As a child growing up in England, Paul Brockington used to enter stock-picking contests run by the Daily Mail newspaper.
Later, having spent a decade as a Winnipeg-based mining analyst for Richardson, Brockington was in a position to recognize the potential significance when Chuck Fipke’s Dia Met Minerals drilled the discovery hole that launched the Canadian diamond industry.
Those two passions - diamonds and the markets - came together a couple of years back when he purchased an option on prospective diamond ground in Northwest Territories and launched Margaret Lake Diamonds (DIA-V).
But with the junior financing drought and rough diamond prices sinking, late 2015 is a tough time to be running a diamond exploration company - even when your play is near Canada’s next major diamond mine.
Margaret Lake Diamonds’ property is contiguous to the north and west of Kennady Diamonds’ Kennady North property and not far from the Gahcho Kue diamond mine being built by De Beers and Mountain Province Diamonds. Gahcho Kue is scheduled to start pulling out diamonds in the second half of next year.
Kennady is developing the Kelvin and Faraday kimberlites and plans to announce a PEA on Kelvin early next year.
Margaret Lake is a much more speculative play, with a current market cap of $2.7 million (10c and 27M shares out). The company has a 5-year land use permit (good until 2020) from the Mackenzie Valley Land and Water Board and 12 high-priority drill targets - mostly under lakes - that were identified through an airborne survey of gravity anomalies.
The flagship property is in good standing until 2018 and Brockington said about $1.5 million will probably be required for a drill program.
But the company has a familiar problem - negative working capital - and is being kept afloat by its CEO, for now.
He’s optimistic that the tide will turn in the junior market: “The thing that will change it is a couple of big discoveries and a mass speculative play, like the diamonds 24, 25 years ago.”
Brockington also believes there are more diamond discoveries to be made in the barren lands of the Northwest Territories.
“Do you really think they found everything, the way they did things 20 years ago?”
I knew of Brockington but had never met him, so it was nice to stop by his downtown office recently for an interview.
He has an office with a view on the 20th floor of the 37-storey downtown office building, but looks can be deceiving. Brockington pays himself $1 a year and his office is located in Varshney Capital’s suite (Margaret Lake was a Varshney shell and Peeyush Varshney is on the board).
Brockington acquired an option on the Margaret Lake property in 2013 from a British acquaintance who had staked it in October 2011 in a small private company. Margaret Lake has also subsequently staked some contiguous land.
“I initially met the principal in London in the summer of 2013, that’s when work was getting going on Kelvin and Faraday and things were warming up,” he recalled. “In November I flew to London on a Saturday, arranged to meet him on a Sunday, and did a deal on Sunday night.”
Brockington said Margaret Lake Diamonds has TSXV approval to move from a 60% stake to a 100% stake in the properties, a deal he said is finalized except for the paperwork.
The company is also working on earning a minority interest in the Marlin property owned by Randy Turner’s Canterra, which is also adjacent to Kennady North.
An airborne gravity gradiometry survey that was flown over Margaret Lake ground (and part of Canterra’s Marlin property) identified 12 kimberlite targets, 11 of them under shallow lakes. Detailed bathymetry using satellite imagery was then used to factor in water depth, which corrects for the gravity signature for interpretation of anomalies.
Gravity gradiometry surveys are expensive, Brockington noted, but they turned up unknown kimberlites at Ekati - and the technology is much better now.
For now, however, financing is top of mind, and Brockington says he may do a flow-through financing to pay for a winter drill program.
He’s 73 and sports a few wrinkles on his face and you would too, as a junior mining CEO in this market. On the bright side, some of those wrinkles are probably a result of owning Aber Resources and Dia Met Minerals during the run from pennies to $50 and higher and having to decide whether to hold or sell.
EARLY SCORES IN THE DIAMOND RUSH
Brockington says he sold Aber on the way up, but didn’t sell any of his Dia Met shares until after they’d hit their peak.
How early was he on Aber? Brockington says he owned a large position in the stock before Aber CEO Gren Thomas had even headed north to stake the Northwest Territories ground that became the Diavik diamond mine. At the time, Aber had a copper exploration play in the Arctic islands and Gren Thomas crossed him some stock.
“I owned stock from the ‘80s, and in those days, if you owned a few hundred thousand shares in some of these penny stocks, you couldn’t sell them if you wanted to, there was no market,” Brockington said. “So I owned shares from another movie, and next thing is, I’m at the right movie, wrong reason.”
“Did I do OK? Yes, I did.”
An avid follower of Canada’s junior exploration scene for decades, Brockington said he paid close attention to new trends, particularly the 1991 Fipke diamond discovery: “Diamonds sort of intrigued me.”
The following year, during the height of Canada’s diamond rush, the San Francisco gold show had a diamond panel for the first time and Brockington ended up on it.
“An analyst from a brokerage house was asked to be on it, but the president of the brokerage firm - I won’t say which one - said, ‘I don’t want you going there because I think this could be a Canadian scam.’ So this guy called me up and said, ‘Paul, would you like me to put your name forward?’
The others on the panel were geologist Chris Jennings of SouthernEra - who had flown up to Yellowknife with Gren Thomas to clandestinely stake ground around Dia Met’s land - and newsletter writer Bob Bishop.
“It was a packed room.”
Brockington followed up childhood stock-picking contests with real-life investments in gold stocks in Africa, where he started his mining career.
A mining engineer, Brockington graduated from England’s Camborne School of Mines in 1963 and worked in the copper belt in modern-day Zambia. He also worked at iron ore, molybdenum and copper operations in Canada.
He later shifted to research and moved to Winnipeg, where he lived for 20 years and worked for Richardson. When Richardson merged with Greenshields in 1982, Brockington was replaced as a mining analyst by Raymond Goldie - now the senior mining analyst for Salman Partners.
“I took my severance pay and put it into penny mining stocks.”
Brockington said he put about 70% of the lump sum into Taseko Mines, and that turned out rather well. Shares of the company - whose flagship property at the time was New Prosperity - ran from less than a dollar before Hunter Dickinson took control of Taseko to more than $20. (Taseko now trades at 47 cents and New Prosperity remains tied up in environmental permitting and legal battles.)
SPECIAL SITUATIONS
As an investor, Brockington said he looks for “special situations” and tends to take large, concentrated core positions and trade around them.
“I don’t need to own them all right at the bottom,” he said. “In the case of Dia Met, I bought far more stock when it got to double digits than I did at less than that, because there was more information available.”
“Yes, you don’t make the same percentage, but your capital isn’t at risk.”
“Have I had some dynamic losses? Yes. Probably my worst losses haven’t been in the mining area, but when I venture off into oil and gas, courtesy of a friend’s tip … that type of thing.”
On the investing front, Brockington reckons his varied life experiences help him evaluate and look at potential investments from different angles.
While in Winnipeg, he worked for a while as chairman of a Manitoba Crown corporation - since sold - that had interests in several mines and mining projects. For a time he ran the province’s immigrant investor program, which counts Eugene Melynk - now the billionaire owner of the Ottawa Senators - as one of its success stories.
Brockington moved from Winnipeg to Vancouver in 1993 and has lived on the West Coast ever since, working as an investor and independent consultant.
These days, two of the diamond stories he’s most bullish on are Lucara Diamond and Stornoway Diamonds. He said he “loaded up” on Lucara a couple years ago when they started pulling large stones out of the Karowe mine, purchased from De Beers.
“When I sort of saw what was starting to show up there with some of the diamonds, I thought, ‘Wow, this could be earth-shattering.’ And look at the last two weeks.”
Lucara's Karowe diamond mine in Botswana. Lucara Diamond photo
Lucara recently announced it will be spending more money on evaluating the resource at depth, and Brockington believes Karowe will have a 20-year mine life. It’s currently pegged at 13 years.
“(Karowe) is almost certainly going to be a long-lived mine. This thing will be throwing off excess cash flow.”
Brockington thinks an underground mine expansion at Karowe would cost in the ballpark of $500 million. He said he holds a core position in Lucara, but will trade some on run-ups.
“The dividend is there, and some of this exploration in Botswana could make news in the coming year.”
Of the 1,111-carat diamond Lucara recovered recently, Brockington commented: “It’s a museum piece, really. It’s a hell of a promotion.”
He’s also bullish on Stornoway Diamonds and owns a position in the Quebec-based developer, which is building the Renard mine. Stornoway built a large diamond recovery circuit into its plant, which would allow for the recovery of a 600-carat round octahedral stone.
Exhaust stacks at Stornoway's Renard LNG power plant. Construction of the Quebec diamond mine is about 53% complete. Stornoway Diamonds photo
Noting the potential for large stones, Brockington describes Stornoway as a “mini-Lucara” and thinks it could eventually become prey for the Botswana-focused producer.
“I think it’s the untold, unsold story.”
Brockington believes that Stornoway - like Lucara - will be mining for much longer than is outlined by the current mine plan.
He also likes Mountain Province, which will be in production next year and could be another diamond mine that - with further exploration - could have an extended mine life.
Disclosure: Author owns shares in Lucara Diamond and Canterra Minerals as well as some Stornoway warrants. This article is for informational purposes only and should not be taken as investment advice. All investors need to do their own due diligence.
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