Shore Gold Inc.

Crystal ballSenior vice president George Read tells Gary Toushek what he sees in the future for Shore GoldÔÇÖs diamond explorations. "On the Star Diamond project we have defined our resource and can now enter a pre-feasibility study, ultimately with the definition of a reserve calculation, then we move on to bankable feasibility by the end of 2008.ÔÇØ  George Read, senior vice president of exploration & development of Saskatoon, SaskatchewanÔÇôbased Shore Gold Inc., is commenting on the National Instrument 43-101 compliant mineral resource estimate published in June, the first time such a document has been filed for a diamond-bearing kimberlite (a volcanic rock that carries diamonds from the mantle to the EarthÔÇÖs surface) in Canada. The resource estimate required the synthesis of a huge amount of information, and while Read is optimistic that it takes the company the next step forward, the market seems to focus on the grades in the report and is not reacting positively, in terms of the stock price. Consider it the Canadian way, not rushing to heap praise or even congratulate the junior mining firm on its discoveries thus far.ÔÇ£We continue to be optimistic, because you can only declare a mineral resource on a project if it has a reasonable chance of an economic outcome. So you have to apply an economic model and calculation to ensure that there is a good potential that it can be a mine, even if some people see it as lower grade or smaller.ÔÇØ The important thing about Shore Gold, he emphasizes, is that it has control over the diamond district in Saskatchewan, which includes the largest diamond-bearing kimberlite in the world.Read would know. HeÔÇÖs originally from South Africa and studied diamond geology at the University of Cape Town. He worked for De Beers in Africa and in Canada, and then was based in Vancouver consulting for several mineral companies, eventually joining Shore Gold in 2003. Shore Gold owns 100 percent of the Star Diamond project, and 60 percent of the adjacent Fort ├á la Corne (FALC) project, divided into Orion North and Orion South fields; the remainder of FALC is owned by Newmont Gold. ÔÇ£We have a very good relationship with Newmont (the worldÔÇÖs second-largest gold company); they are a very interested participant in the FALC project, and we communicate regularly,ÔÇØ Read says. ShoreÔÇÖs current market cap is $550 million. ÔÇ£If you look at our competitors in Canada, the diamond explorers and producers, we would be number three in market cap, which is an eminent position in light of the fact that we do not yet have production.ÔÇØ Proving grade and diamond value in kimberlite takes plenty of time and money. ÔÇ£If there is a downside to this business,ÔÇØ says Read, ÔÇ£itÔÇÖs the time it takes to thoroughly and rigorously evaluate these large deposits of kimberlite, because investors want to turn their money quickly. And thereÔÇÖs no way to speed up the process. You have to recover samples from underground and examine them carefully for diamonds, which, even in kimberlite, are rare. ItÔÇÖs hard work.ÔÇØ But ShoreÔÇÖs been fortunate in raising capital, mostly in 2005 and some in 2007, at competitive rates, and the team of 130 has done a great deal of work, particularly on the Star Diamond project. Data gathering has evolved to a desktop engineering study. The expenditure on Star is much less than in 2007, and thereÔÇÖs still a large budget of $106.8 million for 2008, and most of itÔÇö$86 millionÔÇöwill be spent on FALC, where kimberlite is being evaluated with expensive techniques such as large-diameter drilling and underground bulk sampling. The latter is a major exercise that involves sinking a shaft (complete to 211 meters below surface) and doing lateral drift development from the station that has been established on the 186-meter level. An extensive network of tunnels will be developed, ramping up and down from that level. ShoreÔÇÖs target is to extract some 15,000 carats in commercial-size macro diamonds (greater than one millimeter) from three different kimberlite types. The importance of the underground bulk samples is that they enable the determination of the dollar-per-carat value of the diamonds, which is unique to each phase of kimberlite. ItÔÇÖs possible to have kimberlite phases in proximity to each other that have entirely different grades and prices. ÔÇ£In the Star project,ÔÇØ says Read, ÔÇ£we took out 10,000 carats and have shown an overall diamond price of $172 per carat, which is essentially twice the world average. The diamond populations at Star that result in these high values are attractive, a lot of white goods, and there is the potential for us encountering very large diamonds in a future mining program. And we anticipate seeing diamonds exceeding 100 carats.ÔÇØ The diamond market at the moment is strong, the price of rough goods has risen about 30 percent in the last 12 months, and thereÔÇÖs a particular demand for high-quality product. ÔÇ£We believe that we will see that quality in both Star and Orion,ÔÇØ Read says. ÔÇ£The component of industrial-grade goods is very small, and most of the diamonds for industrial applications such as drill bits and cutting tools are synthetically made by companies such as De Beers and General Electric. And there have been more industrial synthetics manufactured than have ever been mined.ÔÇØ The outlook for diamond supply and demand appears to be favorable for Shore GoldÔÇÖs efforts, because Read sees ÔÇ£a flat or even declining supply curve, since mines in Africa and perhaps Australia are coming to the end of their lives,ÔÇØ and the mines that are being developed to replace them are for the most part smaller. So with more exploration, the development of Shore GoldÔÇÖs projects in Saskatchewan has the potential to feed diamonds into a hungry global market with a steeply rising demand curve. ÔÇ£We fully anticipate that by the time we hope to see production from Star in 2011 at the earliest, there will be a shortfall in the worldwide supply of diamonds, so we will feed our potential future production into a ready market.ÔÇØ┬á