- 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, Stornoway Diamond Corporation released the results of their latest drilling program at their Renard project (part of the Foxtrot property) in central Quebec. The dimensions of three diamond-bearing kimberlite bodies were expanded beyond those expected by the previous models.
Renard 1, 3, 4, and 65 Models Expanded
Although the density of drill-holes is too low to properly resolve the bodies at depth at a resolution that is suitable to be deemed an indicated or even inferred resource under NI 43-101 standards, the upside is promising. Three drill-holes each were put into Renard 3, 4, and 65. These data increase the previously modeled dimensions of the kimberlite pipes. The maximum lower cut-off for Renard 3 was extended from the depth of 395m established in the existing NI 43-101 report to 439m. The same was done for Renard 4, going from 380m to 759m. No previous 43-101-compliant resource values existed for Renard 65, but drilling encountered kimberlite a a maximum vertical depth of 513m. One drill hole was also put into Renard 1 and further confirmed multiple lithologies and a maximum depth of 370m. The increase in tonnage for the project is not as large or as certain as with the reported increase in Renard 2 earlier this year, but it is substantial and unexpected (see above image of a geological model of R-4 with 3 drill-holes showing kimberlite outside of the modeled dimensions (PMD: potential mineral deposit).
Renard 65 (geological model above) stands apart from the other two bodies (R3 and 4) as it is entirely classified as PMD and cannot be included in the 43-101 feasibility study recently contracted out to SNC-Lavalin. R65 is quite large in terms of ore tonnage, but lower grade than other bodies. The body would potentially add to the mine life or throughput of ore at the mine as extra reserves, but not significantly affect overall mine grade or diamond valuation as it is believed to be one of the least economic bodies in the cluster. Renard 1 would be classified in the same group as 65. Also adding to the potential reserves at the future Quebec mine would be the 4+ km long Lynx dyke, and smaller Hibou dyke. However, the diamonds from these kimberlite dykes are typically more brownish in colour than the ones from the Renard pipes and thus have a lower average valuation (US$/c).
Other Projects Put on Hold
Stornoway’s increasing focus on Renard has left its other lower-stage targets on the back-burner. Aviat on the Melville peninsula in Nunavut is the next most promising after Renard. Though less-studied and containing smaller white diamonds, its high grade (~2c/t) and unknown extent holds significant potential. Completion of a mine at Renard should provide an income stream to fund the next necessary step of bulk sampling.
The only remaining project of relative significance held by Stornoway is its minority share in the Churchill kimberlite project operated by Shear Minerals. Although a portion of the project has attracted the attention of Rio Tinto, it appears to be doomed to languish as Shear Minerals has become preoccupied by its purchase of the Jericho mine and Stornoway’s lack of funds for non-priorities.
Coins Remaining in the Piggy Bank
As of its last quarterly report, the company had $14 million in cash. From this, Stornoway must fund its 50% share of the upcoming Renard mine feasibility study (the other half belongs to SOQUEM). A secondary study is in the works to examine bringing hydroelectric power lines into the camp from the north. If possible, attaching the mine to the electric grid would occur a few years into the mine-life. The earlier pre-feasibility study from over a year ago assumed on-site electric generation. Access to Quebec’s cheap hydroelectricity would significantly lower operating costs and avoid vulnerability to high oil prices.
Given that the third generation of Canadian diamond mines (Renard, Fort à la Corne, and maybe even Gahcho Kue) are coming on-line in the next few years, diamond stocks are rising. A half-decade of disinterest and bad luck (see Tahera and Jericho) is hopefully over, and investors: individual and institutional, will begin to see the value in the long wait for a diamond mine to reach production.
Disclaimer: The author holds shares of SWY and SRM. 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
Posted by David
Early last month, Shore Gold (SGF) announced that a high proportion (26%) of diamonds >2.7 c retrieved from the underground bulk sample at its 100% owned Star kimberlite in Saskatchewan are type IIa. This is a category of diamond that is typical of many “large special” diamonds >10.8 carats in size.
In terms of impurities in their crystal structure, diamond can substitute nitrogen (N), boron (B), and/or hydrogen (H) for carbon. Nitrogen is the most abundant and well-studied impurity and can range from concentrations of 0 to >10,000 ppm (~1%). Diamonds with significant nitrogen (>10 ppm) are termed Type I and those without are Type II. N-bearing diamonds are further categorized into those where the substituting N is organized as single atoms (Type Ib) or as aggregates of more than one atom (Type Ia). These aggregates are classified into paired N atoms (Type IaA) or quartets (Type IaB), or a mix of both (Type IaAB).
Diamonds that are relatively free of N are Type II. Those with no N and some B are Type IIb. Type IIa diamonds are more common and have no N or B. Type Ib and IIb diamonds are relatively rare. Type Ia diamonds are the most common.
How Diamond Types Are Determined
How impurities such as nitrogen are arranged in a diamond can be determined in a non-destructive manner using Fourier-transform infra-Red (FTIR) spectroscopy. Simply, light of a lower energy than visible light (infra-red) is shone through the diamond. By measuring the exact amount of light of a given energy that comes out the other side of the diamond (i.e. how much light is absorbed), it is possible to learn things about the diamond’s molecular structure. For example, how much nitrogen is in the diamond, and if it is in atomic pairs, or quartets. Fourier-transform is a mathematical and instrumental technique applied to infrared spectrometry to speed up analyses.
Issues With The Report’s Interpretation
In their news release, SGF refers to the Letšeng-la-Terae (Letšeng) mine in Lesotho (operated by Gem Diamonds, LSE-GEMD). This mine is considered quite unique as its low grade – <0.04 c/t, but has diamonds impressive quality and size. Average diamond value for this mine is >US$2000/c. This means a revenue of ~$80/t (2008 values).
However, the report’s suggestion that Type IIa equates to higher value stones cannot be considered absolute fact. This is because the mine they are comparing their diamonds to – Letšeng, is an anomaly in terms of its diamond population. While it is possible that with further valuation of parcels for SGF pipes a higher valuation could be realized, the current one is only about 10% (~$225/c) of Letšeng’s.
The diamonds shown by SGF in the full report (see above image for an example)- while large, are typically yellow-brown and some appear to contain large inclusions (internal cracks or non-diamond minerals). The report goes on to compare Letšeng and Star diamonds in terms of size class and % Type IIa. While Letšeng does show a marked increase in % Type IIa with increasing size, Star shows only a marginal increase, if at all.
The FTIR report commissioned by SGF also makes an error when referring to the trend of increasing percentage of Type IIa diamonds with increasing carat size for Star as comparable to that of Letšeng. The trends for each pipe are in fact rather different. Letšeng shows a significant increase of the proportion of Type IIa diamonds with size, whereas Star shows only a marginal increase (see plot below).
The SGF report states that the above figure “shows explicity that the abundance of Type II diamonds increases with increasing diamond size.” This statement is misleading as it is really only true for Letšeng diamonds. The academic study on Letšeng diamonds that SGF references for this report was based on less than 500 diamond samples (large stones of value being hard to obtain even for non-destructive studies). This relatively small number means that care must be taken when applying this study on a small number of diamonds from one kimberlite to the entire potential production of another. Granted, not that many large diamonds have been made available for such studies, but such over-reaching statements should not be made.
While the results of the report are interesting, and parallels can be made with the academic paper on Letšeng, there does not appear to be much evidence at this point for increased financial prospects of the Star project in terms of diamond type. Star still has one tenth the average diamond valuation of Letšeng without having close to ten times the grade. Though this does not in any way forestall a diamond mine in Saskatchewan, far better numbers have to come out of the Fort à la Corne area kimberlites for it to approach the level of Letšeng.
Disclaimer: The author does not hold shares of any company mentioned in this article. 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
Posted by David
This year’s GeoCanada conference and related workshops saw some attention to diamonds and kimberlites. Specifically those located in the western Canadian sedimentary basin (WCSB), covering Alberta and Saskatchewan.
The two main kimberlite clusters in this region are the well-known Fort a la Corne (FalC), and the lesser known Buffalo Head Hills (BHH) occurrences. The former cluster is in Saskatchewan and has been the focus of a major JV between Shore Gold (operator) and Newmont, the background of which was discussed in previous KIM Report posts. On the technical aspect of things, Shore Gold has done a lot of work in characterizing the complex structure of their two most economic kimberlite pipes: Orion South and Star (both are ~100 Ma). These pipes are composed of multiple units each formed during a separate volcanic eruption millions of years ago on the margins of an ancient shallow inland sea that covered most of what is today called the Great Plains. There are at least five main units: Pense, Viking, Early Joli Fou, Late Joli Fou, and Cantuar (see the 3D model of the Star kimberlite below: different colours represent different petrological units). These units each erupted at a different time over many thousand of years, and differ in petrology, diamond grade and diamond size distribution. To further complicate things, these eruptions occurred over a timespan during which the inland sea was alternately expanding and contracting. The effect of these sedimentary processes (e.g. erosion, transportation, deposition) on the erupted kimberlite material led to the concentration of diamonds in some rock units and the removal of diamonds from others.
The other less-studied cluster is the ~65-85 Ma BHH in Alberta. Both barren and diamond-bearing pipes occur, also with variable geology and diamond grades as with the FalC pipes, although the extent of the complexity is unknown. The highest grade pulled from a BHH sample so far is close to 0.9 c/t (K252). Most of the pipes are a JV between Canterra Minerals Corporation (TSX.V-CTM; 28.5%, operator), Shore Gold (28.5%), and EnCana Corporation (43%). Shore Gold and Canterra each carry 50% of the operating costs. Canterra is the result of the business arrangement between Diamondex Resources Ltd. (TSX.V-DSP) and Triex Minerals Corporation (TSX.V-TKM) in 2009. Diamondex and Shore Gold bought their shares in a deal with Stornoway Diamond Corp. back in 2007. They later purchased another 12% from Burnstone Ventures Inc. (CNSX-BVE, formerly Pure Diamonds). A smaller subset of diamond-bearing pipes has been discovered by Grizzly Discoveries Inc. (TSX.V-GZD). These kimberlites: BE-02 and BE-03, are in the southeast region of the BHH cluster, previously thought to be barren. Grizzly also owns interest in a couple of much smaller diamond plays to the ENE in the Birch Mountains area of Alberta, as does Shear Minerals.
A couple of other companies have diamond interests in the WCSB: Vaaldiam Mining Inc. (TSX-VAA – Candle Lake, Saskatchewan) and Forest Gate Energy (TSX.V-FGE, formerly Forest Gate Resources – Fort a la Corne, Saskatchewan). However, activity on these properties has been fairly light (see map image of kimberlites in the WCSB below).
Both the BHH and FalC clusters were initially discovered by activities relating to energy exploration – petroleum and uranium, respectively. The BHH pipes were discovered by re-evaluating aeromagnetic survey maps that had classified the anomalies caused by the pipes to be well-heads for the oil fields that clutter the region. Some diamonds from these pipes have even been found to be coated with petroleum when recovered. The FalC cluster was found during aeromagnetic surveys. These pipes are located under 80-100 m of gravel, sand, and clay.
Though in comparison to other diamond mining regions (e.g. the Northwest Territories or the Otish Mountains in Quebec) current grade numbers are rather low, diamond valuations that do exist (only from FalC at this point) are higher than average for Canadian kimberlites. Access to infrastructure is also better, particularly when compared to Arctic kimberlites. This bolsters the revenue $/t kimberlite coming from those pipes. The main hurdle with this is the geological complexity of the FalC (and to a lesser extent BHH). Overcoming this problem has taken Shore Gold and the previous owners of the FalC pipes the better part of 20 years to overcome with exhaustive drilling and geophysics. The amount of detail given in recent reports indicates that their geology and diamond characteristics are becoming less vague, at least for the Orion South and Star bodies. Now having more information where and how rich the higher-grade zones are at Orion and Star, have allowed Shore Gold (and Newmont) to almost finalize their mine plan. Mr. George Read, Shore Gold’s senior VP exploration and development, confidently expects a full net profit after all costs and taxes of ~$25/t (CAN) ore from the project as it stands. The 50+ other kimberlite pipes remaining at FalC, along with those at BHH represent possible future resources for Shore Gold and its partners beyond the two currently gearing up for production.
On an ending note, Shore Gold reported re-valuation (April 2010) of the diamond parcels it had originally sent out and had valuated in March 2008. Price increases (in US$/c) since then are 10-20% higher for every parcel. What to keep in mind here is how the American dollar (what the revenues come in) fares against the Canadian dollar (what the costs come in). Over the past two years, the exchange rate has fluctuated from about $1 (US) buying $0.98 (CAN) to $1.30 (CAN). How much of that price increase is due to supply/demand and not currency adjustment is uncertain.
Disclaimer: The author holds shares of SWY, SRM, and FGE. 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
Posted by David
Sorry for the lack of a recent post. I’ve been at GeoCanada 2010 in Calgary, Alberta until this week. Although dominated -unsurprisingly, by the petroleum industry, the talks, posters, and courses on hard-rock geology at the conference were well-attended. The kimberlites, cratons, and diamonds session was standing room only for the entire day. Other factors of economic geology that were visbile included uranium and hydrothermal ore deposits.
Both industry and academia were well-represented. Although nowhere near the scale of the PDAC conference, GeoCanada had a more technical, and less economic bent, with individuals from universities, mining corporations, and service providers rubbing shoulders.
A new posting on diamonds relating to the conference is on its way. Being that the conference was in Alberta, the kimberlite clusters of Fort a la Corne and the Buffalo Head Hills were much discussed and will be mentioned in the upcoming post.
Posted by David
Stornoway Diamond Corp. released its updated preliminary assessment for its Renard project a few weeks ago. SWY owns 50% of the Foxtrot property with SOQUEM. Renard is one of three kimberlite occurrences on the property, with Lynx and Hibou being the other two. The bottom line of this report is an increase in the project’s NPV to CAN$885 million.
The assessment incorporates and effectively quantifies the earlier reported extension of the Renard-2 body. The carats contained by this kimberlite is approximately 4x the initial amount reported almost two years ago, and the body remains open at depth. This means that the full extent of the mineable portion of the body is less well known, leaving a significant upside that is yet to be determined. The other major Renard pipe remain open at depth as well (see image).
A release from the middle of April has shown that SWY and SOQUEM are looking at having similar success at the Renard 65, 3, and 4 bodies. Expansions of the resource at Foxtrot such as these one have led to the proposed mine life expanding from under a dozen years to twenty-five.
Investors jumped on this news, propelling the stock as high at CAN$0.80/share before settling in the mid-sixty cent range. I could be not long now before SWY stock begins to creep into the $1 range. Further reports such as these and burgeoning institutional investor interest will be crucial factors in this stock’s rise.
One concern with these studies concerning Renard is the value of the US dollar. Diamonds are valued and sold rough in $US/c. The rise in the Canadian dollar against the American is going to dig into SWY’s bottom line (and any diamond mine in Canada). As costs are in CAN$ and sales in $US, the modeled margins will be narrower if the diamond prices do not increase in adjustment. The aforementioned preliminary report assumes US$1 = CAN$1.11 and a diamond valuation of US$117/c.
Not being an arctic diamond mine, the relatively low production cost of <CAN$50/t will go great lengths to insulate SWY from most fluctuations in the exchange rate. Along with Shore Gold’s Star-Orion project in Saskatchewan, the recession has left Renard as one of two Canadian diamond projects with a reasonable chance of becoming a mine in the next fives years.
Disclaimer: The author holds shares of SWY. 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
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
Posted by David
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
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
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.
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.