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PDAC 2011 – this March

Posted by David

Hello and happy New Year!

Sorry for the delay in posts.

This year’s Prospectors and Developers Association of Canada’s (PDAC) main convention is March 6th to 9th. It is at the Metro Toronto Convention Centre’s south building. Delegates can register HERE for the conference. For the non-student or non-senior, the convention can be a little pricey, but day passes can be had for ~$81 and the Investor’s Exchange portion is free.

For those of you who purchase full access to the convention be sure to check out the Technical Sessions. They are often quite good and have excellent speakers on relevant topics. A list of the sessions is HERE. Other sessions include the CSR Event Series, the Aboriginal Program, an Open Session, and an Innovation Forum. Ten short courses/workshops also occur just before and after the convention itself.

Sessions mentioning diamond exploration/mining are:

  • 21 years of Canadian diamonds: Coming of age? – room 716, Monday March 7th, 2-4 pm
  • New geoscience in support of exploration in the Canadian Shield North of 60⁰ – room 716, Tuesday March 8th, 9 am-noon
  • Africa – room 713, Tuesday March 8th, 10 am

Major and minor diamond producers/explorers typically have booths at the PDAC. Some of the usual suspects from past years include Rio Tinto, Harry Winston, Stornoway, Shear, Shore Gold, Peregrine, and BHP Billiton. For those unfamiliar with this convention, it is the premier mining and exploration convention in North America and is not to be missed for those working in or investing in the industry.

Make sure to sign up by this Friday (February 4th) as the prices for most admission types go up after that. Happy investing.

Disclaimer: Relevant comments are welcome and encouraged. Spam comments will be deleted. This article is based on the opinions and experience of the author. Please conduct due diligence when investing. ©KIM Report 2011 www.kimreport.com

Diamonds, General Comments(0) February 1, 2011 4:47 pm

Peregrine Finds 1.15 Carat Diamond at Chidliak

Posted by David

Peregrine Diamonds Ltd. added to their exceptional track record last week when they found a 1.15 c macrodiamond. It was in an 840 kg total microdiamond sample from the CH-31 kimberlite in the Chidliak project, Baffin Island, Nunavut. CH-31 is the largest kimberlite in terms of surface area (5 ha) in the Chidliak project that is a JV between PGD (49%) and BHP Billiton (51%).

CH-31 is just the latest of many kimberlite pipes found at Chidliak since 2008 in what has been a textbook study of how to prospect for diamonds.

Kimberlite Pipe Characteristics

Being more specific, the 1.15 c stone is an off-white tetrahexahedroid recovered from the CH-31D sample that comprised 201 kg of the total sample (see above table). This find is impressive as PGD found CH-31 last August when prospecting an anomalously low zone on an aeromagnetic survey. Samples A and B are surface samples collected from the margins of the kimberlite. Samples C and D are from drill core collected from the same angled drill core at depth ranges of 6-328 m and 328-416 m, respectively. This kimberlite is being considered for the next step: a mini-bulk sample (usually >100 t), in 2011.

The kimberlite itself is volcaniclastic facies, the type typical of the upper regions within kimberlite pipes. Both crustal (e.g., carbonate rocks, gneisses, etc.) and mantle (e.g., peridotite and eclogite; the parent rocks for diamond formation) xenoliths were found in some abundance in the kimberlite. At first glance, the kimberlite appears to consist of only one eruptive phase, although these are only preliminary observations.

Future Prospects

This find has possibly buoyed management’s confidence in the project and they have increased their earlier private placement of 2 million shares by 800,000 at $2.50/share. This will bring in about $12 million (not including warrants).

PGD’s management is well-versed in diamond exploration. The company’s early days were focused on the DO-27 kimberlite in the Lac de Gras region. Before that, many of the geologists had experience with other projects. Brooke Clements, President, was part of the Ashton Mining Canada team that found the Renard kimberlite cluster that is now being developed into Quebec’s first diamond mine by Stornoway and SOQUEM. The VP Exploration, Peter Holmes, was previously with De Beers and participated in evaluating the Lomonosov diamond deposit (now a mine as of 2005) in northwest Russia (close to the massive V. Grib deposit and subject to legal strife between LUKOIL, De Beers, and the now defunct Archangel Diamond Corporation).

This past month seems to have been a very good one for PGD as it began with their October 3rd press release of their confirmation of diamondiferous kimberlites in the Qilaq property. This property surrounds Chidliak and is 100% owned by Peregrine (see above map). The challenge now is to keep the project’s momentum going by following investors’ expectations after this spate of successes.

Disclaimer: The author holds shares of SWY. Relevant comments are welcome and encouraged. Spam comments will be deleted. This article is based on the opinions and experience of the author. Please conduct due diligence when investing. ©KIM Report 2010 www.kimreport.com

Diamonds Comments(0) November 1, 2010 11:51 pm

Newsworthy Week For Canadian Diamond Companies

Posted by David

It has been an exciting week thus far for the Canadian diamond industry. A few major news releases from junior Canadian diamond exploration companies has shown that the industry is climbing out of its stagnation from the past couple of years.

A New Mine for Nunavut, Again

A curious development in the Canadian diamond scene occurred with Shear Mineralsannouncement that they were purchasing 100% of the Jericho diamond mine in Nunavut. Shear will purchase the mine for $2,000,000 and 80,000,000 common shares. The bulk of this will be paid to the main creditor of Jericho’s bankrupt owner (Tahera Diamonds). The main creditor is CAZ Petroleum Ltd. Other terms of the deal is that CAZ will get a 2% royalty on mine production and be allowed to appoint one member of Shear’s board of directors. Though extremely dilutive (they are looking to raise funds of $15 million by private placement), this move may give Shear an income stream within a couple of years. The problem with the Jericho mine is that $/ton value is somewhat lower than at Ekati or Diavik. Grade ranges from 0.34 to 1.49 c/t and average diamond value from (US) $78/c to $112/c as given in the NI 43-101 report. It is also significantly further north than the other mines. Narrow margins mean that diamond prices must remain high, the ice-road season be lengthy, a stronger US dollar, and mining be problem-free in order to draw a profit from Jericho and avoid Tahera’s fate. However, Shear does benefit from Tahera’s case study example in what a junior should avoid in operating an Arctic diamond mine. Should the economy remain strong, SRM should have a decent chance at making the mine work.

More Kimberlites at Chidliak

The other bit of significant news this week comes from Peregrine Diamonds where they continue to find new kimberlites with relative ease at their Chidliak property (Baffin Island). The company reports eight new kimberlite finds: two by drilling and six by surface prospecting. The latter discoveries seem to characterize the direction of this project as PGD continues to make textbook finds with ease in southwest Baffin Island. They also report mini-bulk samples taken from two earlier finds. The company continues this summer with their plan to investigate further geophysical anomalies in tandem with kimberlite indicator mineral data.

Renard Moves Towards Production

Moving away from Arctic diamond projects, Stornoway Diamond Corp. has added to this week’s mix with the formal commencement of the feasibility study for a mine at the Renard Diamond Project (central Quebec). This involves looking at how the proposed mine would affect the environment and local communities, increasing the capacity of the proposed mine from 5 kt/day to 8 kt/day, and a separate project to tie the mine into the electric power grid; amongst other items. The issues regarding corporate environmental and social responsibility are important as it shows that local stakeholders, i.e. the Quebec government and the local aboriginal (Cree) and non-aboriginal communities are on board with the project. The Impact and Benefits Agreement that the feasibility study considers is an important step in cementing this relationship.

As an addendum, the company announced that it had reached a pre-development agreement with the local Cree nation shortly after the initial publication of this article. This is an important step towards working out the Impact and Benefits Agreement necessary for the mine to develop.

In terms of exploration, SWY will continue expanding on the Foxtrot property that the Renard cluster is a part of. Winter drilling has already expanded the resources at Renard 3, 4, and 65. More drilling is happening this summer on these three kimberlite pipes.

While the economic recovery has reinvigorated consumer appetite for pretty carbon, the market still treats diamond juniors with some trepidation, being burnt by failures such as Tahera and lengthy lead times to production (e.g. Shore Gold and Fort à la Corne-Star).  Only prolonged stable economic growth and the development of some good projects to profitable production will see investors flock back to the diamond sector.

Disclaimer: The author holds shares of SWY, and SRM. Relevant comments are welcome and encouraged. Spam comments will be not posted and deleted. This article is based on the opinions and experience of the author. Please conduct due diligence when investing. ©KIM Report 2010 www.kimreport.com

Diamonds Comments(1) July 23, 2010 11:50 pm

Chidliak: Peregrine Diamonds Discovers New Hope for Arctic Diamond Exploration

Posted by David

The one diamond discovery that commanded the most attention at this year’s PDAC convention was Peregrine Diamondskimberlite (and subsequent diamond) discovery on its Chidliak property in south Baffin Island, Nunavut. Chidliak is 9800 km2, and since the discovery of diamonds on the property, Peregrine has added a buffer claim around the property of ~3200 km2 in area called Qilaq this February. BHP-Billiton has earn-in rights of up to 51% in Chidliak if they spend $22.3 million on the property over the next five years. Although BHP is spending five times what Peregrine is, Peregrine remains the operator for 2009′s program.

Chidliak was the focus of two talks in two separate diamond sessions at this year’s PDAC. What is so interesting about Chidliak is the sequence of events that led to the discovery of three kimberlite bodies: CH-1, -2, and -3, on the property.

Till sampling of kimberlite indicator minerals from 2005 to 2007 confirmed that kimberlite was present in the area. These samples indicated that 10% of the garnets found were G10. Last year, an aeromagnetic survey that covered less than 15% of the property resulted in a number of magnetic anomalies. These are commonly associated with kimberlite, but not always. Field geologists sent out to investigate the three most promising anomalies encountered kimberlite rock at the surface. Approximately 1100 kg mini-bulk surface samples from the CH-1 and CH-2 kimberlites gave back 2.17 c/t and 0.9 c/t, respectively. This includes a 2.01 c gem-quality colourless resorbed octahedron from the CH-1 sample.

These are in no way statistical samples of the diamond potential of the kimberlites, but they are superb returns from a grassroots exploration program that has yet to put a drill hole into the ground. Considering these encouraging results, there is significant upside to this project. Over 170 magnetic anomalies remain from the aeromagnetic survey for investigation and the bulk of the claim remains yet to be surveyed. Consider that the size of the Chidliak and Qilaq claims are much larger than the Ekati (BHP-Billiton) or Diavik (Rio Tinto and Harry Winston) mine camps in the Northwest Territories.

Another long-term benefit for the project is its proximity to infrastructure. That is of course a relative term when in the arctic. The property is less than 100 km from the territorial capital of Iqaluit and even closer to the coast, unlike the land-locked and isolated Lac de Gras mines that are ~400 km from Yellowknife by ice road.

Considering that current mines in the pipeline are either modest in comparison to Ekati and Diavik: e.g. Snap Lake (De Beers), Renard (Stornoway and SOQUEM), DO-27 (Peregrine), or have slowed in their development: e.g. Fort a la Corne (Shore Gold and Newmont), Gahcho Kue (Mountain Province and DeBeers); Chidliak hopefully represents a large part of a new period of Canadian diamond exploration.

Disclaimer: The author holds 4000 shares of SWY and 20 of HW. This article is based on the personal opinions and experience of the author. Please conduct due diligence when investing. ©KIM Report 2009 www.kimreport.com

Diamonds Comments(0) March 8, 2009 6:39 pm

Selling Diamonds at the PDAC

Posted by David

Diamonds were the focus of two sets of talks at the PDAC. The first was a more general discussion that dealt with varied topics such as threats to producers in the form of treated and synthetic stones, science in diamond exploration, the new Chidliak (Peregrine & BHP) discovery, and the diamond industry and its relation the to market in general. The second was a series of presentations by various diamond juniors and their properties.

Turnout for the first talk was surprisingly low, considering the reputation of the speakers, less surprisingly was the even lower turnout to the second series. However, some very good presentations were given and some interesting trends began to appear in the nature of the industry:

1. The diamond industry IS hurting. That is a no-brainer considering how every other mining sector is doing (with the possible exception of gold right now). Currently there is a glut of diamonds in the possession of the cutters right now and the consumer, -you, are not buying. Yes people continue to get married even in tough economic times, but that diamond on the engagement ring will be smaller. Less disposable income = lower consumer spending.

2. The aforementioned hurt has led to a serious slowdown in the discovery and development of diamond deposits. The collapsed diamond prices have led to a short term situation where long term supply will be affected.

3. In regards to that long term view, diamond mines are painstaking to develop. They require more proving-work than any metal commodity and have a discovery to production timeline of at least ten years.

4. This slowdown in the development process is coupled with the lack of world-class discoveries/openings since Diavik (Rio Tinto & Harry Winston) in 2001. The two biggest resources in terms of report value in the pipeline now are Grib (Lukoil & Archangel: TSX.V-AAD), Russia, and Fort a la Corne (Shore Gold & Newmont), Canada. Other developments include the reopening of the Letseng (Gem Diamonds: LSE-GMD) diamond mine, and the sampling of the Mothae kimberlite (Motapa: TSX.V-MTP), both in Lesotho, and the continuing development of the Renard project in Quebec into a mine (Stornoway & SOQUEM).

5. These projects are still 2-8 years before any chance of production, but that may be a good thing as it will be at least 3 years until diamond prices recover from their recent 40% drop. Imagine what would happen if gold went below $600/oz. in a few months.

6. These low diamond prices also mean that companies are holding off on having their projects evaluated in terms of US$/carat.

7. Two types of deposits that did see some focus at the conference are deposits with low grade, but very high diamond value, and those with very low production costs. Diamonds from Letseng are quite rare, but typically high quality. Values can reach up to $2000/c. Motapa and Shore Gold are hoping to enter this low grade – high value club as well. An interesting thing about these rare diamonds is that they appeal to the extremely wealthy, who are more insulated from economic cycles. Companies with low-mining cost projects include Dianor (TSX.V-DOR), who are developing their paleoplacer (old river deposit) Leadbetter diamond resource near Wawa, Ontario, and Mexivada (TSX.V-MNV, Frankfurt-M2Q) with younger placer projects in Sierra Leone. Placer deposits are usually alluvial (river-related) and can concentrate other heavy minerals, such as gold. Placer diamonds are typically higher in value than ones from kimberlites because transport tends to destroy brittle/cracked/included ones.

The key thing now is that companies are balancing keeping in the black with continuing to add value to their projects. The long development time for diamond deposits means that these companies cannot afford to waste 1-2 years due to market conditions. Smart companies are focusing their resources for their most promising resources. Ones that will ensure cash flow as soon as possible.

The lack of attention given to the diamond industry by institutional investors has led to extreme undervaluation in some cases, even at current diamond prices. This represents an opportunity for the individual investor with a 2-4 year outlook to make some serious coin. However, there are a number of diamond juniors out there that have extremely speculative projects and consumers must carefully weigh their expected returns with the risk they are undertaking. More advanced projects carry less risk, but also less expected return. Investors have to take advantage of mispricing by the market due to short term concerns and engage in due diligence to maximize their profits

Disclaimer: The author holds 4000 shares of SWY and 20 shares of HW. He wishes he bought some PGD shares a few months back, but life is far from perfect. This article is based on the opinions and experience of the author. Please conduct due diligence when investing.

Bending Clifford’s Rule

Posted by David

In his famed 1966 paper, T.S. Clifford noted that diamond-bearing kimberlite pipes were always ones that intruded regions of ancient continental crust. To be more specific, these regions are Archean in age (>2.5 billion years old) and formed the tectonically stable cores of continents known as cratons. Thus “Clifford’s Rule” states that diamondiferous kimberlites occur in geologic regions that have been tectonically stable (i.e. cratons) since the Archean and that diamond exploration should focus on those areas.


However, over the past forty years these regions of high diamond potential have been thoroughly investigated for diamond deposits and a number of world class deposits have been found in this manner, such as those in the Canadian arctic. As time passes, there are fewer and fewer areas of apparent diamond potential that remain unexplored. Diamond prospectors must start looking in places that appear at first not to follow Clifford’s rule. More diamond discoveries are being made in regions where Archean craton is not obvious.


Attending this August’s 9th International Kimberlite Conference, a prevalent theme was diamond exploration and discoveries in atypical areas falling outside of Clifford’s rule. For example, one presentation was regarding the nature of the Arygle mine, owned by Rio Tinto plc. Although situated in a Proterozoic (between 2.5 and 0.542 billion years old) mountain belt, Argyle has probably the highest diamond grade of all operating diamond mines. This presentation suggested the possibility of Archean mantle existing kilometers below the younger material at surface and thus providing the conditions optimal for diamond stability. Another example of developing properties in non-Archean areas is the diamondiferous Carolina kimberlite in Brazil. Located in the 1.8-1.2 billion year old Amazon craton, this kimberlite and others near it are being investigated by Sola Resource Corporation (TSX.V-SL). The characteristics of this kimberlite discovered thus far show no significant deviation from those of kimberlites situated in Archean cratons.


Regardless of how the current market environment is treating diamond stocks, the increasing core demand for diamonds has pushed diamond exploration to looking at areas previously considered to be at the fringes. Examples of significant discoveries in these areas include those mentioned above, plus Fort a la Corne, Saskatchewan; and Guaniamo, Venezuela.


The rising demand for diamonds has caused the small group of large companies who control the bulk of the rough supply (De Beers, Rio Tinto, BHP Billiton) to raise prices. As with any commodity, when price rises, new technology and new exploration philosophies are employed to discover deposits in previously unexplored areas.

Diamonds Comments(7) August 28, 2008 7:08 pm

Conference-Induced Hiatus

Posted by David

Sorry for the lack of updates the past few weeks. My time had been taken up in preparing my research for presentation at the aforementioned 9th International Kimberlite Conference in Frankfurt, Germany.

The conference was a big success. Canadians made up about a third of the ~450 participants, with Russia, Australia, the U.K., the U.S.A., Japan, South Africa, and Germany also making large contributions. Although mainly an academic conference, representatives of companies such as Rio Tinto, Diamondex (TSX.V-DSP), BHP Billiton, Metalex (TSX.V-MTX), Indicator Minerals (TSX.V-IME), Teck Cominco, Shear Minerals, and Shore Gold were present. Private company De Beers also have a strong presence through both its exploration/mining arms and the Diamond Trading Company (DTC). Topics of discussion included diamonds and their formation, kimberlite emplacement, exploration techniques, and the mantle.

More information on the highlights of the conference to come…

Diamonds, General Comments(2) August 18, 2008 9:13 am

Diamond report from New Nadina needs some polish

Posted by David

Last Monday, New Nadina Explorations Ltd. (TSX.V-NNA), a diamond explorer, published results from a microdiamond assay of core from the optimistically named “Bling” kimberlite in the Lac De Gras region of the Northwest Territories. The Lac De Gras Region was the site of the first significant diamond discoveries in Canada, and is home to the Ekati (BHP Billiton) and Diavik (Rio Tinto and Harry Winston) diamond mines. The Bling kimberlite is located on the Monument Diamond Project in the Blue Pearl Cluster, and is the sixth such body to be discovered there. NNA owns 57.49% of the project. Chris Jennings, famous for his diamond finds in southern Africa and somewhat mixed results Canada, owns 22.11% along with his wife, Jeanne. Archon Minerals Ltd. (TSX.V-ACS), run by Stewart Blusson, co-discoverer of the Ekati Mine with Chuck Fipke, owns the remaining 20.4%.


Petrologically, the Bling kimberlite is pyroclastic (diatreme/crater) facies kimberlite, i.e. post-eruption/non-magmatic. The kimberlite was intersected during drilling of a 45º angled core hole from 171 m to 203 m. It contains abundant coarse olivine, pyrope, and chromium-rich diopside, minerals strongly associated with the mantle. But are they associated with diamonds in this case? The large size of many of crystals, up to 2 cm in diameter, indicates that they are possibly not fragments of diamondiferous peridotite xenoliths brought up by the kimberlite, but rather they are related to the kimberlite. Such grains are often termed megacrysts. Ergo, this information does not say much about potential for diamond abundance or lack thereof, although chemical analysis of said megacrysts could (but that is for another article).


However, upon later correspondence with Mr. Kivi, the P.Geo. in charge of the project,  it was stated that these large crystals are likely not to be megacrysts as stated above, but rather that they are likely to be from deep mantle origins, ~200 km depth. If this is the cases, then Bling would have sampled a very large column of mantle in the diamond stability field, greatly increasing the chances of entraining diamonds upon the kimberlites ascent. It still remains, however, that chemical analysis of these grains is required to prove things either way.


What is interesting, are the 23 mantle xenoliths of lherzolite and harzburgite, incorrectly spelt in the report as “lhertzolite” and “hartzburgite”, respectively. Harzburgite (G10 garnet association), and to a lesser extent lherzolite (G9 garnet association), are the major parent rocks that diamond forms in, prior to ascent to the surface in a kimberlite (most cases) or lamproite (rare cases, e.g. Argyle in Australia). The presence of potential parent rocks for diamonds as xenoliths in a kimberlite is a good indicator for diamonds.


The best indicator for diamond in a kimberlite is diamond itself. The concentration of diamond is so low in kimberlite (0.2 g/t is considered a good mining grade as 0.2 g = 1 c) that microscopic (<1 mm) diamond counts are used to extrapolate the larger diamond content of a kimberlite when dealing with small sample sizes, such as drill core. The 120.25 kg sample of core assayed in the report held 67 diamonds greater than 0.106 mm in size. By plotting the microdiamond counts against the size classes, it is possible to extrapolate the distribution of diamonds towards higher sizes (see below; data from the 0.6, 1.18, 1.7, and 2.36 sieves have been omitted to correctly fit the trend line as they were zero values).


The power-type trend line here produced a fairly good fit with the data and has an R2 value of 0.9897 (1 is perfect). Extrapolating to the 1 mm size class gives ~1.56 diamonds of that size. It is possible to take this estimation a little further. The mass of a roughly spherical diamond 1 mm in diameter is 0.0000092 carats. Thus there are ~0.0000143 carats of diamond in this size class. With respect to diamonds of this size, the grade for the sample is 0.00012 c/t. A full grade estimate could be obtained by repeating this process for every significant (i.e. economic) size class and adding the grades together. Although the grades would become rapidly smaller with increasing diamond size due to the nature of the distribution. The problem with this particular sample is that not enough data exists to get a strong estimate of the diamond population. The sample is not large enough. Small samples are extremely vulnerable to the “nugget effect” were the presence or absence of one or two larger stones can totally skew the numbers away from the actual value. As things stand now, this sample is useful for showing that the Bling kimberlite is diamondiferous to some degree, but inconclusive beyond that. The next step for NNA and its JV partners is to try and obtain a mini-bulk sample in the 10’s of tonnes.


Looking at this company as a potential investor with some background in the field, there are a number of troubling issues:


1. The insinuation that the presence of megacrysts is indicative of diamond potential. As mentioned above, this is not true. Research suggests that megacrysts are a product of crystallization of the “proto-kimberlite” at depth in the mantle prior to ascent, and not the product of disaggregation on mantle xenoliths, diamondiferous or otherwise. Even with Mr. Kivi’s argument that these are not megacrysts, but indeed deep xenocrysts/xenoliths, the company has yet to publish any evidence either way. If this was the case, then why was this explanation not included in the press release? The company would have likely been better off not mentioning these characteristics of the kimberlite at all until they had determined their exact relevance. These crystals may turn out to be indicative of bling at Bling, or be a red herring.


2. The incorrect spelling of geologic terms such as harzburgite and lherzolite. Also using the term “chrome diopside” when in fact chromium-rich or chromian diopside is the proper term. Chrome is what you get when you plate chromium or an alloy of it onto another metal, e.g. steel. Yes, it seems like a small thing, and it may be just the fault of the fellow they hire to run IR, but where is the P.Geo. who is supposed to look over and sign off on each report? If the trained, accredited professional is not catching these obvious mistakes in material released to the public, what about the stuff that is not made public?


3. The mediocre results on the monument property. Finding a diamondiferous kimberlite is not terribly news-breaking anymore. Please see an earlier article on Diamonds North regarding this. Many other juniors out there, Stornoway, Peregrine, and Shear Minerals to name a few, have far more established properties. Some of these have established grades and even diamond valuations.


Concerning items (1) and (2), it is tempting to regard these as oversights, as Mr. Blusson and Mr. Jennings have years of experience and have both found diamond mines in the past. They also are not part of NNA, but only JV partners on the project. With regards to (3) I do realize that this is a very small junior and is working diligently to find and expand upon potential diamond deposits. It is impressive to note that NNA did manage to get assays back in less than two months from the discovery of the Bling kimberlite. Given the current harsh market for diamond explorers and producers NNA cannot afford to even make small mistakes that would possibly dampen the interest of potential investors. It may be that further work on the Monument Project or one of their other properties will bear fruit, but NNA’s lack of oversight on minor things that are easy to catch could leave some investors eyeing the competency of the people in charge with some suspicion.


Disclaimer: The author holds no shares of NNA. This article is based on the personal opinions and experience of the author. Please do your own due diligence when investing.





Diamonds Comments(0) June 23, 2008 4:45 pm

The Stornoway without a Dion

Posted by David

To use an overused comparison in these current market climes, the diamond sector is the Rodney Dangerfield of mining stocks as it “don’t get no respect”. In this way, the diamond juniours are much like the official opposition (for the non-Canadian readers, Stornoway is also the name for the official residence of the leader of the opposition, currently Stephane Dion). To give a more focused discussion of the issue than did a previous article, presented is the case of Stornoway Diamonds (TSX-SWY).


The stock has been on a fairly steady decline since this time last year going from ~$1.20/share to about $0.37/share at current. Even the news that acclaimed diamond consultants – WWW International Diamond Consultants Ltd., had upped the estimated valuations for diamonds from the Renard kimberlites (Renard, together with the Lynx dykes, comprises the Foxtrot Property in Central Quebec, and is a 50/50 joint venture with SOQUEM Inc.) only caused a mere blip up from 0.35 to 0.43 that evaporated in the last two weeks.


In detail, the report displayed increased values for diamonds from Renard 2 and 3 (from U.S. $109/c to $121/c) and The North Complex Zone of Renard 4 ($69/c to $79/c), increases of 11% and 14% respectively. Since the pullback after the news, the stock has bounced around the mid thirty cent level. So what gives? The predominant idea here is that since last summer, most investors are still very wary of juniours, even ones with established and advance projects such as Foxtrot and, to a lesser extent, Churchill (joint venture with Shear Minerals). For Renard, the pre-feasibility study (NI 43-101 compliant) is due out sometime during this quarter and many investors may be waiting on that. The cost of a road to the potential mine site is one of the most speculated values.


Aside from Renard, the other properties in the Foxtrot property hold promise as well. The Lynx series of dykes produced a grade of 1.07 c/t from a 494 t bulk sample. Not enough sampling has been done to allow for a diamond valuation, but the sample did include a gem-quality octahedron weighing in at a whopping 21.53 c (pictured). 22 c brown octahedron from Lynx, source: www.stornowaydiamonds.comA minibulk sample from the Hibou dyke, 1.3 km from the Renard bodies (see map), gave a grade of 1.26 c/t from 30.4 t of kimberlite. The largest stone from this sample was a 1.01 c octahedron.


After Renard, the next most advanced property is the Churchill project (JV with Shear Minerals), a series of kimberlite dykes located in the Churchill craton in Nunavut. This property was discussed the earlier Arctic Diamonds and Churchill articles.


SWY also holds a number of other advanced-level diamond prospects. The most promising of these is the group of eleven kimberlite bodies at Aviat on the Melville Peninsula, North of the aforementioned Churchill project. What really is really interesting about this project lately is the dense media separation results from January 2008 that reported a grade of 1.63 c/t from 20.6 t taken from the AV267 body, and included a 3.64 c stone. AV267 is a sheet-shaped body of macrocrystic hypabyssal kimberlite. Thus far, drilling has delineated AV267 to have an average thickness of 3 m and to extend at least 2000m along  strike and 500 m down dip (dip angle is 8-20 degrees). This is similar to the body at Snap Lake. Kahuna at Churchill is also similar in deposit shape, but it is a vertical sheet instead of the subhorizontal one at Aviat. The project began as a JV with SWY, BHP Billiton, and Hunter Exploration Group (a private firm). Last month SWY acquired BHP’s share of the project, making the split now 90% SWY and 10% Hunter. SWY also have 100% of the marketing rights for any Aviat stones.


SWY made news a couple of years back due to its aggressive takeover of Ashton Mining Canada. The main gain in this for SWY was the acquisition of Ashton’s share in the Foxtrot Project. SWY also gets a lot of press coverage because of its CEO, Eira Thomas, a celebrity in the diamond exploration industry due to her part in the discovery of the Diavik mine working for the then-juniour exploration company Aber Diamonds (now Harry Winston Diamonds). Her background and media appeal have made her popular with the press in an industry where companies are usually run by stolid old white guys. The acquisition of Ashton did not only add just properties to the company, but talent as well. Tom McCandless, a renowned and well-published specialist on North American diamonds (read Barren Lands by Kevin Krajick), stayed on with SWY as a consultant after the takeover and is now their chief mineralogist. Matt Manson, formerly VP marketing/technical services & control for Aber (now Harry Winston), came into SWY through the acquisition of Contact Diamond Corporation and is now company president.


In spite of these promising results and experienced management, SWY, like most diamond juniours, has been beaten into the ground. With the price at a severe low, investors will either shy away or look at the situation as a buying opportunity. SWY previously has been the focus of a lot of vitriol on investor bulletin boards such as www.stockhouse.com due to its aggressive takeover of Ashton, but shareholder crankiness aside, this is not the cause of the perceived downside.


SWY’s number one project is Foxtrot, specifically Renard. As a mine becomes more of a distinct possibility, the need for financing becomes impossible to ignore. Road and electricity access must be established, buildings erected, and equipment purchased. This will likely cost into the hundreds of millions of dollars. As of January 31st, SWY had just under $18 million in cash and equivalents. Financing by dilution at current prices is unlikely, as management is a significant stockholder and do not want to see their equity devastated. That leaves turning to banks and the like for funds to construct the mine. The “subprime slime” that still sticks to financial institutions makes getting a loan far more difficult now than this time last year. However, considering the experience of the management and the premium nature of the properties, the choices made are likely to be in the best interests of the shareholders.


Disclaimer: The author holds 500 shares of SWY that he bought at $0.73/share and has only mildly freaked out about the price dropping to $0.37/share. This article is based on the personal opinions and experiences of the author. Please do your own due diligence when investing.

Diamonds Comments(0) June 4, 2008 6:42 pm

The Diamond Market

Posted by David

“The demand for diamonds is driven by two factors: greed and vanity. We do not foresee a shortage of either two in the future.” to paraphrase a former director of the Diamond Trading Company (the wing of DeBeers responsible for selling rough diamonds).


There has been some talk as of late of rising diamond prices. Part of this is that diamonds, like almost all commodities are priced in U.S. dollars. As the dollar goes down the price goes up. Most economists would agree that the US dollar is falling relative to the other major currencies. This situation is different from a few years ago, when South African producers were closing mines, some in part due to end of mine life, but also in part due to a strong Rand versus the U.S. dollar.


On the other hand, news stories such as the failed auction of a 72 c pear-cut D flawless diamond certainly grasp the attention of people following global diamond trends.


So in which direction is the diamond market heading? If one were to look at the stock performance of most diamond mining and exploration companies, and take that as an indicator of the diamond market, then things are definitely downhill. That poses the question of whether the very poor performance of diamond companies (see a previous article) has anything to do with loss of demand, or if it is due to more general financial pressures. Prolific analysts in the industry, such as Allan Barry Laboucan, believe that the diamond market is strong, that the above quote stays true, and current market lows are temporary.


I have to agree with Mr. Laboucan and his like-minded colleagues. Diamonds will continue to see strong demand. In particular the emerging upper-class of very populous countries (China and India) will continue to be a growing market for luxury goods, on that will outstrip that of the U.S. Even if only 1 % of the 2.4 billion people living China and India make it to the high disposable in income level to afford luxury goods in the next ten years, that is a new crop of 24 million consumers – a number a little short of the population of Canada.


With a few exceptions, e.g. Jericho (operations now suspended by Tahera), there have been no large diamond mines opened in the past 5 years since the end of the 1990’s diamond boom and the startup of Ekati (BHP Billiton) and Diavik (Rio Tinto & Harry Winston). This will disturb the supply chain for diamonds for years to come. Should current projects falter now, a shortage of diamonds in the near future is inevitable and will be accompanied by rising diamond prices. Current projects, mostly in Canada, include Snap Lake and Victor (DeBeers), Fort a la Corne (Shore Gold), and Renard (Stornoway).


The problem with diamonds is that they are not just any other commodity. Gemstones are valuated individually based on a number of characteristics unique to each individual stone. It can be difficult to determine if prices for diamonds are increasing due to this increased complexity. Mr. Laboucan alludes to this by mentioning the fact that companies producing larger/high quality diamonds will always see strong business as such goods are for the “ultra-rich” and immune to economic swings. The market for smaller/lower quality diamonds is more sensitive to economic pressures and is mainly a function of the level of disposable income possessed by the upper-middle class. This brings us back to the emerging middle class in the BRIC countries, the potential size of which could very well dwarf that of North America, and possibly even Europe as well. Should the economies of these countries continue to grow, scenario becomes a strong possibility. Even with signs of slowdown in China, other growing countries such as India, Brazil, Russia, South Africa, and Turkey will pull up the slack.


With these fundamentals in mind, a cautious investor should be able to pick the most promising diamond companies now, when they are cheap. Assuming due diligence has been properly performed; strong gains could be reaped in the market within a few years time.


Disclaimer: The author holds 500 shares of Stornoway Diamonds. This article is based on the personal opinions and experience of the author. Investors are responsible for their own due diligence.

Diamonds Comments(0) May 12, 2008 10:53 am