For years it seemed that juniors were fleeing from diamond exploration — and for good reason.
The high-risk nature of diamond exploration, the failure to find world-class deposits in the past two decades and the cost of Arctic exploration — not to mention the 50% cratering of rough diamond prices during the financial crisis — all drove firms and investors away.
But now — spurred by several diamond development and exploration projects in Canada, relatively firm rough diamond prices compared to gold and a lack of future supply of the gems — several exploration companies have been staking land and getting ready to launch exploration programs.
“The whole diamond market has turned around,” says Randy Turner, president and CEO of Canterra Minerals (TSXV: CTM).
“There are lots of published papers on the supply–demand curve, but there certainly has been a lack of exploration. With gold prices remaining where they are and a pullback in that sector, I think we’re going to see some dollars going into the diamonds — and those will be from funds and individuals that did very well, and understood it from the nineties.”
Turner was one of those individuals, having been part of Canada’s original diamond rush, which started in 1991. He led Winspear Resources, which discovered the Snap Lake diamond deposit in the Northwest Territories in 1997, and was acquired by De Beers in 2000.
A successor company to Winspear, Canterra announced in April that it is returning to the Arctic diamond exploration properties staked in 2000. It has also expanded those concessions and added targeted projects to its portfolio, based on a proprietary database compiled over 15 years of exploration in the southern Slave province.
The database is key to its exploration plans this year, which will start in July and include more detailed sampling and electromagnetic–magnetic surveys.
“The six land packages that we have — unlike back in the nineties, when we went out and staked huge blocks of land — we are now target-specific, because we’ve narrowed it down based on mineral trains and airborne geophysics,” Turner says.
Canterra will aim to outline drill targets for 2015, focusing on its Hilltop property, 45 km south of Snap Lake, and Merlin, which is 20 km northwest of Gahcho Kué, the De Beers–Mountain Province Diamonds’ (TSX: MPV; NYSE-MKT: MDM) jointly owned diamond mine now under construction.
Canterra also plans to make more land acquisitions.
Turner says he and the Canterra board, which is comprised of directors with deep diamond expertise, decided on the return to diamonds six months ago based on industry trends, such as the winding down of some of the bigger mines.
“You’re looking at where the next cycle is going to come from, and I would say that the diamond cycle is going to be happening for the next couple of years,” Turner says. (His Silver Quest Resources was bought out by New Gold [TSX: NGD; NYSE-MKT: NGD] in 2011 for its 25% stake in the Davidson gold–silver property in B.C. [part of New Gold’s Blackwater project]).
Canterra isn’t the only junior that sees potential in diamonds. Margaret Lake Diamonds (TSXV: DIA) — a new company that started trading in April — has also picked up land near Gahcho Kué and Kennady North, which is Kennady Diamonds’ (TSXV: KDI; US-OTC: KDIAF) exploration project next door to the development.
Margaret Lake has an option to earn up to 70% of a 197 sq. km land package adjoining Kennady North to the north and west.
The junior raised $1.2 million in an oversubscribed private placement in April and has a $1-million exploration program planned for 2014. An airborne gravity–magnetic survey will be conducted in July, with follow-up bathymetry work on underwater gravity anomalies, ground geophysics and KIM sampling carried out in August and September. Any targets identified will be drilled next year.
Margaret Lake president and CEO Paul Brockington says the encouraging results coming out of Kennady Diamonds’ project (samples from the Kelvin and Faraday kimberlites at Kennady North have returned 5.38 carats per tonne and 11.23 carats per tonne), the proximity of the Margaret Lake land package and Gahcho Kué prompted him to move into diamond exploration.
“What we’re looking at up there is the potential, in theory, for additional feed to other producers,” he says. “In other words, you don’t necessarily need a stand-alone mine . . . so the hurdle that you have to get to in terms of tonnage and grade would be different than if you were trying to start from scratch.”
A mining engineer and former analyst, Brockington was in early on Canada’s diamond rush in the 1990s, holding stakes in Dia Met Minerals, which made the Ekati discovery; Aber Resources, which made the Diavik discovery with Rio Tinto; and Winspear Resources.
He notes that the area around Gahcho Kué and Kennady North has become a bit of an area play, adding that just two days after he made a deal for Margaret Lake last year, another company came looking for the same land package.
Since then, Kennady has staked land just west of Margaret Lake, and farther west of Kennady there’s been staking by others. Brockington also knows of another group that has staked 400 sq. km south of Gahcho Kué–Kennady North.
Margaret Lake has seen limited work, including till sampling and geophysics, but no exploration has been conducted there since 2003, and no kimberlite bodies have been identified. The project hosts untested or unresolved kimberlite indicator mineral trains and poorly identified geophysical anomalies.
Brockington says one thing that sets Margaret Lake apart is that it will be using a gravity gradiometer survey, which BHP Billiton (NYSE: BHP; LSE: BLT) and others have shown can find targets that don’t show up in conventional magnetic–electromagnetic surveys.
Margaret Lake can earn a 60% interest in the project by spending $1 million on exploration by Oct. 13 and up to 70% by spending another $1 million by Oct. 13, 2015. The company’s vice-president of exploration is Buddy Doyle, who played a key part in the Diavik discovery.
Private company Proxima Diamonds, which holds 720 sq. km of claims in the Northwest Territories’ Slave Craton, also plans to explore this year. It will soon go public through capital pool company Adent Capital (TSXV: ANT.P).
Proxima has 16 project areas, but this year will focus on three targets southwest of Snap Lake: Eureka, Tavernier and Hortensia. A National Instrument 43-101 report completed in May by Aurora Geosciences recommends an initial program of at least $200,000, including detailed kimberlite indicator mineral (KIM) till sampling, ground geological surveys, geological mapping and bathymetric surveying mid-year, followed by a gravity survey at year-end.
Meanwhile, micro-cap Strike Graphite (TSXV: SRK; US-OTC: SRKZF) announced in May that it struck a deal to acquire 80% of two land packages totalling 5,424 sq. km in the Sask Craton near North Arrow Minerals’ (TSXV: NAR; US-OTC: NHAWF) and Stornoway Diamond’s (TSX: SWY; US-OTC: SWFDF) Pikoo joint venture in Saskatchew
an. In January, Alto Ventures (TSXV: ATV; US-OTC: ALVLF) staked 35 sq. km of land near Pikoo and made a deal to option 60% of a 131 sq. km package that adjoins Pikoo to the southeast.
North Arrow discovered a kimberlite field at its 80%-owned Pikoo project last year, with a 210-kilogram sample from the PK150 kimberlite returning 23 commercial-sized diamonds (larger than the 0.85-mm sieve size).
While investor interest is returning for diamond-development projects like Stornoway’s and for select exploration plays such as Kennady Diamonds and North Arrow, investors are not yet throwing money at early stage exploration. Margaret Lake raised enough cash for a work program ($1.2 million) and Canterra announced a $2-million financing in late May that is still open, and should close before the end of June.
A repeat of Canada’s original diamond rush is unlikely.
“I think there’s an opportunity out there and one or two other companies that are doing it, but there won’t be a wild staking rush like there was at the beginning of the nineties,” says Margaret Lake’s Brockington. “I think it will be people that are much more selective — they’re much more knowledgeable now.”
— This article originally appeared on The Northern Miner’s sister website www.miningmarkets.ca.