTAL In addition to the caustic fusion microdiamond analysis, a 7.4 dry metric tonne sample collected from a surface exposure of hypabyssal kimberlite at AV-1 was processed using a commercial lab and returned 6.52 carats of diamonds yielding a sample grade of 0.88 carats per tonne. All diamonds recovered were greater than 0.85 mm using a square mesh sieve. The largest stone weighed 0.40 carats and was described as a white, transparent aggregate. Overall, the diamond population appears to be dominated by white transparent diamonds, with lesser amounts of brown diamonds and very little fibrous material. Predominantly dodecahedral followed by octahedral crystal forms as whole crystals and fragments, were observed. The sample grade reported above is not considered to be representative of the entire AV-1 kimberlite body. Further work in early 2004 will endeavour to collect a larger sample from the transitional phase of the AV-1 kimberlite to more accurately assess average grade. Field checking of preliminary airborne magnetic targets undertaken in July of 2003 resulted in the discovery of the AV-2 kimberlite, situated some 4 km southeast of AV-1. AV-2 was tested with a single inclined drillhole (03-AV2-01) that intersected 2.63 m of kimberlite beneath the surface exposure, followed by separate intersections (9.3 m and 3.14 m) of kimberlite. The size and nature of the multiphase kimberlite represented by these drill intercepts is unknown at this time. A second drillhole (03-AV2-02) tested a magnetic anomaly 75 m south-southwest of the AV-2 showing and encountered two separate intersections of kimberlite (2.2 m and 6.5 m in length). The size and nature of these kimberlites, and their relation to the kimberlite intersections in 03-AV2-01, if any, is unknown at this time. A third hole, 03-AV2-03, testing a topographic feature situated 80 m north-northwest of 03-AV2-01, did not

11 9 principal projects AV-1, the first kimberlite to have been discovered in this vast, unexplored region, has yielded commercial size diamonds dominated by white, transparent crystal forms and provides further encouragement about the regional prospectivity of the Melville Peninsula.

12 intercept kimberlite. A total of 66 diamonds were recovered from caustic fusion analysis of 88 kgs of kimberlite collected from both the hypabyssal and transitional phases of AV-2, including two diamonds greater than 0.85 mm, the largest of which measured 1.78 X 1.32 X 0.86 mm. principal projects 10 In 2003, Stornoway initiated an aggressive regional exploration program to evaluate the kimberlite potential of the Aviat property. A variety of exploration tools were used, including kimberlitic indicator mineral (KIM) sampling and airborne geophysical surveys. Regional till sampling density was increased throughout the landholdings and detailed sampling was carried out in areas that returned anomalous KIM samples in Stornoway has now received partial results from some 1,510 of 2,608 till samples collected at Aviat in The majority of results is expected by the end of the 2nd quarter and will be used to guide exploration efforts for Probe results are available for about 250 till samples (3,150 grains) and G10 garnets have been identified. Results to date confirm the existence of a 70 km long indicator mineral distribution train with a minimum width of three kilometres. The AV-1 and AV-2 kimberlites lie within this train, but, more importantly, strongly anomalous till samples lie up ice of the known kimberlites. This information, coupled with indications for recharge along the train and scattered pyrope garnets found outside of the train to the north and south, strongly suggest the presence of other as yet undiscovered kimberlites. Further sampling and prospecting will be undertaken during the summer of 2004 with some 3,000 samples proposed. The 2004 spring geophysical and drill program at Aviat will test additional exploration targets in the vicinity of AV-1. Airborne geophysical surveying will commence in June followed by a summer program of sampling, prospecting and ground geophysics and a second phase of drilling. It is anticipated that between 15 and 20 targets will be tested by drilling before the end of September 2004.

13 11 principal projects In 2003, Stornoway initiated an aggressive regional exploration program to evaluate the kimberlite potential of the 12 million acre Aviat property. Early results have delineated a 70 km long corridor of elevated kimberlitic indicator mineral counts suggesting the presence of multiple kimberlites on the property.

14 Gem, Fury, Sarcpa and Kingora In addition to the Aviat Joint Venture, Stornoway maintains a 30% interest (carried for the first $1.5 million in expenditures) in a further 1.5 million acres at Melville, governed by two separate option agreements. The first agreement covers about one million acres of permits in three properties (Gem, Fury and Sarcpa) being explored by Strongbow Exploration Inc. (formerly Navigator Exploration Corp. 30%) and NDT Ventures Ltd. (30%). The second agreement covers a further 500,000 acres known as the Kingora property which is also being explored by Strongbow (60%). BHP Billiton holds a 10% interest carried for the first $10 million in expenditures on each property. Exploration work during 2003 consisted of airborne magnetic surveying, till sampling and prospecting. principal projects 12 Alexis On February 2, 2004, Stornoway was granted a further 5.5 million acres of prospecting permits on the south central portion of the Melville Peninsula, south of the Aviat Project and north of BHP Billiton s wholly owned Qilalugaq (Area 8) Property where nine new diamondiferous kimberlite discoveries have been reported. In addition, 378,336 acres of claims have been staked surrounding and adjacent to BHP Billiton s Qilalugaq property. Stornoway and BHP Billiton have entered into a 50:50 agreement to jointly explore these new permits and claims. Wales Island In addition, prospecting permits totaling 284,547 acres were acquired on Wales Island, situated immediately west of the Melville Peninsula. These landholdings are being explored under an agreement between Stornoway, BHP Billiton, and Strongbow Exploration Inc., with each company holding an initial 33.3% interest.

15 13 principal projects Stornoway is working closely with the communities in which we operate and it is our goal to maximize opportunities for Northerners at all stages of development. BOBBY ALORUT (IN CHARGE OF CAMP MAINTENANCE, LEFT) AND LAIMIKI QAMANIQ (CAMP HELPER, RIGHT)

16 Churchill Property In 2003, Stornoway (35%) along with partners Shear Minerals Ltd. (51%) and BHP Billiton (14%) explored close to 1.5 million acres of permits and claims comprising the Churchill Diamond Project, located near the community of Rankin Inlet in eastern Nunavut. During the year, the partners collected more than 1,600 till samples, conducted ground geophysical surveys over 55 targets, completed 7,500 line km of aeromagnetic surveys and completed approximately 2,275 m of drilling. Sixteen new kimberlite bodies were intersected by drilling, nine of which returned microdiamonds from caustic fusion of samples averaging less than 100 kgs in weight. The 2003 drill program was designed to test high confidence geophysical targets with limited support from regional geochemical data. Exploration in 2004 will benefit from expanded geophysical coverage and a more extensive geochemical data set that was collected but not available during the 2003 drilling campaign. In February 2004, Shear Minerals Ltd., Stornoway and BHP Billiton acquired a further 138 federal prospecting permits totaling 6.4 million acres surrounding and immediately adjacent to the Churchill Diamond Project. A joint venture exploration budget of $8 million has been proposed for the Churchill Diamond Project in 2004, compared with $4 million in The program will include additional drilling, geophysics and sampling. principal projects 14 CHURCHILL DIAMOND LANDHOLDINGS 2004 N 18 Kimberlites discovered in 2003 Rankin Inlet CHURCHILL CHURCHILL WEST BHP DE BEERS OTHER Hudson Bay beaufort sea baffin bay Scale km nwt Yellowknife nunavut hudson bay

17 Churchill West Property 15 principal projects The Churchill West Diamond Project encompasses more than 500,000 acres immediately west of the Churchill Diamond Project. The project is owned by Shear Minerals Ltd. (51% interest and Operator), Stornoway (35%) and BHP Billiton (14%). International Samuel Exploration Corporation (SAZ:TSXV) has an option to earn a 65% interest in the project from the partners. In 2003, $550,000 was spent on exploration at Churchill West including the acquisition of more than 12,000 line km of aeromagnetic data and the collection of more than 250 regional and target specific till samples. Two kimberlites were discovered, one of which returned 12 microdiamonds from caustic fusion of approximately 129 kgs.

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19 Stornoway, with its extensive and highly prospective land package, experienced exploration team, and strong balance sheet, is well positioned to achieve its goal of discovering a diamond mine in Canada.

20 WESTERN ARCTIC PROJECTS Coronation Diamond District Stornoway holds varying interests (between 30 and 100%) in thirteen separate properties, totalling about 1.2 million acres in the Coronation (North Slave) Diamond District in western Nunavut and is the Operator on all but two of them. During 2002 and 2003 Stornoway collected airborne geophysics and more than 5,000 till samples from the properties. Additional sampling, prospecting, ground geophysics and drilling are planned for principal projects 18

21 Victoria Island 19 principal projects On southern Victoria Island, the Company may earn a 100% interest in permits totalling 442,000 acres in the Northwest Territories and Nunavut. The permits cover regional indicator mineral anomalies reported by the federal government in 2002 and are in proximity to recent kimberlite discoveries reported by Diamonds North Resources Ltd. A modest exploration program focused on till sampling was completed in late summer 2003 with results expected by late June LDG Properties In May 2004, Stornoway entered into an option agreement with Strongbow Exploration Inc. to earn up to a 60% interest in three properties representing more than 185,000 acres of prospective diamond claims located in the Lac de Gras region of the Northwest Territories. Under the terms of the agreement Stornoway may earn a 51% interest in the LDG, Starfish and Daring Lake Properties by spending $3 million within three years, and may increase this interest to 60% by completing a feasibility study. Known kimberlites occur within five kilometers of all four sides of the 123,000 acre LDG Property, and the Diavik Diamond Mine is situated just across Lac de Gras, some 15 km from the northern claim boundary. The Starfish Property comprises nine target specific, non-contiguous, mineral claims representing some 21,000 acres from 12 to 40 km west of the LDG property, the 26,000 acre Daring Lake Property lies at the south end of Yamba Lake, just west of the Ekati Mine property. Till sampling, detailed geophysical surveys, and airborne geophysical surveys have been completed on all of the properties. Further work is planned for 2004 including ground geophysics, till sampling and drilling.

22 QUEBEC Portage Property In March 2004, Stornoway entered into an agreement with Majescor Resources Inc. to explore the Portage Property located in the Otish Mountains region of Quebec and situated adjacent to Ashton-Soquem s Foxtrot property where an $18 million minibulk sampling program is now underway. As part of the agreement, Stornoway acquired, by way of private placement, 1,250,000 units of Majescor at $0.40 per unit for gross principal projects 20 FOXTROT RENARD KIMBERLITES PORTAGE 33 A Kilometers LEGEND stornoway / majescor PREMIER stornoway / blackstone ashton / soquem diamondj/v properties other properties proceeds of C$500,000, each unit comprising one common share and one half of one common share purchase warrant exercisable for two years at $0.70 per share. Majescor has committed to completing a $1 million sampling program at Portage in 2004 and within 30 days of receiving the final results of this program, Stornoway may elect to acquire a 51% interest in the Portage project by spending $3.5 million over a three year period. The Portage property comprises one of the largest contiguous land packages in the region and represents an excellent diamond exploration opportunity that compliments our existing Canadian property portfolio. Majescor brings technical strength and extensive operating experience in Quebec and we are excited to be working with Majescor to advance the Project in Premier Property Under the terms of an option agreement with Blackstone Ventures Inc., the Company can also acquire a 75 % interest in the 38,600-acre Premier property by drilling five holes and incurring $1 million in exploration expenditures. BHP Billiton will retain a one-time opportunity to earn a 51% interest in the property by spending $4 million on exploration in a four-year period and can earn a further 9% interest in the property by spending an additional $6 million. In 2003, the partners completed a modest, ~ $60,000 till sampling program to follow up on kimberlitic indicator mineral anomalies identified in 2002.

23 corporate information exchange symbol: SWY:TSXV shares issued: 69,890,662 fully diluted: 79,361,658 (as at June 25, 2004) directors and officers: Eira Thomas, President, CEO and Director Catherine McLeod-Seltzer, Co-Chairman and Director John E. Robins, Co-Chairman and Director D. Bruce McLeod, COO and Director Peter Nixon, Director Gail M. Sharp, Corporate Secretary legal counsel: DuMoulin Black 10th Floor 595 Howe Street Vancouver, BC, Canada V6C 2T5 auditors: Staley, Okada & Partners Suite West Pender Street Vancouver, BC, Canada V6C 3B2 transfer agent: Pacific Corporate Trust Company 10th Floor 625 Howe Street Vancouver, BC, Canada V6C 3B8 website: address: office address: Suite Howe Street Vancouver, BC, Canada V6C 2T6 tel: fax: The Annual General Meeting of Shareholders will be held in Vancouver on Thursday, August 19, 2004 at 10:30 am.

24 pioneering diamond exploration in northern canada swy:tsxv suite howe street vancouver bc canada v6c 2t6 tel: