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  • Beautiful, Brilliant, Bloodless: Exploration Gains Momentum As The World's Affluent Covet Canadian Diamonds 0 comments
    Nov 28, 2013 2:32 PM | about stocks: ASDZF, BHP, KDIAF, SWYDF, MDM, SHGDF, PGDIF, NHAWF

    The old saying aside, diamonds are not forever-not when existing supplies are depleting. So the search continues for new deposits. And it's in Canada, the country that transformed the international market with its high-quality, ethically produced stones, that much of the exploration takes place. Now the market might be facing another transformation, not from new supply in Canada but new demand in China and India.

    "Historically that's not where most of the diamonds have been sold," says Patrick Power, president of Arctic Star Exploration. "But they're opening up right now largely due to the efforts of De Beers. China and India have never been incorporated into any [forecast] number before."

    As luxury items-industrial diamonds play a negligible role in the market, Power says-the gems' value depends on the alliterative vagaries of colour, clarity, cut and carats. Esthetic values can be subjective, but a complete lack of colour generally gives a diamond the highest value. Clarity concerns the absence of imperfections. Cut involves the technical precision in faceting a stone's shape to enhance its colour and brilliance or "fire." Of course greater weight, measured in carats, also increases value.

    But the value of Canadian diamonds goes beyond the four Cs. Power puts it bluntly: "They're not blood diamonds. They're ethically mined. All parties participate in the wealth. So there's a premium paid for that," he explains.

    "Plus they're fantastic diamonds. De Beers' Victor mine in northern Ontario is producing stones that are $400-plus a carat. That's an amazing diamond. So we have quality plus branding. Canada was the first country ever to brand diamonds, with the polar bear diamond and the maple leaf diamond. Ekati and Diavik put micro-signatures on each diamond's girdle. That's Canadian. No one ever did that before."

    Supply/demand predictions can be troublesome. But the supply of diamonds above one carat (0.2 grams) marks the point "where they start to get scarce," Power says. "And if you want two, three, four carats of better-quality diamonds, you can tell your supply is dropping."

    Of course growing affluence in emerging markets, where De Beers has been peddling its opulence, would seem to enhance demand. As for the ultra-wealthy, they're paying record-breaking prices. In early November Christie's sold "the largest fancy vivid orange diamond ever offered at auction (14.82 carats)" for $35.5 million. The company had hoped for about $20 million.

    Just one day earlier, Sotheby's sold the 59.6-carat Pink Star for $83.2 million.

    But the excitement's not limited to the über rich. The people who search for the stones have a passion of their own. "What's really exciting for those of us exploring in the Northwest Territories is that the technology is changing for the first time in a long time. We can look again at ground that was previously explored and find new stuff," Power says.

    In particular, a helicopter-borne gravity gradiometry survey over Arctic Star's Redemption project in the Lac de Gras diamond fields found 32 anomalies, including some at the head of a glacial mineral train. The results, announced in October, could indicate the presence of kimberlite pipes among the more dense granitic rock.

    Developed by Lockheed Martin and BHP Billiton (BHP) at least 15 years ago, the technology's been available to other companies for less than three years, Power explains. "It's now the third generation of that system. We're amazed at the high-quality data, as compared to the first generation when BHP flew Ekati way back when. Gravity is a very difficult, time-consuming and expensive thing to do on the ground. Surveys are traditionally small. But you can fly the entire area with this system. We're seeing things that we haven't seen before."

    An additional 350 till samples were collected, with results pending. Previous sampling has shown indicator minerals, some of which don't seem to have wandered far from their source. Some surface diamonds were also found. "In the Territories it's very unusual to find diamonds in till," Power says. "If you're looking for indicator minerals for diamonds, diamonds are the best indicator mineral there is."

    Arctic Star hopes to see drilling begin in March or April, funded and operated by North Arrow Minerals as part of its 55% earn-in. In early November North Arrow announced "Canada's newest diamond discovery" at its Pikoo project in Saskatchewan, where the company's earning 80% from Stornoway Diamond. Stornoway, in turn, has its Renaud project in Quebec scheduled for commercial production in June 2016.

    North Arrow traces its lineage back to Aber Resources of Diavik discovery fame. Aber branched off into Harry Winston, which became Dominion Diamond, now holding 40% of Diavik (with Rio Tinto NYE:RIO holding the rest) and 80% of Ekati (with Canadian diamond pioneers Chuck Fipke and Stewart Blusson each holding 10%), along with 58.8% of Ekati's Buffer zone. Arctic Star VP of exploration Buddy Doyle and director John Buckle played instrumental roles respectively in the Diavik and Ekati discoveries. North Arrow president/CEO Ken Armstrong "used to work for Buddy," Power says. "They're a very close-knit group of people who've gone through this experience before."

    Some of Canada's more recent diamond exploration news came on November 19, when Peregrine Diamonds announced the discovery of three additional kimberlite bodies at its Chidliak property on Baffin Island, bringing the project's total to 67. The company's waiting results from a 508-tonne bulk sample.

    One day earlier Kennady Diamonds reported drill results from its Kennady North project in the NWT's northeast. Twenty-one summer holes recovered 3,454 kilograms of kimberlite. The first 40% that was assayed shows a sample grade of 5.37 carats per tonne. The company has further geophysics and drilling scheduled for winter and spring, with an initial resource expected late next year.

    The same day, quoting numbers that would make many companies swoon, Mountain Province Diamonds announced a private placement increase from $25 million to $29.1 million. Proceeds are earmarked for Gahcho Kué, "the world's largest and richest new diamond development project." A 49%/51% JV with De Beers at Kennady Lake, the project is slated to begin production in December 2015. In addition to Victor, De Beers operates the NWT's Snap Lake underground mine.

    On November 12 Shore Gold updated its Star-Orion South diamond project in Saskatchewan, which undergoes environmental assessment work while the company seeks development financing.

    But, especially in the Northwest Territories, companies are striving to maintain supply more than expand it, Power argues. Existing mines, he says, are running out of ore. Meanwhile Canada has "a very unique diamond, it's got a great name, it's in demand around the world and we're running out of them. Ekati and Diavik have limited lives. They need new sources."

    Yet circumstances bode well. Back in the 1990s "everyone was learning what they were doing," he adds. "Some of the work was just atrocious. But the people who are up there now are really good diamond people. They're experienced, they've had success and there's new geophysical techniques coming into play right now that will help find new discoveries. It'll be exciting. It's an exploration space that's working well right now."

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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