- The Quiet Summer of 2011, and Honest Work
- Respectable Showing For the Diamond Sector at PDAC 2011
- PDAC 2011 – this March
- Promising Diamond Find by Metalex in Northern Ontario, Plus Grades from Chidliak and Movement at Renard
- Peregrine Finds 1.15 Carat Diamond at Chidliak
- Stornoway Diamond Corp. Works to Expand Resources at Renard Project
- 2010 Toronto Resource Investment Conference
- Newsworthy Week For Canadian Diamond Companies
- Different Types of Diamonds at Fort à la Corne
- Kimberlites and Diamonds of Western Canada
5034 AAD Aappaluttoq Aber Diamonds ABX ACS AEM Ag Agnico-Eagle Mines Agrium Alberta Alto Ventures Amarillo Amaruk AMEC Amerigo Archangel Diamond Archon Minerals Ltd. Arctic Arctic Star Diamond ARG Argentina Argyle Ashton Mining Canada Attawapiskat ATV ATW ATW Venture Corp. Au Australia AUY Avalon Rare Metals Avanti Mining Corp. Aviat AVL Baffin Island Barrick Bathurst Beluga BHP BHP Billiton Birch Mountains Bling Blue Note Mining Blue Pearl Cluster BN BRIC Buenaventura Buffalo Head Hills Bunder Burnstone Ventures Inc. BVE BVN Canada Candente Candle Lake Canterra carbonatite Caribou Castillian CCE Chariot Resources CHD Chidliak Chile Chris Jennings Chuck Fipke Churchill Churchill craton CL CLF Cliffs Co Codelco Coloured Gemstones Commerce Resources Contact Diamond Corporation copper CTM Cu Cullinan DDN DeBeers Diamond Diamondex Diamonds Diamonds North Dianor Diavik Diopside dividend DNT DO-27 DOR DSP Eastmain Resources Ekati El Teniente emerald EnCana Corp. ER EuroZinc Exotic Metals FALC FGE FGT First Nickel Inc. Fiskenaesset FNI FNV Forest Gate Fort a la Corne Foxtrot Franco-Nevada G Gahcho Gahcho Kue Gem Diamonds geologic terms glossary gold Goldcorp GPR Great Panther Resources Great Panther Silver Greenland Grib Grizzly Discoveries Inc. Gualcamayo Guanajuato Guaniamo GZD Harry Winston Hawthorne Gold Hearne HGC Hibou HUD Hudson Resources Hunter Exploration HW HWD IME In Indicator Minerals indium interview iron Jericho Jericho Diamond Mine Jigsaw K K-2 Kahuna Kennady Lake Killiq kimberlite Kinross KWG Kyle Lake Lac De Gras Las Aguilas lead Leadbetter Lesotho Letseng Li limestone lithium Lockerby LUC Lucara Lukoil LUN Lundin Mining Lynas Lynx Mapimi Marifil Mines Ltd. market hype MAT Matamec Exploration Inc. Metalex Ventures Mexico Mexivada MFM Mina El Carmen Mo molybdenum Monument Diamond Project Motapa Mothae Mountain Province Diamonds MPV MTC MTP MTX Muskox Kimberlite natural gas Nb NEM Neuqen Basin New Gold Newmont New Nadina Diamonds Ltd. NGD Ni NI 43-101 nickel niobium NMC NNA Noront NOT Notch Nunaminerals Nunavut oil Orion Otish Pascua Llama Pb PC Gold Pd PDAC Pedernal Peregrine Peregrine Diamonds Petra Diamonds PGD PGE PGM PKL placer platinum Pogo Mine potash Potash Corp. pre-feasibility PST003 Pt Punta Colorado Qavvik Qilaq QUA Quadra Mining QUC Quebec Quebect Quest Rare Metals Quest Uranium rare earth elements Rare Element Resources Raytech Metals Corp. Re REE Renard RES Restigouche rhenium Rio Colorado Rio Narcea Rio Tinto RSC RTP ruby San Antonio San Juan San Roque sapphire Saskatchewan SGF Shear Diamonds Shear Minerals Shore Gold silver SL Snap Lake Sola Resource Corp Soltoro SOQUEM Inc. SRM Star Stewart Blusson stockhouse.com Stornoway Stornoway Diamonds Strange Lake Strateco Resources SWY Ta TAH Tahera tantalum TCK.A TCK.B TCM Teck Cominco Terrane Metals Tesla TGX Thompson Creek Metals Thor Lake TIF Tiffany & Co. Topia Topia Mine Toronto Resource Investment Conference Triex True North Gems TRX Tsa Da Glisza Tuktu Tuktu-1 Tunerq tungsten Tuzo Type IIa U uranium VAA Vaaldiam Mining Inc. VALE-INCO Veladero Venezuela Victor WDO Wesdome Western Troy Capital Resources WRY WWW International Diamond Consultants Ltd. Yamana Gold Inc. YRI zinc Zn
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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
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
Posted by David
During this seemingly never-ending drop in equity prices, many analysts are recommending that now is the time to buy stocks as so many solid companies are trading at deep discounts. But what companies does one invest in currently? In terms of resource stocks, most are trading at 70-90% below their stock price last winter. Metal prices have yet to properly recover and most producers have either gone to great lengths in cutting production costs or have shut down their operations. Explorers have also strongly cut back on projects for 2009 or have gone into “hibernation mode” in an effort to preserve their remaining cash until this crisis abates and future private placements can be made.
There are some case examples for optimism however: Harry Winston recently reported net earnings of $1.17/share for Q3 compared to loss of $0.13/share in the previous year’s quarter. Retail jewellery sales offset decreased earnings from sales of rough diamonds due to decreased production resulting from grade variation in the main kimberlite pipe at the Diavik mine: A-154 South. Another case is the small-cap silver producer Great Panther Resources, mentioned in an earlier case study article, that has managed to reduce their operating costs from about $11/oz. to $7.40/oz. in the face of <$10/oz. silver (although we have seen a bit of recovery in the metals over the course of the week). However, news of this was later added to by the announcement of dilution in the form of a $2.7 million private placement. On the exploration end, Shear Minerals continues to discover more kimberlites with high diamond counts on its Churchill property. But, as with Great Panther, this was also followed by the announcement by Shear of a $1.18 million private placement and thus shareholders would see further dilution. In the meantime, Shear’s JV partner at Churchill, Stornoway Diamond Corp. has decided to focus the bulk of its resources into developing its Renard property into a mine. Although its Aviat project on the Melville Peninsula is a definite target for further exploration in 2009. True North Gems is preparing its Aappaluttoq ruby project in Greenland for mine permitting. This will allow them to sell the large stockpile of gems they have acquired from sampling over the past few years. Diamonds North, buoyed by high diamond counts from some of their kimberlites this year, is planning for a modest exploration program in 2009 and is currently working on finishing this year’s mini-bulk sampling program. There are many other companies like those aforementioned that are meeting or exceeding their stated goals. Positive news releases (e.g. this one), however, are promptly ignored by the market -or at least the retail investors.
An unavoidable fact is that the manufacturing and housing sectors are in a tight retraction worldwide. Commodities used in these fields: base metals, iron, aluminum, petroleum, and even some precious metals (silver, PGEs) will continue to see lessened demand as consumers disappear. Many analysts suggest that the US dollar is due for a significant collapse due to the variety of debts piled on America by the Bush government. Traditionally, this would cause investors to flock to precious metals (primarily gold) and other forms of solid investments (diamonds, other rare gemstones, etc.) in order to preserve their capital until the malaise has passed. This bodes well for companies mining and exploring for these commodities. Another silver lining to this recession is that low oil prices have given miners and explorers a break in operating costs via cheaper fuel.
The real challenge is in determining which of these companies will survive the downturn until they can start to benefit from increased demand. Factors to look for are a strong treasury, a demonstrated history of cutting costs, a willingness to open new revenue streams, and management ownership. Management must make serious decisions on whether to conserve cash and limit exploration activities or to spend to continue adding value to their properties. Often the latter involves offering new shares at the currently extremely low market prices in order to raise that cash as banks loans are not forthcoming.
Currently, there are excellent opportunities for investment in mining and exploration stocks. In particular, there is potential in the diamonds sector as it was already undervalued prior to the current crisis and diamond prices are more firm than that of other commodities. A final factor to consider is that tax-loss selling at the end of this year will result in further devaluation of many companies, adding to the allure for bargain hunters. For those who actually have cash left to invest at this point, a long term (3-5 yrs) outlook is mandatory. Those who do their homework and invest in a non-reactionary fashion will definitely benefit when this bear turns into a bull.
Disclaimer: The author holds 20 shares of HW, 4000 of SWY, 500 of SRM, 500 of GPR, and 1000 of TGX., most of which were bought at much higher prices than current. This article is based on the opinion and experience of the author. Please do your own due diligence when investing.
Posted by David
Earlier this month, Mountain Province Diamonds (TSX-MPV, AMEX-MDM) dropped a big rock in the otherwise stagnant waters of diamond exploration and investment. The company announced that they had recovered a 25.13 c colourless octahedral diamond of exceptional clarity from the Tuzo kimberlite in the Gahcho Kue cluster, Northwest Territories. This diamond was valued at approximately (USD) $17,500/c, or $439,775 total. This is the largest diamond recovered in Canada during an exploration project.
MPV discovered the Gahcho Kue cluster, which lies in the AK property in the Kennady Lake region. It owns 49% of the project, with De Beers Canada as the operator and majority stake holder. The geologic environment of the project is in the southeast Slave craton. The cluster was discovered in 1997 and DeBeers Canada (then Monopros) was quickly brought in as a JV partner where is could earn up to 51% of the project by shouldering a large portion of the costs. DeBeers has since exercised this option. Four main kimberlite bodies comprise the cluster (see map): Tuzo, 5034, Hearne, and Tesla. Tesla is not currently considered to be a resource as its small surface area, 0.4 hectares, is less than one third that of the next largest body: Tuzo at 1.4 hectares.
The geology of the three currently economic pipes is varied. 5034 is an irregular body of hypabyssal kimberlite, Hearne is a mix of hypabyssal and diatreme facies kimberlite, and Tuzo is believed to be the deeper part of a diatreme with no root zone found as of yet. These bodies together create a large reserve of ore that has been thoroughly drilled and modeled over the past decade. In a general way the geology could be seen as an intermediate between the Churchill (Stornoway Diamonds & Shear Minerals) and Snap Lake (De Beers Canada) projects that are entirely hypabyssal kimberlite and the Fort a la Corne (Shore Gold & Newmont) project where all of the kimberlite found is pyroclastic or resedimented pyroclastic.
The diamond was recovered from LDDH sampling in March of this year. After the sampling was completed the kimberlite was made into a concentrate at De Beers’ Grand Prairie, Alberta facility and then shipped to the GEMDL laboratory in South Africa (also run by De Beers) to recover the remaining diamonds. When this in completed, the diamonds will be sent to the DTC facility in London, U.K., for cleaning and valuation.
Of the three main kimberlites, Tuzo is the least developed in terms of sampling. The recent bulk sample was in part an effort to rectify this. 5034 has 8.7 Mt of indicated ore at 1.6 c/t and 4.9 Mt of inferred ore at 1.7 c/t. Hearne has 5.7 Mt of indicated ore at 1.7 c/t and 1.5 Mt of inferred ore at 1.53 c/t. Tuzo, meanwhile only has 10.6 Mt of inferred ore at 1.15 c/t. MPV and De Beers are trying to remove the uncertainty with this body. For comparative purposes Diavik a few hundred km to the north has about 29.8 Mt of reserves in total at 3.2 c/t (measured+indicated), or 95.36 Mc. Thus far, Gahcho Kue has about 46 Mc (indicated+inferred). Keep in mind that the Diavik mine has unusually high grade. MPV estimates a mine life of about 24 years.
In terms of diamond valuation, an independent 2006 report by WWW International Diamond Consultants Ltd. gave (in USD) $101/c for 5034, $54/c for Hearne, and $43/c for Tuzo. The average for all three pipes was $75/c and it was noted that proper cleaning (usually in a hot acid bath) would raise the value of many of the diamonds by up to 10%.
It has been over ten years since the discovery at Gahcho Kue. Mining is expected to begin in full by 2012, giving about a fourteen year lag between discovery and mine. Diavik took only ten years in total to begin full capacity mining and Ekati took even less. Following statements for interviews with MPV management, it would seem that they would prefer a faster to-mine plan, but De Beers has preferred a more methodical approach. In light of what happened at Jericho with Tahera, perhaps this might be a more prudent option. Though perhaps De Beers has been focusing the bulk of its attention on their 100% owned Snap Lake and Victor projects in the Northwest Territories and Ontario, respectively.
Regardless of the slow timetable set for developing the project, the discovery of this diamond, along with other ones >5 c found in the past few years, has established the potential for large, high quality stones. As diamond price goes up exponentially with carat size, the profit margins for the future mine are looking larger. Now that above average grades, decent diamond values, and large, high quality, high value diamonds have been established at Gahcho Kue the main hurdle is to finance the project to completion as it will be about four years until commercial production. MPV needs about $370 million to fund its 49% share. The current market cap of the company is $280 million. The company has about $1.5 million net in cash and medium-term deposits, and has invested about $65 million in the project overall. While the sale of the diamond announced last week should pay for a few drill holes, in order to keep the full 49% share of the project MPV will undoubtedly require financing. This strategy may run into some resistance as diamonds are not a hot item in the current market and lenders in general are skittish after their collective failure to recognize the risks of sub prime mortgages and ABCP. Also, the fate of the aforementioned last diamond mine to open in the Arctic may be scaring way any potential suitors. Raising more capital by dilution is only a partial solution at this moment considering the vast funds involved. Although the company is not poorly positioned to issuing private placements effectively as its stock price has not suffered anywhere near to the degree that many of its peers have (mainly $4 to $5 over the past year). Another option is to default on their share of the costs and let De Beers’ deep pockets take care of things in return for letting their share slide to 40%. A third option that is being signaled by a strategic review of the company as alluded to in a National Post article last week is that the company may be putting itself up for sale.
Regardless of what option the company pursues, the nature of the deposit is likely to reap large rewards for shareholders when interest in the diamond market returns. What remains to be seen is that whether MPV chooses the option that gives the best gain to the shareholders.
Disclaimer: The author holds no shares of MPV. This article is based on the author’s personal research and experience. Please perform your own due diligence when investing.
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). A 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.
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.