Owner
Post by Franko10 ™ on Jul 12, 2005 12:43:58 GMT -5
Diamond Mining in Brazil
Diamonds were discovered in Brazil around 1727, although it is believed that gold prospectors had seen diamond crystals as early as 1670. Over the next 150 years, approximately 13 million carats of diamonds were recovered in Brazil. Of this total, approximately 5.5 million carats came from Diamantina in the state of Minas Gerais, 3.5 million carats came from Bahia, and 1.5 million carats came from other fields in Minas Gerais. By the end of the 1870's, however, Brazil's ranking as a diamond producer had fallen to third or fourth place. This decline was not caused by the exhaustion of deposits in Brazil, but was due to the low grade of the diamonds recovered. While Earlier mining efforts had been dependant on slave labor, the conversion to mechanized mining proved to be unprofitable. The abolition of slavery combined with competition from discoveries in South Africa by 1880, caused Brazil's officially recorded production to drop to only 5,000 carats per year.
Since the 1880's, Brazil's production has been cyclical and until
recently, Brazil had been unable to achieve previous production levels. A review of historic diamond production through 1993 indicates that Brazil has produced approximately 50 million carats, or 2.3%, of the total historical world diamond production.
Despite the generally low grade of Brazilian deposits, Brazil is
historically known to have produced some very large stones, including the following:
Location-Year-Size of Uncut:
Santo Antonio, MG - 1938 - 726.60
Verissimo River, MG - 1906 - 600.00
Coromandel, MG - 1939 - 460.00
Coromandel, MG - 1949 - 409.00
Coromandel, MG - 1940 - 400.65
Santo Antonio River, MG -1941 - 375.10
Abaete River, Tiros, MG -1945 - 375.00
Abaete River, Tiros, MG -1938 - 354.00
Bahia - 1851 - 350.00
Abaete River, Tiros - 1943 - 328.34
Nearly all historical diamond recovery in Brazil has originated from
surface or shallow alluvial deposits.
In 1993, Brazil produced approximately 1.5 million carats of diamonds, mostly from the states of Mato Grosso (60-70%) and Minas Gerais (30-40%), and ranked sixth in world production. Most diamonds continue to be recovered from alluvial gravel ("cascalho") deposits.
In Mato Grosso state, diamonds are principally recovered from alluvials in the Juina Kimberlite Province on the Amazonico Craton, which is the largest diamond producing area in Brazil. (As the city of Juina was not established until the early 1980's, the Juina district is commonly referred to in earlier literature as Aripuana). The average price obtained through recent on site sales of typical diamonds in Juina is US$35 per carat, which calculations do not include larger gem quality stones.
Diamond Mining and Exploration in the Juina District
In the mid-1970's, alluvial diamonds were found in the rivers in the Juina District by garimpeieros. At that time the area was largely
inaccessible due to the absence of roads and airstrips and the heavy
vegetation typical of jungle areas within the Amazon region.
In 1978, after acquiring prospecting permits covering the complete Juina District, De Beers Consolidated Mines, through its subsidiary Mineracao Itapena S.A. ("Itapena"), began exploration of the region. By 1982, Itapena identified three main areas of interest and began detailed sampling and evaluations of those areas. A pan plant was established between two of the properties on the Rio Cinto Larga to treat samples. Although there are no records regarding the volume of material that was treated by Itapena, it is believed that millions of carats of diamonds were recovered.
Itapena also identified 14 kimberlites, many of which clustered around an area 35 kilometers southwest of Juina, and several of which are noted on the Geology of Brazil maps issued in 1981. (A kimberlite is geological formation that is frequently a source of diamond deposits).
During the course of the exploration and evaluations, Itapena gradually disposed of its land holdings in the Juina region. One of the world's largest mining firms, Australian based Rio Tinto PLC, formerly Rio Tinto Zinc ("RTZ") acquired most of the former Itapena properties. As a result, RTZ is currently the largest landholder in the Juina district, and owns property containing most of the known kimberlites. The Aripuana Juina Kimberlite Province hosts at least 24 kimberlites situated in the immediate vicinity of the alluvial deposits. RTZ commenced exploration in the Juina area in 1992 and has focused
primarily on the kimberlites. Some of the kimberlites are diamondiferous and one, the Collier pipe, is known to have a surface area of 12 hectares. Occurrences of kimberlite are shown on geological maps to be in the vicinity of the boundary of the Property.
The scope of these explorations and the resulting reports serve as a
basis for developing a mine plan and for the projections for the Property.
Geological Investigations of the Property
Extensive exploratory work has been done around the Property by the Company and other unrelated entities. One such study conducted on an adjacent property to which the Company can acquire the mineral and mining rights concluded that 38.6 million carats of diamonds are contained in 2.1 million cubic meters (2.74 million cubic yards) of diamond bearing gravel. This equates to about 18 carats of diamonds per cubic meter (1.3 cubic yards) of gravel. The exploration was extensive and utilized standard geological evaluation techniques to determine the diamond bearing characteristics of the property. Hundreds of soil and gravel samples were gathered and evaluated.
These samples were obtained by grab sampling (obtained from the surface) and from cross sections of core drilling and pit excavations. Using a magnetometer, magnetic readings were also taken for geologic evaluation purposes and subsequently interpreted by a geophysicist.
The scope of this exploration and the resulting geological report serve as a basis for developing a mining plan and projecting capital and operating costs which the Company anticipates will be incurred in mining and recovering diamonds from the Property. Detailed geological conditions such as soil profiles, overburden ratios in relation to gravel layers, the thickness and configuration of gravel seams, and bedrock depths were reported. After evaluation of (i) the Company's Property as a whole, (ii) an independent qualifying report by a senior international exploration and mining consulting firm completed in July 1997, (iii) the exploration results on approximately 296 hectares of an adjacent property (described above), and (iv) the geological origin of diamonds in the region, a set of operating assumptions and a business plan have been developed. The following assumptions for the Property have be made:
- -Sixty percent of the 1,000 hectares of the Property contain diamonds.
- -Those 600 hectares contain twenty-four million carats plus of recoverable diamonds.
- -Each hectare contains forty thousand carats of recoverable diamonds.
- -The Property contains five meters of overburden.
- -The Property contains .4 meters of ore (diamond bearing gravel).
- -Ten carats of diamonds can be recovered per cubic meter of ore processed.
- -Seventy-four one hundreds of a carat recovered per cubic meter of material handled.
- -The average cost per carat recovered is US$6.96.
- -The average cost per cubic meter of materials handled is US$5.16.
In March 1998, the Company commenced a detailed quantitative survey delineating the alluvial ore deposits on the southern 250 hectare (618 acres)portion of the Property to determine the potential ore reserves.
142 drill holes have been completed to date which cover approximately 55 hectares (128 acres) or about 22% of the sector. Layers of alluvial gravel were encountered in 85% of the holes with an average of .70 meters in thickness at a medium depth of 5.5 meters from the surface. This equates to a potential resource of 327,250 cubic meters of ore with a projected value of over US$65,450,000.
A test pit measuring 32.5 square meters produced 9 cubic meters of ore. A random sample of 1 cubic meter of ore was processed to extract diamonds 5 mm and larger yielding over 7 carats per cubic meter. The largest stone weighed 3.00 carats with a second gem quality diamond weighing 1.15 carats. Historically, the sizes under 5 mm represent a much higher quantity per cubic meter in comparison to the sizes
5mm and over. The Company projects an estimated 1,000,000 cubic meters of alluvial ore resources on the southern portion of the Property. Based on a quantity of 10 carats per cubic meter of ore at a conservative value of US $20.00 per carat, and an average ore thickness of .40 meters, the Company expects to generate a minimum of US $200,000,000 in revenues from this sector. According to preliminary drilling results it appears that these figures may increase significantly.
Indicator minerals have been found in the surface deposits, which point to the evidence that a kimberlite is most likely present on the southern portion of the property. A geophysical magnetic survey was completed in May 1998, which has located the position of 4 kimberlite-like profiles. A drilling program will commence, utilizing revenues that are generated from the alluvial deposits, to define this resource.
Mining and Recovery Operations at the Property
Most of the diamond mining activity in the Juina district involves
Placer and river dredging operations. Diamonds are found on the surface or in shallow gravel and many individual prospectors search for diamonds by hand picking or panning surface materials. Current recovery operations in the area range in size and scope from small groups engaged in recreational type mining to large mining companies with full-scale operations.
The Company's plan for mining and recovery of diamonds entails surface mining the Property's diamond bearing gravel. Ground surface, vegetation and overburden will be removed and diamond-bearing gravel will be transported to a processing site. During the first phase of the Company's mining and recovery activity, the gravel will be run over a series of screens and jigs to concentrate the "heavies" which contain diamonds. This product will then be further concentrated with the use of a laser-guided sorter until nothing but an assortment of diamonds remains. The Company plans to implement a heavy liquid specific gravity system along with additional material handling equipment
during phases one and two of the Company's mining and recovery activities.
The quality of recoverable diamonds on the Property ranges from
industrial to near gem and gem quality. Based on the findings from the
analysis conducted by the Company and the results of other diamond recovery activities in the area, the Company expects to recover diamonds with a fair market value of US$20.00 per carat, excluding the larger gems. Pricing estimates are based on current market pricing for rough diamonds. The composition of the recoverable diamonds on the Property and their expected value is summarized as follows:
% of Reserves Value Range per Carat
75% $15.00 to $20.00
20% $50.00 to $100.00
3% $l50.00 to $200.00
2% $500.00 or more
Marketing
The Company has conducted negotiations with several established diamond buyers and has received expressions of interest and letters of intent for the purchase of all, or a substantial portion of the Company's projected production of 288,000 carats over the first year of operations and 760,000 carats for the second year of operations. The Company anticipates that it will sell the diamonds at prevailing market prices on terms acceptable to the Company. After reviewing near and long term demand forecasts for rough diamonds on the world market, the Company believes that it will be able to sell its total production output at its projected prices.
Regulation
There have been considerable recent changes in Brazil's Mining Code in an attempt to attract more foreign capital to the mining sector. Originally, under the Mining Code established in 1967, authorization to undertake exploration and mining was granted only to Brazilians. In 1988, Brazil adopted a new constitution that distinguished between privately owned Brazilian companies (empresa brasileira) and state-funded companies (empresa brasileira de capital nacional) and placed restrictions on foreign capital.
The 1988 constitution limited the exploration for and mining of mineral
resources to Brazilians and companies utilizing Brazilian capital. Companies controlled by individuals including foreigners residing in Brazil were considered to be companies utilizing Brazilian capital.
On August 15, 1995, in an effort to attract more foreign investors, Brazil repealed its constitutional prohibition against non-Brazilian capital. Foreign owned companies with at least one Brazilian director may now explore and mine mineral resources.
The Mining Code of 1967 and its accompanying regulations passed in 1968 regulate all mining activities and outline the rights and obligations of parties interested in mining. The Brazilian Mineral Production Department ("DNPM") which is associated with the Ministry of Mines is responsible for regulating and implementing the Mining Code. DNPM monitors the exploration, mining, processing, and trading of minerals. Mineral exploration and production may be carried out only with the authorization of the DNPM. Authorization takes approximately one to three months to obtain. Provided that all requirements are met and the area of interest is not already covered by an exploration permit, exploration permits are usually granted for an initial three year period.
To ensure that landowners share in the mining benefits "financial
compensation," a royalty payment, must be paid to the owners of property on which a mining concession has been granted. The financial compensation accorded to the owners of the property is typically 30% of the total diamond production from a company's recovery operations at the property.
Competition
The Company will be competing with other diamond production companies in the production of diamonds. Many of these companies have significantly greater financial resources than the Company. Competitors with greater financial resources may employ more sophisticated, efficient, and less costly techniques of recovering diamonds, or may be more successful than the Company with respect to acquiring interests in additional properties. New discoveries
of diamond reserves in Brazil or elsewhere in the world may dramatically increase the supply of diamonds and depress diamond prices. The diamonds the Company expects to recover will mostly be of industrial grade and will be purchased for industrial functional
purposes, which improve the abrasive qualities of certain cutting, boring and polishing tools. New technologies may be developed which replace the use of diamonds in such tools and may reduce the demand for industrial diamonds.
The sale of any diamonds recovered by the Company will be affected by fluctuating market conditions, which are beyond the control of the Company. One competitor, De Beers Consolidated Mining, controls the production and marketing of more than 70% of the world's diamonds and is able independently to influence the diamond markets. Because diamonds are a commodity product, the Company has limited opportunities to improve the prices it receives for its diamonds by employing marketing techniques. There can be no assurance that the Company's revenues will not be adversely affected by competitive factors.
Litigation
The Company has disputes from time to time, some of which lead to
litigation and others of which are settled without litigation. The Company is not aware of any legal proceedings or pending or threatened lawsuits against it which would have a material adverse affect on the Company.
Office Facilities
The Company presently maintains its executive offices at 350 South
Center Street, Suite 411, Reno, Nevada 89501, pursuant to a lease agreement with an unaffiliated landlord. The lease covers 650 square feet of office space, provides for monthly rent of $890 and has a term of 36 months, which commenced on October 1, 1997. The Company does not plan to increase its office space at the present time.
The Company also maintains offices in Brazil. The Company's Brazilian offices are located in a single level commercial office building in the city of Juina, which is owned by the Company. The office space is approximately 5,500 square feet. The Company acquired this property and the properties below at a purchase price of 200,000 shares of restricted Rule 144 common stock. Additional terms and conditions are included in the footnotes of the audited financial statements.
The Company also owns two four bedroom dwellings located in the city of Juina. The first dwelling is approximately 2,500 square feet. The second dwelling is approximately 3,000 square feet.
Employees
The Company has 1 employee including its executive officer at its
executive offices. The Company has approximately 30 employees at the
Property including 1 project manager.
Seasonality
The Company's operations are not expected to be materially affected by seasonality, except to the extent that the diamond exploration and production activities of the Company may be slowed by the rainy season in Brazil, which occurs during summer in the Southern Hemisphere.
Item 2. Management's Discussion and Analysis or Plan of Operations.
Predicated on geological reports and other information, the Company anticipates a five-year production schedule of 288,000 carats in year one, 760,000 carats in year two, 1.1 million carats in year three, and 1.2 million carats per annum in years four and five. Total recovery for the five-year period is projected to be 4.55 million carats.
The Company's long term production plan is to recover diamonds at the nominal rate of 1.2 million carats annually. At this level of production, the Company anticipates that it will maintain continuous recovery operations on the Property for approximately 20 years.
The Company's 20 year projections anticipate 22.55 million carats
recovered and revenues generated of US$451 million less US$167 million in expenditures. The remaining projected net income before taxes will be applied to the payment of taxes, retained earnings, and dividend distribution. Assuming that all taxes are incurred and paid at the rate of 20% of net earnings or US$56.8 million, the Company will have US$227.2 million for retained earnings, investment capital, and dividend distribution.
Given the geological findings on the Property, present world market conditions, pricing levels for rough diamonds and the Company's operating assumptions, the Company anticipates that it will recover approximately 4.55 million carats amounting to revenues of approximately US$90.96 million less total expenditures of US$40.9 million during the first five years of operation. The remaining revenue will be applied to the payment of taxes, retained earnings, and dividend distribution. Assuming that all taxes are incurred and paid at a rate of 20% of net earnings or US$10.01million, the Company will have US$40.05 million for retained earnings, investment capital,
and dividend distribution.
Item 3. Properties
The Company presently maintains its executive offices at 350 South
Center Street, Suite 411, Reno, Nevada 89501, pursuant to a lease agreement with an unaffiliated landlord. The lease covers 650 square feet of office space, provides for monthly rent of $890.00 and has a term of 36 months, which commenced on October 1, 1997. The Company does not plan to increase its office space at the present time.
Item 4. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth the beneficial owners of more than 5% of the outstanding common stock of the Company, including the beneficial owners of options and warrants to purchase common stock, and the shares of common stock owned by the officers, directors, key consultants and advisors of the Company, as of September 20, 1999:
Amount and
Name of Nature of Percent
Beneficial Beneficial of
Title of Class Owner Ownership
Class
Common Shares (1) Blue Diamond Marketing 2,572,222 15.7%
Common Shares (2) Nelson Ferreira De Matos 848,400 5.2%
Common Shares (3) Airton Cezar Reis 848,400 5.2%
Common Shares (4) Fredrico Carlos Traven 848,400 5.2%
Common Shares (5) Paulo C. Traven 848,400 5.2%
Common Shares (6)All Directors and 299,065 1.8%
Officers as a Group
(6) Noel M. Frenzel the President, Secretary, Treasurer of the Company, owns 299,065 shares.
Acquisition of Juina Mining Company, Inc.
On December 12, 1997, the Company entered into an agreement to acquire the mining rights to the Property from Juina Mining Company, Inc. ("JMC"), a Nevada corporation. The Company acquired 100% of the issued and outstanding shares of JMC in exchange for 6,000,000 shares of the common stock of the Company. As a result of the exchange, the Company obtained all of the assets of JMC, including a 70% working interest in the property known as Juina-Aripuana Diamond Property 1000 in the State of Mato Grosso, Brazil. Prior to the exchange, the Company had 2,332,572 shares of common stock issued and outstanding. After the exchange the Company had 8,332,572 shares of common stock issued and outstanding. The exchange agreement called for the resignation of all of the Company's officers and directors. The President of JMC, Noel M. Frenzel, became the Director, President, Secretary and Treasurer
of the Company.
Private Placements
Period Ending Number of Shares Consideration Exemption
December 31, 1997 200,000 shares $15,000 Cash Private
Placement/144
June 30, 1998 50,000 shares $50,000 Services Rule 144
December 31, 1998 440,000 shares $55,000 Cash Private
Placement/144
December 31, 1998 2,572,222 shares $463,000 Cash Private
Placement/144*
*$95,500.00 was received in the first month of 1999.
Diamonds were discovered in Brazil around 1727, although it is believed that gold prospectors had seen diamond crystals as early as 1670. Over the next 150 years, approximately 13 million carats of diamonds were recovered in Brazil. Of this total, approximately 5.5 million carats came from Diamantina in the state of Minas Gerais, 3.5 million carats came from Bahia, and 1.5 million carats came from other fields in Minas Gerais. By the end of the 1870's, however, Brazil's ranking as a diamond producer had fallen to third or fourth place. This decline was not caused by the exhaustion of deposits in Brazil, but was due to the low grade of the diamonds recovered. While Earlier mining efforts had been dependant on slave labor, the conversion to mechanized mining proved to be unprofitable. The abolition of slavery combined with competition from discoveries in South Africa by 1880, caused Brazil's officially recorded production to drop to only 5,000 carats per year.
Since the 1880's, Brazil's production has been cyclical and until
recently, Brazil had been unable to achieve previous production levels. A review of historic diamond production through 1993 indicates that Brazil has produced approximately 50 million carats, or 2.3%, of the total historical world diamond production.
Despite the generally low grade of Brazilian deposits, Brazil is
historically known to have produced some very large stones, including the following:
Location-Year-Size of Uncut:
Santo Antonio, MG - 1938 - 726.60
Verissimo River, MG - 1906 - 600.00
Coromandel, MG - 1939 - 460.00
Coromandel, MG - 1949 - 409.00
Coromandel, MG - 1940 - 400.65
Santo Antonio River, MG -1941 - 375.10
Abaete River, Tiros, MG -1945 - 375.00
Abaete River, Tiros, MG -1938 - 354.00
Bahia - 1851 - 350.00
Abaete River, Tiros - 1943 - 328.34
Nearly all historical diamond recovery in Brazil has originated from
surface or shallow alluvial deposits.
In 1993, Brazil produced approximately 1.5 million carats of diamonds, mostly from the states of Mato Grosso (60-70%) and Minas Gerais (30-40%), and ranked sixth in world production. Most diamonds continue to be recovered from alluvial gravel ("cascalho") deposits.
In Mato Grosso state, diamonds are principally recovered from alluvials in the Juina Kimberlite Province on the Amazonico Craton, which is the largest diamond producing area in Brazil. (As the city of Juina was not established until the early 1980's, the Juina district is commonly referred to in earlier literature as Aripuana). The average price obtained through recent on site sales of typical diamonds in Juina is US$35 per carat, which calculations do not include larger gem quality stones.
Diamond Mining and Exploration in the Juina District
In the mid-1970's, alluvial diamonds were found in the rivers in the Juina District by garimpeieros. At that time the area was largely
inaccessible due to the absence of roads and airstrips and the heavy
vegetation typical of jungle areas within the Amazon region.
In 1978, after acquiring prospecting permits covering the complete Juina District, De Beers Consolidated Mines, through its subsidiary Mineracao Itapena S.A. ("Itapena"), began exploration of the region. By 1982, Itapena identified three main areas of interest and began detailed sampling and evaluations of those areas. A pan plant was established between two of the properties on the Rio Cinto Larga to treat samples. Although there are no records regarding the volume of material that was treated by Itapena, it is believed that millions of carats of diamonds were recovered.
Itapena also identified 14 kimberlites, many of which clustered around an area 35 kilometers southwest of Juina, and several of which are noted on the Geology of Brazil maps issued in 1981. (A kimberlite is geological formation that is frequently a source of diamond deposits).
During the course of the exploration and evaluations, Itapena gradually disposed of its land holdings in the Juina region. One of the world's largest mining firms, Australian based Rio Tinto PLC, formerly Rio Tinto Zinc ("RTZ") acquired most of the former Itapena properties. As a result, RTZ is currently the largest landholder in the Juina district, and owns property containing most of the known kimberlites. The Aripuana Juina Kimberlite Province hosts at least 24 kimberlites situated in the immediate vicinity of the alluvial deposits. RTZ commenced exploration in the Juina area in 1992 and has focused
primarily on the kimberlites. Some of the kimberlites are diamondiferous and one, the Collier pipe, is known to have a surface area of 12 hectares. Occurrences of kimberlite are shown on geological maps to be in the vicinity of the boundary of the Property.
The scope of these explorations and the resulting reports serve as a
basis for developing a mine plan and for the projections for the Property.
Geological Investigations of the Property
Extensive exploratory work has been done around the Property by the Company and other unrelated entities. One such study conducted on an adjacent property to which the Company can acquire the mineral and mining rights concluded that 38.6 million carats of diamonds are contained in 2.1 million cubic meters (2.74 million cubic yards) of diamond bearing gravel. This equates to about 18 carats of diamonds per cubic meter (1.3 cubic yards) of gravel. The exploration was extensive and utilized standard geological evaluation techniques to determine the diamond bearing characteristics of the property. Hundreds of soil and gravel samples were gathered and evaluated.
These samples were obtained by grab sampling (obtained from the surface) and from cross sections of core drilling and pit excavations. Using a magnetometer, magnetic readings were also taken for geologic evaluation purposes and subsequently interpreted by a geophysicist.
The scope of this exploration and the resulting geological report serve as a basis for developing a mining plan and projecting capital and operating costs which the Company anticipates will be incurred in mining and recovering diamonds from the Property. Detailed geological conditions such as soil profiles, overburden ratios in relation to gravel layers, the thickness and configuration of gravel seams, and bedrock depths were reported. After evaluation of (i) the Company's Property as a whole, (ii) an independent qualifying report by a senior international exploration and mining consulting firm completed in July 1997, (iii) the exploration results on approximately 296 hectares of an adjacent property (described above), and (iv) the geological origin of diamonds in the region, a set of operating assumptions and a business plan have been developed. The following assumptions for the Property have be made:
- -Sixty percent of the 1,000 hectares of the Property contain diamonds.
- -Those 600 hectares contain twenty-four million carats plus of recoverable diamonds.
- -Each hectare contains forty thousand carats of recoverable diamonds.
- -The Property contains five meters of overburden.
- -The Property contains .4 meters of ore (diamond bearing gravel).
- -Ten carats of diamonds can be recovered per cubic meter of ore processed.
- -Seventy-four one hundreds of a carat recovered per cubic meter of material handled.
- -The average cost per carat recovered is US$6.96.
- -The average cost per cubic meter of materials handled is US$5.16.
In March 1998, the Company commenced a detailed quantitative survey delineating the alluvial ore deposits on the southern 250 hectare (618 acres)portion of the Property to determine the potential ore reserves.
142 drill holes have been completed to date which cover approximately 55 hectares (128 acres) or about 22% of the sector. Layers of alluvial gravel were encountered in 85% of the holes with an average of .70 meters in thickness at a medium depth of 5.5 meters from the surface. This equates to a potential resource of 327,250 cubic meters of ore with a projected value of over US$65,450,000.
A test pit measuring 32.5 square meters produced 9 cubic meters of ore. A random sample of 1 cubic meter of ore was processed to extract diamonds 5 mm and larger yielding over 7 carats per cubic meter. The largest stone weighed 3.00 carats with a second gem quality diamond weighing 1.15 carats. Historically, the sizes under 5 mm represent a much higher quantity per cubic meter in comparison to the sizes
5mm and over. The Company projects an estimated 1,000,000 cubic meters of alluvial ore resources on the southern portion of the Property. Based on a quantity of 10 carats per cubic meter of ore at a conservative value of US $20.00 per carat, and an average ore thickness of .40 meters, the Company expects to generate a minimum of US $200,000,000 in revenues from this sector. According to preliminary drilling results it appears that these figures may increase significantly.
Indicator minerals have been found in the surface deposits, which point to the evidence that a kimberlite is most likely present on the southern portion of the property. A geophysical magnetic survey was completed in May 1998, which has located the position of 4 kimberlite-like profiles. A drilling program will commence, utilizing revenues that are generated from the alluvial deposits, to define this resource.
Mining and Recovery Operations at the Property
Most of the diamond mining activity in the Juina district involves
Placer and river dredging operations. Diamonds are found on the surface or in shallow gravel and many individual prospectors search for diamonds by hand picking or panning surface materials. Current recovery operations in the area range in size and scope from small groups engaged in recreational type mining to large mining companies with full-scale operations.
The Company's plan for mining and recovery of diamonds entails surface mining the Property's diamond bearing gravel. Ground surface, vegetation and overburden will be removed and diamond-bearing gravel will be transported to a processing site. During the first phase of the Company's mining and recovery activity, the gravel will be run over a series of screens and jigs to concentrate the "heavies" which contain diamonds. This product will then be further concentrated with the use of a laser-guided sorter until nothing but an assortment of diamonds remains. The Company plans to implement a heavy liquid specific gravity system along with additional material handling equipment
during phases one and two of the Company's mining and recovery activities.
The quality of recoverable diamonds on the Property ranges from
industrial to near gem and gem quality. Based on the findings from the
analysis conducted by the Company and the results of other diamond recovery activities in the area, the Company expects to recover diamonds with a fair market value of US$20.00 per carat, excluding the larger gems. Pricing estimates are based on current market pricing for rough diamonds. The composition of the recoverable diamonds on the Property and their expected value is summarized as follows:
% of Reserves Value Range per Carat
75% $15.00 to $20.00
20% $50.00 to $100.00
3% $l50.00 to $200.00
2% $500.00 or more
Marketing
The Company has conducted negotiations with several established diamond buyers and has received expressions of interest and letters of intent for the purchase of all, or a substantial portion of the Company's projected production of 288,000 carats over the first year of operations and 760,000 carats for the second year of operations. The Company anticipates that it will sell the diamonds at prevailing market prices on terms acceptable to the Company. After reviewing near and long term demand forecasts for rough diamonds on the world market, the Company believes that it will be able to sell its total production output at its projected prices.
Regulation
There have been considerable recent changes in Brazil's Mining Code in an attempt to attract more foreign capital to the mining sector. Originally, under the Mining Code established in 1967, authorization to undertake exploration and mining was granted only to Brazilians. In 1988, Brazil adopted a new constitution that distinguished between privately owned Brazilian companies (empresa brasileira) and state-funded companies (empresa brasileira de capital nacional) and placed restrictions on foreign capital.
The 1988 constitution limited the exploration for and mining of mineral
resources to Brazilians and companies utilizing Brazilian capital. Companies controlled by individuals including foreigners residing in Brazil were considered to be companies utilizing Brazilian capital.
On August 15, 1995, in an effort to attract more foreign investors, Brazil repealed its constitutional prohibition against non-Brazilian capital. Foreign owned companies with at least one Brazilian director may now explore and mine mineral resources.
The Mining Code of 1967 and its accompanying regulations passed in 1968 regulate all mining activities and outline the rights and obligations of parties interested in mining. The Brazilian Mineral Production Department ("DNPM") which is associated with the Ministry of Mines is responsible for regulating and implementing the Mining Code. DNPM monitors the exploration, mining, processing, and trading of minerals. Mineral exploration and production may be carried out only with the authorization of the DNPM. Authorization takes approximately one to three months to obtain. Provided that all requirements are met and the area of interest is not already covered by an exploration permit, exploration permits are usually granted for an initial three year period.
To ensure that landowners share in the mining benefits "financial
compensation," a royalty payment, must be paid to the owners of property on which a mining concession has been granted. The financial compensation accorded to the owners of the property is typically 30% of the total diamond production from a company's recovery operations at the property.
Competition
The Company will be competing with other diamond production companies in the production of diamonds. Many of these companies have significantly greater financial resources than the Company. Competitors with greater financial resources may employ more sophisticated, efficient, and less costly techniques of recovering diamonds, or may be more successful than the Company with respect to acquiring interests in additional properties. New discoveries
of diamond reserves in Brazil or elsewhere in the world may dramatically increase the supply of diamonds and depress diamond prices. The diamonds the Company expects to recover will mostly be of industrial grade and will be purchased for industrial functional
purposes, which improve the abrasive qualities of certain cutting, boring and polishing tools. New technologies may be developed which replace the use of diamonds in such tools and may reduce the demand for industrial diamonds.
The sale of any diamonds recovered by the Company will be affected by fluctuating market conditions, which are beyond the control of the Company. One competitor, De Beers Consolidated Mining, controls the production and marketing of more than 70% of the world's diamonds and is able independently to influence the diamond markets. Because diamonds are a commodity product, the Company has limited opportunities to improve the prices it receives for its diamonds by employing marketing techniques. There can be no assurance that the Company's revenues will not be adversely affected by competitive factors.
Litigation
The Company has disputes from time to time, some of which lead to
litigation and others of which are settled without litigation. The Company is not aware of any legal proceedings or pending or threatened lawsuits against it which would have a material adverse affect on the Company.
Office Facilities
The Company presently maintains its executive offices at 350 South
Center Street, Suite 411, Reno, Nevada 89501, pursuant to a lease agreement with an unaffiliated landlord. The lease covers 650 square feet of office space, provides for monthly rent of $890 and has a term of 36 months, which commenced on October 1, 1997. The Company does not plan to increase its office space at the present time.
The Company also maintains offices in Brazil. The Company's Brazilian offices are located in a single level commercial office building in the city of Juina, which is owned by the Company. The office space is approximately 5,500 square feet. The Company acquired this property and the properties below at a purchase price of 200,000 shares of restricted Rule 144 common stock. Additional terms and conditions are included in the footnotes of the audited financial statements.
The Company also owns two four bedroom dwellings located in the city of Juina. The first dwelling is approximately 2,500 square feet. The second dwelling is approximately 3,000 square feet.
Employees
The Company has 1 employee including its executive officer at its
executive offices. The Company has approximately 30 employees at the
Property including 1 project manager.
Seasonality
The Company's operations are not expected to be materially affected by seasonality, except to the extent that the diamond exploration and production activities of the Company may be slowed by the rainy season in Brazil, which occurs during summer in the Southern Hemisphere.
Item 2. Management's Discussion and Analysis or Plan of Operations.
Predicated on geological reports and other information, the Company anticipates a five-year production schedule of 288,000 carats in year one, 760,000 carats in year two, 1.1 million carats in year three, and 1.2 million carats per annum in years four and five. Total recovery for the five-year period is projected to be 4.55 million carats.
The Company's long term production plan is to recover diamonds at the nominal rate of 1.2 million carats annually. At this level of production, the Company anticipates that it will maintain continuous recovery operations on the Property for approximately 20 years.
The Company's 20 year projections anticipate 22.55 million carats
recovered and revenues generated of US$451 million less US$167 million in expenditures. The remaining projected net income before taxes will be applied to the payment of taxes, retained earnings, and dividend distribution. Assuming that all taxes are incurred and paid at the rate of 20% of net earnings or US$56.8 million, the Company will have US$227.2 million for retained earnings, investment capital, and dividend distribution.
Given the geological findings on the Property, present world market conditions, pricing levels for rough diamonds and the Company's operating assumptions, the Company anticipates that it will recover approximately 4.55 million carats amounting to revenues of approximately US$90.96 million less total expenditures of US$40.9 million during the first five years of operation. The remaining revenue will be applied to the payment of taxes, retained earnings, and dividend distribution. Assuming that all taxes are incurred and paid at a rate of 20% of net earnings or US$10.01million, the Company will have US$40.05 million for retained earnings, investment capital,
and dividend distribution.
Item 3. Properties
The Company presently maintains its executive offices at 350 South
Center Street, Suite 411, Reno, Nevada 89501, pursuant to a lease agreement with an unaffiliated landlord. The lease covers 650 square feet of office space, provides for monthly rent of $890.00 and has a term of 36 months, which commenced on October 1, 1997. The Company does not plan to increase its office space at the present time.
Item 4. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth the beneficial owners of more than 5% of the outstanding common stock of the Company, including the beneficial owners of options and warrants to purchase common stock, and the shares of common stock owned by the officers, directors, key consultants and advisors of the Company, as of September 20, 1999:
Amount and
Name of Nature of Percent
Beneficial Beneficial of
Title of Class Owner Ownership
Class
Common Shares (1) Blue Diamond Marketing 2,572,222 15.7%
Common Shares (2) Nelson Ferreira De Matos 848,400 5.2%
Common Shares (3) Airton Cezar Reis 848,400 5.2%
Common Shares (4) Fredrico Carlos Traven 848,400 5.2%
Common Shares (5) Paulo C. Traven 848,400 5.2%
Common Shares (6)All Directors and 299,065 1.8%
Officers as a Group
(6) Noel M. Frenzel the President, Secretary, Treasurer of the Company, owns 299,065 shares.
Acquisition of Juina Mining Company, Inc.
On December 12, 1997, the Company entered into an agreement to acquire the mining rights to the Property from Juina Mining Company, Inc. ("JMC"), a Nevada corporation. The Company acquired 100% of the issued and outstanding shares of JMC in exchange for 6,000,000 shares of the common stock of the Company. As a result of the exchange, the Company obtained all of the assets of JMC, including a 70% working interest in the property known as Juina-Aripuana Diamond Property 1000 in the State of Mato Grosso, Brazil. Prior to the exchange, the Company had 2,332,572 shares of common stock issued and outstanding. After the exchange the Company had 8,332,572 shares of common stock issued and outstanding. The exchange agreement called for the resignation of all of the Company's officers and directors. The President of JMC, Noel M. Frenzel, became the Director, President, Secretary and Treasurer
of the Company.
Private Placements
Period Ending Number of Shares Consideration Exemption
December 31, 1997 200,000 shares $15,000 Cash Private
Placement/144
June 30, 1998 50,000 shares $50,000 Services Rule 144
December 31, 1998 440,000 shares $55,000 Cash Private
Placement/144
December 31, 1998 2,572,222 shares $463,000 Cash Private
Placement/144*
*$95,500.00 was received in the first month of 1999.
