2007-02-13 14:40 ET - Street Wire   Stockwatch.com

by Will Purcell

Kettle River Resources Ltd. made its latest cash call on time, but its continued participation in the DO-27 project remains uncertain, says its president, Ellen Clements. The company expects to meet a second cash call in the spring, which will give it a look at the results of a new bulk sample. From there, all bets are off.

The shrinking share

Ms. Clements said Kettle River and Dentonia Resources Ltd. each paid half of the latest bill for the project, now called DO-27. The full tab, $757,394, covered the contribution for a third DHK company, Horseshoe Gold Mining Inc. She said the two companies were giving their partner until the end of February to pay its part of the bill before diluting its share, "in the interest of good partner relations."

Ms. Clements expects a final cash call from Peregrine of about $1-million in April or May. She said Kettle River would make that payment as well. Kettle River would likely pick up Horseshoe's portion as well, if it does elect to dilute its interest.

Peregrine Diamond Corp. is running the project and it said the DHK trio failed to meet a $3.5-million cash call last fall. As a result, the DHK share of the project shrank from 20 per cent to just 10.77 per cent, giving each company about 3.5 per cent of DO-27. Dentonia's president, Adolf Petancic, disputes Peregrine's position and at last report, that company was mulling its legal options to restore its interest.

In the early 1990s, Kettle River seemed well on its way to having an 11.67-per-cent share of a rich diamond mine. The Tli Kwi Cho project was the toast of the market and Kennecott Canada Exploration Inc. was carrying its partners to production. A bulk sample bust in 1994 changed that, and Kennecott quit the project several years later.

That gave Kettle River and its DHK partners a larger share of the project temporarily, but they were no longer carried to production and a series of option arrangements steadily eroded their interests. Archon Minerals Ltd. arrived in 2002 and BHP Billiton Diamonds Inc. came and went rather quickly. In 2005, Peregrine finally gave the old Tli Kwi Cho pipe its second chance.

Kettle's plans

If Kettle River does meet Peregrine's spring call for cash, it will still have a 3.5-per-cent stake in the project when the diamond grades and values obtained in the latest bulk sample are complete later this year. "Hopefully they are going to be a little bit better than the previous results," Ms. Clements said.

Those earlier results point to a grade approaching one carat per tonne in the core of the pipe, a big improvement over the 1994 bust that missed the richer core of the big kimberlite complex. The diamond values remain the main concern at DO-27. The appraised values remain modest, but Peregrine's cumulative parcel is still too small to yield a meaningful result. The company's consultants suggest the diamonds could be worth $73 (U.S.) per carat, under some rosier conditions.

If the result is positive, Kettle River would have to come up with its share of completing a feasibility study and building a mine. If the results are marginal, Peregrine may elect to complete another round of expensive testing, putting pressure on Kettle's treasury for another year.

Ms. Clements said Kettle River's aborted merger with Peregrine was a beautiful exit strategy, but the option is no longer there, because of the added dilution resulting from the missed cash call. "There are other options and we are looking at different deals," she said, but added that the company planned to stay in the project until the bulk sample was complete before deciding what to do.

Kettle River closed unchanged at 18.5 cents Monday, on 4,300 shares.