It’s been a busy couple of days on the Canadian diamond exploration front, even as rough prices for diamonds grind lower in response to a slowing global economy.
Rio Tinto this week cut back on diamond production at its Argyle mine in Australia, the world’s largest source of fancy pink diamonds, and expects to produce 18 million carats this year instead of 20 million carats. Rio also owns 60% of Canada’s Diavik mine with partner Dominion Diamond.
Kennady Diamonds (KDI)
Lower diamond prices also affected the valuation of a sample of diamonds from Kennady’s Kelvin kimberlite at its Kennady North project in Canada’s Northwest Territories.
Kennady came in with average modeled prices of US$56 and US$70 per carat as well as some high-value gem-quality stones:
- a 4.22 carat diamond from Zone B valued at US$1,603 per carat
2.58 carat diamond from Zone C valued at US$1,366 per carat
2.38 carat diamond from Zone C valued at US$1,196 per carat.
The diamond values were lower than a US$100-140 per carat estimate, reflecting weak diamond prices and an insufficient sample size, Dundee Capital Markets analysts Matt O’Keefe and Erik Bermel said in a morning research note. “A follow-on bulk sample planned for early 2016 should provide a more definitive result to drive an economic study for the high-grade Kelvin kimberlite,” the analysts said.
The company is planning a 500-tonne bulk sample next winter that it says should yield a larger diamond parcel of about 2,000 carats. That valuation will help Kennady model revenue for a planned feasibility study.
Kennady shares were down slightly in early trading following the valuation announcement, which came after Monday’s close. With 47 million shares outstanding and a $2.90 stock price, Kennady has a market cap of $136 million and about $48 million in the treasury.
HRA Advisors newsletter writer Eric Coffin weighed in at CEO chat, describing the overall carat values as “a little skinny” but noting it would take time to get a bigger sample and a sense of potential mining methods. “Certainly these are lower valuations than many KDI shareholders were expecting, I think,” he said.
Kennady, which was spun out of Mountain Province Diamonds, is well-financed with a major shareholder, Irish billionaire Dermot Desmond, who continues to participate in each financing. Its Kelvin-Faraday “kimberlite corridor” is also nearby Canada’s next diamond mine, Gahcho Kue, which is being built by De Beers (51%) and Mountain Province.
However, Kennady likely won’t get any advantage from proximity to the De Beers/Mountain Province mill, Coffin commented.
“It’s no secret (De Beers) tried to starve MPV out (though it didn’t work). No reason to think they would not do the same with KDI,” he wrote in CEO chat. “No reason to mill KDI rock near term unless KDI offers a deal with a higher net – which means not much of a deal for KDI. I’m surprised it’s not trading worse today.”
North Arrow Minerals (NAR-V)
North Arrow Minerals announced final diamond results from its 80% owned Pikoo project in northern Saskatchewan, and the results from the PK314 kimberlite did not measure up to the high standard set by flagship kimberlite PK150.
Caustic fusion processing of 476 kg collected from PK314 returned just 23 diamonds larger than the 0.106 mm sieve size. That compares to 1,232 stones recovered from 531 kg of material from PK150, which was discovered in 2013, kicking off the area play.
However, a small 4.74-kg sample from PK311 returned two diamonds, including one greater than the .212mm sieve size, meriting further work, North Arrow CEO Ken Armstrong said in a phone interview.
The focus now shifts to further defining PK150, the prospective PK311 and PK312 kimberlites, and analyzing magnetic data from two airborne surveys to identify drill targets for the 2016 winter program.
“We need to drill off PK150 so we no longer have to say ‘we don’t know how big it is,’ ” Armstrong said. “We need to find bodies with bigger size or show that PK150 has bigger size.”
North Arrow has completed two airborne magnetic surveys – one helicopter, one fixed-wing – both within the project area as well as northeast of the main project. Results from the 1,400 line km helicopter survey will be used to identify further drill targets for the 2016 program, while a fixed-wing magnetic survey covered mineral claims northeast of the main Pikoo project that North Arrow has optioned from neighbours.
Armstrong said the company will likely drill 2,500 or 3,000 metres in a winter program. In the meantime results are pending from 227 till samples collected in August to define two unsourced KIM trains at its Mel project on Nunavut’s Melville Peninsula.
North Arrow’s chairman is Gren Thomas, whose Aber Diamond discovered Diavik, and a Lundin family trust is a major shareholder. The company is focused on advancing the Pikoo diamond project after Qilalugaq, its yellow-diamond project in Nunavut, returned disappointing diamond valuations.
North Arrow’s shares have been pounded since they rose above $1 in the spring on anticipation of stellar “fancy yellow” diamond values from Qilalugaq. The stock is at 25 cents for a market capitalization of $13.5 million.
Peregrine Diamonds (PGD-T)
Another Canadian diamond play creating a buzz in CEO Chat is Peregrine Diamonds, the Nunavut-focused explorer run by Eric Friedland and financially backed by his brother Robert Friedland.
Peregrine is processing a 559-wet-tonne bulk sample from its CH-7 kimberlite at the Chidliak project, which will provide diamond grades for several zones within CH-7 and diamond parcels for valuation, the company says. Processing the bulk sample to a concentrate is expected to be complete by Nov. 30, with final diamond recovery and initial grades expected in early January.
Peregrine has an 8.5-million carat inferred resource at Chidliak, with an average diamond price of US$213/carat (although prices have fallen since). An updated resource for CH-6 and CH-7 projected to land in the first quarter of 2016 will form the basis of a preliminary economic assessment on a Phase 1 diamond mine, to be published in the second quarter of 2016.
Peregrine shares were up about 18% to 23 cents in morning trading on speculation of pending news flow, and have a 52-week range of 14 to 38 cents. With 280 million shares out, the market is valuing Peregrine at about $66 million.
PGD long @ekim outlined several possible catalysts in coming weeks that could land ahead of bulk sample results, the resource update and PEA expected in the first half of 2016. “Caustics from summer program, micro diamond(s) possible from Botswana and the big bulk sample. Loaded with news flow over the next 6 months,” he said in CEO Chat.
In other diamond exploration news, Canterra Minerals (CTM-V) has closed the first tranche of its non-brokered private placement for gross proceeds of $500,000. The money will be used for upcoming field programs in target areas of the Northwest Territories, and the company extended the closing of its financing to Nov. 18.
Canterra CEO Randy Turner discovered the Snap Lake diamond deposit in the Northwest Territories during Canada’s first diamond rush and sold it to De Beers.
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Author owns shares of North Arrow Minerals and Peregrine Diamonds. All investors should verify information and do their own due diligence. This is not investment advice.