KIM Report

Different Types of Diamonds at Fort à la Corne

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.

Diamond Types

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

Kimberlites and Diamonds of Western Canada

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

Expansion of Drilling Program Leads to 1400% Jump in Renard’s NPV

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

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

Improved Outlook to be Seen at PDAC 2010

Posted by David

This Sunday March 7th to Wednesday March 10th will see the Metro Toronto Convention Centre and its environs overrun with geologists, students, executives, reporters, salesmen, and the much-maligned investor relations personnel at this year’s PDAC International Convention.

While the trade show section is prohibitively expensive for most ($210-$710, seniors and students get in cheap), the other half of the show, the Investor’s Exchange is free. This sections is where all of the publicly traded mining companies have their booths. They range in size from independent prospectors, exploration-juniors (PC Gold, Diamonds North Resources, Terrane Metals), near-production juniors (Stornoway Diamond Corporation, Shore Gold), producing intermediates (Yamana Gold, New Gold, Harry Winston, Thompson Creek Metals), and large-caps (Rio Tinto, Goldcorp, Vale). For an idea of participating companies and the show layout, check out their Virtual PDAC Interactive Floorplan and Event Planner. Booth space in both sections of the event are completely sold out. I suppose the minerals industry hasn’t imploded after all.

As an independent investor, this is your chance to speak with company management face-to-face, handle the rocks (see the Core Shack exhibit), and meet other investor’s and geologists. Whether you are happy or displeased with a company’s performance, this is the event in the mining and minerals exploration industry. Though, from a student’s point of view, I routinely recommend not eating at the convention as the food is typically awful and overpriced in my experience. Check out the Royal York Hotel in the evenings for any after-hours festivities.

For diamond bugs, drop in on the Monday afternoon series of talks 2-4pm in room 716. Some true gems (pardon the pun) are there to spread their wisdom. Kimberlite petrologists, gemologists, and CEOs make an appearance.

Let me know how you did at the PDAC…

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

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

Chidliak: Peregrine Diamonds Discovers New Hope for Arctic Diamond Exploration

Posted by David

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

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

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

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

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

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

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

Diamond prospects develop despite record lack of investor confidence.

Posted by David

Recent market activity, to be conservative, has been devastating to resource stocks. Over the past six months, junior mining/exploration companies have been hit hard with up to 80% depreciation in their share prices. Many of these have slid strongly in spite of what would be considered by many to be positive news releases: financing obtained, higher than expected grade, large extensions of mineralized zones, etc.

 

Diamond stocks in particular continue to be a source of scorn for retail investors. Gone are the days seen in the 90′s and early 00′s where diamond companies were the darlings of the Canadian mining sector. However, recent financial market woes and investor panic do not change the fact that many of these companies hold properties with strong upside for the presence of a economic diamond deposit.

 

Two companies that appear to hold such projects, despite seeing their share prices drop over 70% in the past year or so, are Shear Minerals and Stornoway Diamonds. Both of these companies jointly operate the Churchill Project near Rankin Inlet, Nunavut.

 

This project has been described in earlier articles posted on the KIM Report, but the discovery of a new kimberlite body, named “Killiq”, on the property this season has expanded the potential for a significant diamond mine in the area. This kimberlite was found during RC drilling of a target established by following the G10 garnet-dominated indicator mineral train in the Sedna corridor and geophysics. Churchill has already been established as a leader in diamond developments with the evaluation of the large Kahuna kimberlite dyke. Killiq is of note as it is very similar petrologically to the PST kimberlite also on the property that has an established grade of 2.18 c/t. Petrologically, characteristics that PST and Killiq both share include large olivine macrocrysts, purple-red pyropes, and blue-green phlogopite mica.

 

Shear Minerals, the project operator and majority interest holder, has sent heavy mineral concentrate from Killiq for chemical analysis. If any of the garnets in the concentrate have high Cr and low Ca contents like the G10 garnets in the till samples that led to the drilling, then there is significant potential for diamond.

 

This is one of nine kimberlites discovered this field season at Churchill, and is one of two, alongside the Kahuna breccia discovery, that was found to have significant petrological similarity to other pipes on the property with high diamond grades. The Kahuna breccia is interesting as it appears to be an extension of the Kahuna hypabyssal dyke, but it is of explosive, rather than magmatic nature.

 

Other activity that has occurred with Churchill include a mini-bulk sample of 26.1 t (wet) from the Notch kimberlite for an initial assessment of diamond content and quality for stones >0.86 mm in diameter. Further till sampling programs and geophysical (gravity, magnetic, etc.) surveys are ongoing.

 

In total there are 88 known kimberlite occurrences on the property with many at or beyond the mini-bulk sampling stage.

 

Stornoway has another property (90% owned) at the advanced exploration stage with Aviat on the Melville Peninsula in eastern Nunavut. Earlier this year, a 20.6 t mini-bulk sample from AV267 sheet, the largest body on the property, returned a grade of 1.62 c/t including a 3.64 c white gem. A larger bulk sample of 202 t is currently being processed with results expected by the end of the year. There are ten other kimberlite occurrences at Aviat discovered so far. Although some of these bodies may be separate outcrops of the same. All of the Aviat bodies are similar in petrology and diamond content (so far) and are of 535 Ma (Cambrian) age.

 

An obscure property on the sidelines a relatively short time ago, the high diamond grades coming out of Aviat have made it approach (and potentially exceed) the Churchill project in terms of importance.

 

Of course, all of these developments are being overshadowed to some degree by the impending pre-feasibility report on the Renard kimberlites. Part of the Foxtrot property that includes the Lynx and Hibou dykes as well, Renard already has had detailed diamond tonnage and valuation work done. Investor relations at Stornoway has acknowledged that there have been numerous delays in releasing the report, and not all of them related to the project. Peregrine Diamonds and Shore Gold have also employed AMEC, the same firm used by Stornoway to get their studies done, and this has resulted in a backlog. The revised date is now sometime is the later half of October. It will include the resource calculation and the economic study with an aim to be understandable to the non-expert investor. Unsurprisingly, the company remains optimistic that the report will allow them to move to the feasibility stage.

 

All of this has been accompanied by a drop in stock price from almost $0.90 to the $0.25 level. Brief reversals in the downward trend have been provided by the encouraging diamond valuations for Renard last fall (over $100/c) and an arrangement with the company’s creditors to eliminate its outstanding debt. However, current market pressures have kept this stock, along with all others in the sector, down.

 

Diamond companies and investors are desperate for a catalyst that will stop the haemorrhaging in the sector. Much of this will occur when (if?) the financial sector is done cutting out the dead wood, the rest will have to come from the companies themselves in the form of breakthrough news. Perhaps the impending pre-feasibility study for Renard will do that for Stornoway.

 

Conference-Induced Hiatus

Posted by David

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

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

More information on the highlights of the conference to come…

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