KIM Report

Respectable Showing For the Diamond Sector at PDAC 2011

Posted by David

Last week Monday’s technical session at the PDAC on diamonds was titled: “21 years of Canadian diamonds: Coming of age?”. Five talks were given and three were based on Canadian diamond projects. The remaining two were on the Bunder project in India with Rio Tinto, and the development of Petra Diamonds to being a major producer in Africa.

While not full to capacity, the seating room approached that mark during a few of the talks and significant figures in the diamond industry were present. Including the discoverers (or co-discoverer) of Canada’s first two diamond mines: Chuck Fipke (Ekati, with Stu Blusson), and Eira Thomas (Diavik). Also present were academics, geology students, financial analysts, independent investors, and representatives from most senior and junior diamond exploration/mining companies.

The award for most entertaining talk goes to Jim Davidson of Petra Diamonds (AIM:PDL), for his repeated well-placed, but thinly veiled stabs at sector giant De Beers for buying some of their declared “unprofitable” mines (e.g., the Cullinan in South Africa) and turning them to the opposite within a few years. Technical award goes to Robin Hopkins for going into detail on how macrodiamond (the economic stones) grades are extrapolated from the microdiamond grades. This was during his talk on what has been developing at the Renard project as it progresses towards a Mineral Resource update for this year as part of Stornoway’s feasibility study for mine at that location within a few years. The most notable aspects of Stornoway’s recent work (aside from buying out partner SOQUEM’s 50% share in the project in exchange for equity) is the increase of the project to a 25 year mine life with a NPV of $885 million and pre-tax IRR of 24.8%.

De Beers geologist Brad Wood gave a fine synopsis of the discovery, evaluation, development, and starting in 2008, production of the Victor deposit in northern Ontario. He discussed the challenges in the natural environment and in working with the affected communities in realizing the mine. Much of the talk dealt with the hurdles of construction. A lot of lessons were learned in the process, mainly technical ones that he passed on to the audience. An example is how the company utilized the large diameter drill holes left over from the deposit evaluation stage as wells to keep the mine drained as it is suitated in Muskeg.

Peregrine Diamonds updated the audience with further news of more kimberlite and more diamond finds at Chidliak (51% owned by BHP Billiton) on Baffin Island. Chief geoscientist Jennifer Pell noted that fifty kimberlite bodies have been discovered, about half by surface prospecting. Many of the kimberlites not exposed have been found by geophysics using aeromagnetic surveys as they typically exhibit a clear “bullseye” pattern. One of the more recently discovered bodies was in fact, found by accident by a university student sponsored by Peregrine doing fieldwork on the glacial terranes of the area. More kimberlite discoveries are bound to follow with the drilling season starting this month.

Although diamond shares (and really, most companies worldwide) have taken a major hit this week with the Sendai earthquake in Japan, the sector seems able to continue capitalizing on new discoveries and mines nearing production as investors again take notice. If anything, the recent recession did the sector a small favour in driving out diamond companies with below-average/extremely speculative prospects to bankruptcy or at least to other commodities. In regards to this, it will be interesting to watch Shear Minerals in the coming months. Their efforts to resurrect the Jericho mine in Nunavut may renew some investor interest in higher-risk diamond stocks.

Disclaimer: The author holds shares of SWY, SRM, and PGD. 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

Promising Diamond Find by Metalex in Northern Ontario, Plus Grades from Chidliak and Movement at Renard

Posted by David

High Counts from the James Bay Lowlands

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

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

Resurgent Commodity Sector for 2010

Posted by David

The 2010 annual PDAC convention this week was resoundingly more vibrant and bustling than last year’s. The nice thing about commodity downturns is that they are often self-correcting given time. The excess of supply that leads to commodity price drops and mine closures also ceases mine development. With no new resources coming onto the pipeline, supply drops as existing deposits are tapped out. This drop in supply leads to an increase in the commodity price, beginning the cycle all over again.

This current resurgence is much to early to be mainly due to this process, lack of exploration typically takes years to manifest into resource shortages. Whatever the cause, the mood of exhibitors, investors, and geologists was significantly improved over 2009′s show. Though there are still many companies out there just hanging on, both those with quality and questionable properties.

Gold was still king of the commodities this year, unsurprising considering it has remained at ~$1100 for some time in spite of the predictions of certain pundits. Though keep in mind that price is in American dollars. Well-run gold producers such as Barrick, Goldcorp, and Wesdome, have been reporting steady and strong profits. The Wesdome booth at PDAC had some impressive display samples of quartz-vein ore containing visible gold mineralization from their Kiena mine. Although some producers are still struggling, e.g. Yamana.

The buzz about exotic metals such as yttrium, niobium, and the rare earth elements has died down a little since the excitement of last fall. Leading juniors in that field, such as Avalon and Matamec, were still well represented at the show. In terms of fundamentals, however, nothing has changed, our increased dependence on technologies is leading to a demand that will continue to ramp up with each passing year and the Chinese control virtually all production. Not a pretty picture from either an economic, strategic, or political view (for everyone but the Chinese that is).

Copper, nickel, and other base and ferrous metal prices have all climbed back up significantly. The earthquake in Chile barely caused a blip in copper prices (Chile produces about one third of the world’s copper), and metal producers like Amerigo and Lundin are starting to see their first real profits in over a year. Speaking with Amerigo reps at the PDAC, they predict a return of their one-vaunted dividend should copper prices hold close to their current levels.

The investment talks for the junior diamond sector saw increased attendance this year. The best was saved for the last for talks by Peregrine, Shear Minerals, Shore Gold, and Stornoway, discussing the most promising Canadian diamond projects and their various stages of development. Peregrine’s Chidliak project on Baffin Island continues to steal the spotlight with preliminary results from CH-6 that indicate the potential for the highest grade diamond find since A-154 South at Diavik in the 1990′s.

Chidliak is still many years from and possible mine. The Renard and Fort a la Corne deposits of Stornoway and Shore Gold, respectively, are each within five years of a potential mine.  Last fall’s announcement by Stornoway regarding the expanded resource at Renard-2 is putting the company at odds with Shore Gold for the title of owner of Canada’s (and for that matter, the world) largest undeveloped diamond deposit (video interview with SWY founder Eira Thomas HERE). Shear Minerals, though somewhat stagnated by lack of funds, had returned a promising grade of 0.862 c/t from the Notch kimberlite in the Churchill property.

The repeated message from all diamond companies is that world diamond prices have recovered, and possibly then some. Unlike metals, getting firm numbers on world diamond demand and pricing is difficult, but some estimates put current diamond prices as high as 25% over those of pre-crash 2008. With the recovery as of yet incomplete, this could spell a significant jump in share prices for quality diamond stocks over the next 12 months.

Disclaimer: The author holds shares of SWY, YRI, SRM, ARG, and LUN. This article is based on the personal opinions and experience of the author. Please conduct due diligence when investing. ©KIM Report 2010 www.kimreport.com

Bye-Bye Dubai

Posted by David

Aftershocks

The recent plea from the Dubai sovereign wealth fund, Dubai World, for a moratorium on payments to their $59 billion (USD) debt underscores that there are still plenty of skeletons in the closet to be found as the world economy races and stalls back to recovery. Sometimes this engine even goes backwards for a bit in the face of surprising news such as this.

Is this revelation really so surprising? Perhaps in the particular details and that it involves a supposedly wealthy country backed by decades of high oil production revenues. Or at least it was before it invested a good bit of that money to finance the hyper-development of a previously sleepy Arabian emirate. However, it is not surprising that large negative developments continue to come to light as the financial systems recover and consolidate. It took many years of unchecked greed and financial short-sightedness to create the crisis (crises?) that started in 2007. It is only logical that it will be a few years until we are free of this baggage.

What does this mean for commodities? The “good times” are gone and many investors/developers now have to deal with an annoying factor known as “reality” when they are interpreting the market, supply/demand trends, and so forth.

This whole topic is too big for one article and it would be redundant, not to mention exhausting, to focus on an all-encompassing review of things as they stand and look to do so in the future. Following the news of Dubai World’s troubles made me think of all the discretionary luxury goods (haute couture, man-made islands shaped-like things, and particularly jewellery) that are disproportionately consumed by such a rather small population, and how that allegory can be expanded to the world at large.

Are those we previously thought to be ultra-rich truly immune to economic fluctuations? It really is a relative matter, but it appears that the 2007-2009 meltdown(s) has (have) even touched those we thought to be dependable for the consumption of commodities of limited practicality. Diamonds (and other gems) are perhaps the best example of such an item. They can be synthesized easily now for aesthetic and industrial purposes, leaving natural diamonds of no particular commercial use aside from vanity and symbolism.

However, it is the rarity, history, and symbolism/mystique surrounding natural diamonds that makes them so sought after, even in troubled economic times such as now.

This recent reprieve in the markets over the past six months has been accompanied by bursts of positive news releases from a previously lacklustre Canadian diamond exploration sector. This recovery was second to only that seen by rare earth metals in the past few months.

Peregrine First Out of the Gate

The major catalyst for this renewed interest in diamond properties in 2009 was the Chidliak discovery on Baffin Island. Although the most recent news from Peregrine (and JV partner BHP Billiton) was less than stellar compared to previous developments, the Chidliak-Qilaq project is the first diamondiferous kimberlite discovery in Canada in years to hold significant economic potential. PGD stock has relaxed from its surprising highs in September-October stable levels at well over $1. The nature of the Chidliak find was covered in an earlier article back in March. What is interesting in recent months is the lag time for the market to acknowledge this find: about six months since its first real publicity at a sparsely attended PDAC session on diamond exploration.

Shore Pushes Onwards

Two other major players in the Canadian diamond junior sector have seen stock jumps more closely tied to news releases. Shore Gold released its most recent NI 43-101 complaint report concerning the Orion South kimberlite body in the Fort a la Corne (FalC) JV project with Newmont in Saskatchewan (not to be confused with the adjacent Star property wholly owned by SGF). This technical report and resource estimate is lengthy at 108 pages, as it should be considering the complex geology found in the FalC pipe compared to some other Canadian kimberlites (e.g. Snap Lake, Lynx). The bulk of the geological characteristics of the FalC kimberlites were covered in an earlier KIM Report article. The main issues indicated with that article over a year ago was for SGF to up their average diamond valuations due to grades well below 1 ct/t (100 cpht), and to give a reasonable estimate of the total mining cost per ton. The proximity of local communities and their infrastructure (power, roads, etc.) will bring costs down well below those of Arctic projects. But by how much? P&E Mining Consultants do a very thorough job of considering all technical aspects of the most promising body of the 70+ in the FalC project.

SGF and NEM commissioned WWW International Diamond Consultants Ltd. to evaluate the diamonds recovered from underground and LDDH samples. 2320.2 c was priced at $199495 (US), or $86/c (using the March 11 2008 pricing). The most promising units of the Orion South kimberlite: EJF and P-2 had price ranges of $100-166/c and $91-123/c, respectively. Diamonds from other lithologies of Orion South have lower valuations. P&E optimistically use the high end values for their modelling of the resource. This is significantly lower than the $225/c valuation at Star, located 2.5 km to the SE. Grades range from 0.128-0.147c/t depending on the case used. Tonnage (minimum case) is 76.8 Mt indicated and 86.3 Mt inferred.

The mining plan for Orion South suggests an open pit. Slope of the pit wall would be 30º for the ore/waste rock and 18º for the overburden due to its unconsolidated nature.

Mining costs are hard to put together from just reading the report. It assumes that the exchange rate will be US$0.85/CAD$. Stripping costs for the overburden (glacial till) will be $1/t overburden, with mining, processing, and general/administrative costs pegged at $6.54/t kimberlite. Thus using the absolute minimum values SGF and NEM look to clear about $4/t (rough estimate for overburden clearance) from Orion. Though should aspects such as US-CAD exchange rates, rough diamond prices, and/or fuel prices strongly fluctuate, this number could go much higher or lower. The key assumption being made here -as with all deposits, is that the modelled resource accurately reflects the real resource in the ground closely enough that it remains economic. The major difficulty with the FalC kimberlites is that their petrological/lithological heterogeneity (i.e. changes in diamond grade throughout zones in the kimberlite body) is difficult to pin down. The overall low grade of the pipe and mediocre diamond valuation (compared to other pipes with grades <0.5c/t) leaves little room for mistakes, mistakes that SGF and NEM have spent years and millions of dollars to avoid.

At its conclusion the Orion South/Star project requires a further $4.5 million to bring things to the feasibility stage, not all that much compared to the aggregate amount spent on developing the FalC kimberlites since their discovery in the late 1980s.

Last, But Not Least

The second major junior in the Canadian sector is Stornoway. This has followed the trend set by Peregrine and then Shore Gold in a resurgent Canadian diamond exploration sector. First reporting 4x the original tonnage for the Renard-2 kimberlite property in early October and then expanding on that find this month by reporting revised numbers for entire Foxtrot (Renard, Lynx, and Hibou bodies) property (aka the Renard Diamond Project) that effectively triple the contained carats compared to estimates published last year. 23.0 Mc are indicated and 13.3 Mc are inferred with further upside as some bodies remain not fully studied. Grades at Renard-2 for indicated (1.03 c/t) and inferred (1.2 c/t) resources are up 27% and 39% respectively.

There is a bit of cloud to this silver lining though in that diamond valuations from Renard-2 and -3 are down 3% to US$117/c and for Lynx down 14% to $57/c (“Base Case” estimates). The NI 43-101 compliant technical report covering this release will be out in less than 45 days.

Considering these developments it is curious if any other diamond juniors will be lucky enough to come across some positive news in order to be next in line to capitalize on this new, but fragile, enthusiasm. With the tax-loss selling season approaching, that enthusiasm is fragile indeed.

Disclaimer: The author owns 4000 shares of SWY. 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

New Developments and Talking Heads in the Resurgent Commodity Boom

Posted by David

This weekend I stopped by the 2009 Toronto Resource Investment Conference held by Cambridge House International Inc. I sort of treat these conferences as a useful mini-PDAC: 100-200 juniors and some talks by analysts, but less free booze and conference swag.

Before getting onto the discussions I had at the booths, a short note on the talks given at the workshops. I attended two very different types of talks at the conference. The first was by Thom Calandra of Ticker Trax fame titled Guanajuato Silver (e.g. Great Panther Resources), Canadian Moly (e.g. Avanti Mining Corporation, TSX.V-AVT), Ghana Gold, and Global H1N1. The talk covered his past experiences, the millions he made selling companies he helped found, his run-ins with the S.E.C., his recent fishing trip with other colleagues, how accurate his past stock predictions have been, past anecdotes, and basically very little to do with the topics covered by the title. No information on how to pick a good stock was given, nor were his strategies discussed in any useful detail. Although in his defense, his presentation was accompanied by many pictures of his visits to sites in those regions.

In contrast to this drivel I was forced to sit through until the main booths opened, Mr. John Kaiser (The Bottom Fishing Report) gave a later talk that Sunday titled Understanding the Rare Earth Metals. This talk was much more useful (even though I found it a little distracting that he looks a little like the PC guy from the “I’m a Mac and I’m a PC” commercials). Although he and his colleagues take a much looser stance on what constitutes a Rare Earth Metal than do us scientists –he includes metals like Y, In, Sc, Ga, Ge, etc. along with the lanthanides, he presented a compelling argument for the future’s demand for these metals. He discussed the increasing need for most rare/exotic metals in new consumer products such as LCD screens, hybrid and electric cars, cellphones, etc. He made an interesting point that the world market for lanthanides was ~$1 billion (USD) in 2005. This has obviously changed to a much higher number. Actual recent pricing for all exotic metals is very hard to find as there is no centralized commodities exchange for these metal oxides (pricing is done in oxides of these metals). A “journalistic approach” is required to obtain much of the current pricing market data, to quote Mr. Kaiser.

One gripe I have is mostly due to my own fault not closely following Mr. Kaiser’s advice earlier. Many of the juniors exploring for exotic metals that have earned a recommendation by him back as recently as the beginning of the summer have shot up significantly. Some include Avalon Rare Metals Inc. (TSX-AVL) (up 386% since May 1, 2009) and Quest Uranium (TSX.V-QUC) (up 2325% since May 1, 2009). I was not able to get around the crowd at the Avalon booth during my time at the conference, but they seem to be making good headway with their Thor Lake peralkaline pegmatite in the Northwest Territories. I did get a chance to speak to some QUC employees though, including one of their field geologists. Their Strange Lake project straddles the Quebec-Labrador border and is an altered (secondary hematite, specularite, fluorite, etc.) alkali granite. Recent drilling confirmed zones of REEs+Y of 1.11-3.47% over 1-14 m. There is also a weighting towards the more valuable heavy REEs. Although this is not unusual for pegmatite REE deposits when compared to their carbonatite counterparts. Though it has pegmatitic zones similar to Thor Lake, the mineralogy, particularly the ore minerals, are very different. Strange Lake has zircon, gittinsite, pyrochlore, gadolinite, and allanite, whereas Thor Lake possesses bastnaesite, monazite, synchesite, allanite, zircon, columbite-tantalite, and fergusonite. In some cases, these ore minerals are quite coarse grained (>1 cm), leading to easy liberation from the rock during processing.

This means that should both projects make it to production, very different metal processing methods with have to be employed for each to obtain marketable metal oxides. One thing that did concern me is that QUC has basically no idea how to process this amazing deposit. (Nor does the literature given out by AVL give a clear image of how to process theirs either). These metals, especially the REEs, are very similar chemically and difficult to separate. Then again, this may not be a problem as most companies this size will, at a certain point, bring in a senior partner with better technical know-how to worry about this.

Other exotic metals companies at the conference that were worth notice were Matamec Exploration Inc. (TSX.V-MAT, light-heavy REEs, Y, Zr), Hudson Resources (light REEs, Ta, Zr, Nb), Rare Element Resources (Au, U, REEs) and Commerce Resources (Ta, Nb).

Needless to say, there is a lot of investor appetite for these types of companies with promising properties. Though I am not a fan of buzzwords such as the “Green Economy” and so on, there is definitely some substance to the developing markets for these metals that new technologies cannot do without.

As a final, but somewhat unrelated note, fans of Stornoway Diamond Corp. will be happy to know that drilling results will be out soon and an update of the 43-101 report on Renard will be due in this upcoming quarter. The preliminary assessment will be out no more than 6 months after that. As for their Avait play on the Melville Peninsula, progress was mostly relegated to desktop work this year as the unexpected extension of the Renard-2 pipe has kept their resources tied up. The company did make it to $0.30/share (down to ~$0.20 now), but that has mostly been due to the success of Peregrine Diamonds’ progress at their Chidliak property, proving to the “sheeple” in the investment sectors that yes, you can still make money holding diamond stocks post-2007.

More news on the diamond sector to come in the next article. Thanks for reading and it looks like a bit of good luck is returning.

Disclaimer: The author owns 4000 shares of SWY and 1000 shares of GPR. Although he wishes he had bought some PGD back in March when he recommended it. 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

The Summer Exploration Season – Sans Fanfare

Posted by David

Now that commodities have recovered slightly and the stock indexes appear to be climbing out of the financial hole that was March 2009, investors – both institutional and individual, appear to be breathing some life into the mining juniors that have been so beaten down. The ones that remain solvent anyways.

On the diamond front, things are pretty quiet. Gold and silver, followed by base metals, have been attracting most of the press in regards to this resurgence. The return of capital to the diamond industry has been pretty subdued. However, this is not to say that is has been forgotten.

Diamonds Resurgent

An example is with Harry Winston Diamond Corp. that has seen is share price double to about $7/share in the past couple of months when some smart investors thought it may not be a bad idea to hold share in one of the highest grade gem diamond mines in the world (their retail arm notwithstanding). Kinross had the right idea when it acquired a 19.9% stake in the company during the lows of March.

Motapa Diamonds Inc., a junior diamond explorer in Lesotho has also doubled since the New Year as it is in the process of being acquired by Lucara Diamond Corp. (TSX.V-LUC). Their Mothae project draws many parallels with that of the nearby Letseng mine, well-know for its relatively abundant diamonds of exceptional size and quality (about 20c).

Gearing Up For a Recovery

The Canadian exploration front has been even more low-key. The only significant new find has been Peregrine Diamond’s Chidliak property on southern Baffin Island as discussed in a previous article. Other juniors are conserving their cash and focusing on their best projects. Stornoway recently announced that it would commence further drilling on their Renard project to prove up their case for a mine there. The only other project they are looking at now is the Aviat kimberlite complex on the Melville Peninsula in Nunavut having gotten some promising number from samples taken there last year. Smaller companies are having to conduct private placements at still-low share prices in order to pay for critical work on their properties. Such is the case with Dianor Resources issuing shares at $0.10 to pay in part for a 50 000 t bulk sample at their diamond-bearing Leadbetter conglomerate property near Wawa, Ontario.

Stagnation of Diamond Prospecting in Canada

Comparatively speaking, other companies have not had it so rosy. Shear Minerals is looking at a dearth of funding for its main project: Churchill after its partner, Stornoway, decided not to participate in the recent exploration season in order to fund the abovementioned projects. Like many other companies that previously had diamonds as their sole focus, Diamonds North has been looking at the potential for metals on its properties in the Arctic after some samples this winter showed an unexpected scarcity of diamonds. To round things off, Shore Gold, a classic punching-bag/favourite for many diamond investors is still trying to figure out how to reconcile low grades with ~100m of glacial overburden atop their kimberlites in Saskatchewan. Although they did recover a 7.99 c diamond from a mini-bulk sample recently taken by large diameter drilling to add to their promising repertoire of large diamonds found in the Fort a la Corne cluster. A more thorough discussion of the Fort a la Corne kimberlites can be found here.

Choose Your Partners Wisely

A third set of companies with promising properties appear to be in limbo. Mountain Province Diamonds Inc. is still at loggerheads with partner De Beers over the timeline from the rich Gahcho Kue diamond deposit in the Northwest Territories in spite of an updated mineral resource estimate released in late May. DeBeers is having a headache of its own through its majority holding of thinly-traded Archangel Diamonds Corp. with continued legal struggles with Russian companies (chiefly LUKoil) over the massive Grib diamond deposit in northwest Russia. De Beers, like many other companies seeking to do business in Russia, is learning that when you get into bed with Ivan (particularly on his turf); he usually ends up on top.

Recovery is a long way away. Especially in the diamond sector as it was already lagging near the tail end of the resource bubble that popped last year. But as with panning for diamonds, the companies with little weight and substance will be washed away by the financial currents and the gems will be left behind.

Disclaimer: The author owns shares in HW, SWY, and SRM. 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

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.