Dear Shareholder:
Your Company has recently agreed to amend the terms of its joint venture with Spider Resources Inc. Over a period of 13 years, the joint venture has made a number of important discoveries from a total investment of some $35 million in the exploration of Ontario’s northern reaches.
Diamonds were discovered in a series of kimberlites drilled in the James Bay Lowlands, subsequently named the Kyle kimberlites. To the east of these, diamonds were discovered in claims staked to the north of the Victor pipe of De Beers Canada Inc. These we named the MacFadyen kimberlites, to credit the original identification of them by the geophysical interpretations of Donald MacFadyen. Subsequently, diamonds were discovered by the joint venture near the town of Wawa, Ontario. More recently, copper and zinc mineralization were discovered south west of the Kyle kimberlites, near McFaulds Lake.
Under the proposed amendment of the joint venture agreement, each of these four projects will become governed by a separate agreement between the parties. This will facilitate the possible introduction of a major project investor, into each project, in future. KWG has elected to invest further in the sampling of the MacFadyen kimberlites, as De Beers has now commenced construction of Ontario’s first diamond mine at the adjacent Victor pipe. When your Company’s additional exploration expenditures there equal half of the total previously invested by the joint venture, Spider may elect to then contribute further to maintain a one-third interest.
At the same time, KWG has elected not to contribute to additional exploration expenditures at Kyle, McFaulds Lake, or Wawa, until such time as some $15 million has been further spent there to reduce the Company’s interest to one-third from our present one-half. In addition, the parties have agreed to contribute equally to two new projects: the Freewest Option, and the Diagnos targets.
Under the Freewest Option, geophysically-rendered targets are being drilled for their base metal potential, on claims staked by Freewest Resources Ltd., adjacent to the McFaulds Lake discovery. The Diagnos targets are three groups of claims identified, in a report commissioned by the joint venture, as prospective for diamondiferous kimberlites. These were staked as a result of the report and will be drill-tested in the current exploration season.
A recently-announced Mutual Assistance Agreement concluded by the joint venture, with De Beers Canada Inc., will benefit greatly the efficiency and cost of our planned additional exploration undertakings at the MacFadyen kimberlites. A more recent private placement of treasury shares, for working capital, has returned your Company to substantial liquidity. The completion of the joint venture amending agreement will permit us to participate in any successes achieved in the Kyle, Wawa and McFaulds lake projects, without further expenditures there for the present. This will enable us to focus on the opportunities evident at the MacFadyen project and the Freewest and Diagnos targets. We hope that the relatively more modest cost of exploring these will prove to be rewarding.
I wish to thank my fellow directors for their wisdom and counsel throughout this last year. Your Company is especially fortunate in having, in this role, access to the unique and long experience of the most distinguished career of Dr. Mousseau Tremblay.
On behalf of the board,
Frank C. Smeenk
Chairman and Chief Executive Officer
March 10, 2006 |
