A Ray of Light on Greenland
Rubies
Jonathan Toop
May 1, 2006
321gold readers may have read
Bob Moriarty's excellent journalistic piece last September -
"Romancing
the [445 carat] Stone." Bob's work followed from
reading an extremely interesting technical report by William
Rohtert, Chief Operating Officer of True North Gems, which was
published in
SEDAR last June 21. The report, which spoke of high concentrations
of rubies in Greenland in a 120m long continuously mineralized
block, got Bob interested enough to make yet another of his epic
journeys to a far corner of the earth, after which he put things
into this perspective:
"Clearly the market
doesn't understand True North Gems... I believe it's an education
issue and over time the public will begin to understand the magnitude
of what this year's programs have discovered. I'm not an expert
and all I am trying to do is give you a feel for what I saw and
touched. Time will tell but when you can pick up 445 carat stones
on the ground, there is bound to be something nice.
It's important for anyone
interested in the company to understand that gem grade stones
are very rare. Most of the stones will be suitable only for beads
and cabochons worth $5-$10 a carat. But when you have kilos of
stones per ton as they have in Greenland, you probably have a
very valuable deposit."
For my part, I also read William
Rohtert's report, spoke to him personally on several occasions,
and for more than a year have been on a mission to find the answer
to a very difficult and obscure question - "should I be
excited about True North Gems' prospects of generating a lucrative
business surrounding rubies in Greenland?" Given that I've
expended so much effort in this regard, I would like to share
some of what I have found, trying to be as objective as possible,
and hope I can further enlighten 321gold readers who might have
the same questions as I have had.
True North's Rubies in Context
What of rubies? Like gold,
everyone knows what they are - they are a part of global culture
with a history going back thousands of years. Like diamonds,
they have both synthetic alternatives, although that has not
stopped them from being extremely valuable. Unlike diamonds or
gold however, there are no publicly traded companies with success
stories, like Aber Diamonds for the Canadian diamond industry
or Newmont for gold, to get investors excited about the prospects
of something big. Why should anyone bother with rubies, given
they are in an unknown territory for investors, and can they
even be understood? RAB
Special Situations and FireBird Global Fund, two bold and
excellently managed funds with tremendous historical returns,
have placed their bets, and if a small, obscure company like
True North is worth their time, I feel it is worth mine. Here
is some of what I've found.
- quality rubies are much rarer
than quality diamonds - 50 times rarer, and sell for more, according
to a gem expert referenced in Fred Ward's excellent book "Rubies
& Sapphires"
.
- rubies are the red variety
of the mineral corundum (Al2O3), and are the second-hardest mineral
after diamond; according to the Gemstone Institute of America,
they are "the
most durable of gems" - in fact commoner forms of corundum
are used as an industrial abrasive
.
- ruby's high density of 4 g/cm3
and durability allows in situ gems to be separated from host
rock using the same methodology as used for hard-rock diamond
deposits - careful iterative crushing, and dense media separation
.
- the hardness of ruby allows
it to be further separated from host rock through tumbling; cracked
and highly included gems may break apart, but what remains makes
up in quality for what was lost in size
.
- when at their rarest and very
best, rubies can command astronomical sums - in February $3.6
million for an 8.62 carat ruby
.
- unlike the vast majority of
gemstone varieties, rubies are so rare and prized that they do
not need to be extremely high quality (high transparency, for
example) to have value, although value varies considerably with
quality and stones that are ugly or completely opaque are indeed
almost worthless
.
- colour is the single most
important value factor for rubies - rich, well saturated red
colour is highly prized, pinkish or purplish reds are relatively
well received, and brownish or orangish gems are considerably
less prized
.
- as a standard industry practice
almost all rubies are heat treated to improve their colour and
clarity, and natural rubies that do well based on their original
colour merits are very, very rare
.
- an April 2005 report by international
gem valuation expert, Warren Boyd, on a 23.26 carat initial subset
of the 2004 Siggartartulik bulk sample, produced a valuation
of $50.10 a carat - colour being noted as "deep red with
a slight purplish overtone" but clarity "poor"
.
- True North has been working
diligently on finding how to optimally heat treat its sampled
gems, and one must note that Boyd did not take into account lack
of heat treatment, branding or any premium based on unique locale
in his appraisal
.
- the very best rubies in the
world occur in contact with marble in hydrothermal deposits,
as is the case for Burma's famous Mogok rubies and for True North's
Aappalutoq deposit discovered
in 2005
.
- there are many poorly accepted
and often deceptive methods used to make highly flawed rubies
look good such as filling cracks with lead or glass or diffusing
colouring agents into the gems at high temperatures -- gems that
are attractive and sold without being certified by a truly reputable
institution are in high probability subject to such treatments
and are worth at most the much lower prices they sell for on
places such as eBay (generally to the unsuspecting)
.
- Thailand is the global center
for coloured gemstone cutting and enhancement, but the frequent
attempts by elements in that region at selling gems with undisclosed
enhancements threatening to undermine value cause dealers to
be very cautious of buying, and the world jewelry industry may
well yearn for more reputable sources of gemstones
The Latest on the Greenland
Rubies
As of the start of April we
have a new 43-101
report on the Greenland rubies resulting from the 2005 field
season that Bob witnessed first hand. It is a long document,
thick with arcane technical terms, but certainly reinforces Bob's
view that rubies are quite abundant.
- rubies are
found in the 3600 square km Fiskenaesset district, most prominently
within deformed sections of the ceiling of a 2.8 billion year
old 200 km folded strike length anorthosite intrusion
.
- True North has a 110 square
kilometer property claim and prospecting license for all of south-west
Greenland covering all of the gemstones in this district
.
- there are currently 18 known
ruby occurrences with three different deposit types - magmatic-metamorphic,
hydrothermal, and metasomatic
.
- of the eighteen ruby occurrences
to choose from, five stand out:
.
- Siggartartulik, which at surface appears to contain
the largest total quantity of ruby - 1300 m strike length ranging
from <1 to up to 20m thick in the central, main zone. The
final tally of a 2.58 tonne bulk sample in 2004 from the main
zone (as shown in Appendix I) was 1.2 kg - 6000 carats / tonne
of gem grade ruby (3.23 times higher than the an initial
figure based on partial processing)
.
- Upper Annertussoq, which also has larger amounts and
concentrations of pink sapphire as evidenced by initial bulk
sampling processing, a 1200m strike length, and 1-10m width
.
- Kigutalik, on a ridge overlooking the bay, contains what
appear to be the highest density of gems, these being in a 40m
x 20m mineralized area
.
- Aappalutoq, a hydrothermal, marble-hosted occurrence
on a small peninsula with mineralization extending in bands across
40m. Its rubies on a per carat basis are with high probability
the most valuable on the properties, given that hydrothermal,
marble-hosted deposits provide the most regarded rubies in the
world. 100 kg of surface material at this deposit contained 530g
of gem grade material, close to half being over 8mm size.
.
- Qaqqatsiaq, which is further inland and partly
covered by a snowpack at high elevation, and has "spectacular
mineralogy, which includes abundant growth to large sizes of:
corundum, enstatite, gedrite, sapphirine, cordierite, pargasite,
red spinel, phlogopite, biotite, chlorite, and kornerupine."
.
- 810 kilograms of sorted ruby
and pink sapphire concentrate has been returned from the processing
of 15 tonnes of bulk sample from five occurences
Greenland as a Mining Locale
- As Hudson Resources, a diamond
explorer states,
Greenland has:
.
- Very stable political environment
.
- Excellent mineral tenure regulations
.
- No native land claim issues
.
- the main ruby occurrences
are within kilometers of year-round ice free coastline in a south-western
region of the island fortuitously lapped by warm tongues of the
Gulf Stream
.
- the nearby town of Fiskenaesset,
population 240, forms a convenient base of operations for field
work
.
- Greenland is an expensive
place to operate due to its small, isolated population and economic
tie to Denmark rather than closer-by Canada
.
- Greenland and the Canadian
arctic are increasingly becoming cruise ship destinations
.
- a theoretically possible mining
plan for Fiskenaesset might entail towing a processing plant
on a barge at seaside (tidal variations are only 3 m), setting
up gondolas and conveyor belts, and sending carefully crushed
rock excavated from the deposits down for processing - no need
to build roads over the rocky terrain, and easy reclamation afterwards
Selling the Rubies
- unlike gold, rubies are not
a commodity, and the price received is very much a function of
the size and quality of stones, and how successful the selling
efforts are
.
- several coloured gemstone
companies have failed at the stage of starting to produce gems
by failing to negotiate deals with volume buyers
.
- due to competition, it is
critical to develop partnerships and marketing plans to sell
large volumes of gems that are smaller size and/or not the highest
quality; highest quality gems are so rare in the world that there
is little competition
.
- while selling is an important
challenge, there is also large opportunity for increasing profit
if marketing is skillfully done
.
- moving from rough gems at
a mine site to finished jewelry involves a very large increase
in price as what are typically many levels of middlemen take
their share - p.6
of an article by Firestone Ventures President Lori Walton
[big file] illustrates this in a chart showing how a 1 gram ruby
rough sold for $100 might hypothetically ends up sold to a consumer
with a 5000% markup; much is consumed by middle-men traveling
the far corners of the world, often in remote and hostile locations,
to find and possibly smuggle the gems, marketing these to others,
with experts verifying gems at each stage that they are not being
cheated, others meticulously searching and matching gem colours
hues, tones, and transparencies of gems for finished jewelry
.
- True North has the gems and
internal expertise such that they believe they will be able to
do what others cannot - control the deposits, analyze and process
the gems, and move them all the way through to the finished jewelry
stage
.
- True North's gems, unlike
the vast majority of rubies, would not originate from unknown
and possibly pariah and exploitive regimes, having passed through
several murky layers of middle-men, having undergone undisclosed
enhancements along the way - all stages will be tracked and certifiable,
verifiable, and saleable to the reputable dealers who command
high prices for their gems - as compared to being sold on eBay
.
- as a single stone centerpiece,
gems start to be useful and in high demand at about _ carat,
and better rubies have a high and increasing value as they approach
ideal ring sizes of 1-10 carats, sizes over 2 carats being extremely,
extremely rare for high quality gems that have not undergone
dubious enhancement
.
- information so far from the
Siggartartulik 2.58 tonne sample and field observations is that
of the large number of gems, True North's gems tend to have their
best quality in smaller sizes, although there are stones of quality
described as "good" approaching one carat, and "commercial"
-- saleable but at the lowest price scale - over one carat; no
doubt larger and better quality stones will be found in larger
sample sizes, away from the immediate surface of the rock, but
will be much more infrequent than the smaller stones
.
- the trend in jewelry, as dictated
by an ever-increasing world shortage of larger good quality diamonds
(and rubies), is to sell in "total carat weight" utilizing
smaller stones - down to as tiny as 1 point (1/100th of a carat)
and to utilize the latest computer technology to both design
and manufacture extremely intricate jewelry set having many small
stones producing a blanket of colour
Learning from Others
Many shun investing in a company
like True North Gems because they know of failures of other coloured
gemstone companies. I might add that I know of quite a few failures
of gold and diamond companies, and that success is highly dependent
upon the quality of deposits and the depth of technical and managerial
skill in the companies. This is what I have been able to find
in terms of coloured gemstone companies:
- American Gem Corporation attempted
to mine Montana's Yogo sapphires (a geologically unique deposit
grading .76 cut carats/tonne), and made agreements allowing another
company first choice at the best gems. It was not able to sell
the rest in volume fast enough to cover its cost under property
license agreements, and became insolvent
.
- Another public company, the
name of which I have been unable to find, attempted to mine the
rare and somewhat obscure gemstone red emerald (bixbite) found
in Utah but failed to sell the volumes they needed and produce
cash flow to mining costs and also went under
.
- Seahawk Resources, which started
a Brazillian underground emerald mine with debt financing, was
too slow to generate revenue at the startup of operations, in
desperation sold all its emerald rough at low prices, and also
went under (later becoming a successful privately owned mine)
.
- Australian sapphire producers
have been unfocused and disunited from a marketing standpoint,
and have become associated with the lower quality dark sapphires
that predominate their deposits - the result being that while
top quality gems are produced, these are bought and resold at
higher prices as goods from other geographic locations - their
failure to coordinate their marketing and generate positive brand
images have cost them dearly
.
- Tanzanite One, a UK based
tanzanite company, has successfully opened an underground mine
currently producing 55
carats/tonne, $11/carat. Tanzanite One is selling its stones
to favoured vendors who help generate demand for the stones using
De Beers "sightholder" concept. It uses the very latest
automated optical gem sorting technology to cut costs and prevent
employee theft, and has a market cap of approximately $250 million
based on only $41 million sales in the last year.
Factors that IMO will determine
True North's Success:
- 1.2 kg (6000 carats) / tonne
gem-grade ruby rough, and early valuations of a small unheated
subset of these gems at $50/faceted carat wholesale are highly
encouraging, but a better understanding of the potential of Fiskenaesset
rubies will be known with valuations of other deposits, with
samples that have undergone optimized heat treatments
.
- the level of success in achieving
efficient automation of gemstone retrieval, including use of
newly emerging optical scanning and sorting technology, will
be a major factor in the economics of mining large quantities
of what will likely be mostly smaller stones
.
- multiple partnerships and
relationships with retail outlets will need to be developed to
sell the volumes of jewelry, mostly of the "total carat
weight" variety, that will arise from deposits such as Siggartartulik
- I believe that efforts on this are well in hand, but degree
of success will be very important
.
- care will need to be taken
to create and protect a positive image surrounding branding -
the fact that the gems will be conflict-free and from a the rather
exotic location of Greenland in the far north being positive
factors to emphasize
.
- the ability of management
to communicate the significance of figures to investors such
as 6000 carats/tonne gem quality ruby rough from representative
sampling will make an enormous difference to the company until
such time as it can self-finance all of its endeavours
Summary
True North has reported exceptional
concentrations of rubies, has apparently had a good degree of
success in mechanically
liberating and sorting ruby and pink sapphire from 15 tonnes
of 2005 bulk sample, and has had encouraging gem valuations.
If, as I expect, True North succeeds at processing gems in high
volume operations and manufacturing certified, branded jewelry
in volume, they would be in a unique position. Not only would
they be able to add significant profit premiums to raw gem supplies
completely under their control, but also bring more to the table
to retailers by being able to make long-term partnerships to
supply orders for whatever is in demand. One might envision multiple
higher-end jewelry pieces per tonne of mined rock, and how much
money might be generated with a proper business plan for the
production and the sale of these one can only speculate at. It
is only my opinion, but True North Gem has great profit potential,
and as such, great potential for long term share price increase.
The success of $250 million market cap Tanzanite One is a model
to follow. A $15 million US market cap as of April 28th, 2006
for not only the Greenland rubies, but also Baffin Island sapphires,
Yukon emeralds and a base metal prospect, can leave readers with
their own conclusions about how True North is valued in the marketplace.
Jonathan Toop
--------------
Please note that much more
information is available in collections of links related to True
North Gems and gems in general at a
link on Silicon Investor. Readers might also find it informative
to visit True
North Gems website and view the latest
corporate video. Mentioning this article as a starting point
for potential research to newsletter writers or analysts would
be highly welcomed. I have talked with several who find a company
such as True North Gems too complex for them to comment on or
value, and who harbour fundamental misconceptions about such
things as the feasibility of mining rubies from hardrock. At
this point I would like to thank international gemstone experts
Richard Hughes and Fred Ward, both of whom have done a tremendous
service in educating the world about rubies through their writings,
and have been gracious enough to respond to emails from me.
Jonathan Toop
email: jontoop@msn.com
Disclaimer/Disclosure. Jonathan
Toop is a retired private investor based in Calgary and a shareholder
in True North Gems. He has not been paid by True North Gems to
write this article, nor has True North in any way invited or
encouraged this piece, which is an expression of opinion and
not a recommendation to buy. Readers are recommended to do their
own research, and any feedback, positive or negative, on this
article is highly welcome at jontoop@msn.com.
321gold Inc
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