KIM Report

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 Minerals‘ announcement 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

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 Diamonds‘ kimberlite (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

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 9^th 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.

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…