Diamond supply, demand and preference for Canadian stones drives exploration
by Greg Klein
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Complex the diamond trade might be, but its fundamentals look clear enough—steadily rising prices along with forecasted demand outpacing supply. Those reasons alone will send explorers into action but Canadian projects offer additional advantages of favourable geology, high-quality stones and ethical practices. That explains the resurgence of diamond activity in the northern and not-so-northern reaches of the country.
Two years of rising prices have been attributed to new demand in China and India, as well as a return to pre-crisis demand levels in the U.S., still the world’s biggest diamond market, according to a May 27 report by Dundee Capital Markets.
Dundee cites figures from Bain & Company’s Global Diamond Report 2013, which calculated a decade of supply growing at 2% annually, outpaced by demand growth of 5.1% as “existing mines get depleted and no major new deposits come online.”
Among other implications, jewellers need to “secure an adequate and consistent supply of polished diamonds in the range of sizes, shapes and colours suited to their product lines,” Bain stated. “A number of premium retailers have already integrated backwards along the value chain by investing in mining assets and cutting and polishing operations and securing access to primary rough supply. This trend is expected to continue.”
Although Russia, Botswana and the Democratic Republic of Congo comprise the world’s top three suppliers by quantity, the quality of Canadian diamonds puts this country in third place for dollar value, Dundee points out.
Canada currently supplies the market from four mines, three of them in the Northwest Territories’ Lac de Gras region: Ekati (80% Dominion Diamond TSX:DDC, with 10% each held by diamond pioneers Chuck Fipke and Stewart Blusson), Diavik (40% Dominion, 60% Rio Tinto NYE:RIO) and Snap Lake (100% De Beers, which is held 85% by Anglo American). De Beers also produces diamonds at its Victor mine in Ontario’s James Bay region.
Most new near-term production would come from Stornoway Diamond’s (TSX:SWY) Renard project in Quebec, scheduled for commercial production in June 2016, the De Beers (51%)/Mountain Province Diamonds TSX:MPV (49%) Gahcho Kué mine in the NWT, slated for H2 2016 production, and probably Rio’s Bunder project in India, Dundee states.
Keeping in mind the 10 to 12 or more years needed to take an economic discovery into production, “they need to be looking now,” emphasizes Dave Hodge, president of Zimtu Capital TSXV:ZC. “So the world market is encouraging the exploration industry to keep that supply chain full.”
As head of a prospect generator, Hodge sees the action from the perspective of small-cap juniors integral to potential discoveries. “There’s no question that Canadian diamonds are going to be very strong in the future, and that’s why the exploration industry is getting turned on right now. This is the moment of opportunity. This is when the exploration companies can shine and find a discovery that’s going to provide the world with diamonds for the future.”
His company recently vended an 80% interest in a diamond prospect to Strike Graphite TSXV:SRK in the Pikoo area of Saskatchewan that’s grabbed a lot of attention. Meanwhile summer drilling is planned for the Lac de Gras region’s Redemption project, a joint venture that partners North Arrow Minerals TSXV:NAR with Arctic Star Exploration TSXV:ADD, a Zimtu core holding. Not surprisingly, Zimtu’s actively pursuing additional diamond transactions.
“People looking for something special want a Canadian diamond because they know it’s conflict-free,” Hodge adds. “It’s something you can give to your wife without wondering whether somebody died for it.”
Another impetus for exploration is exploration itself. When successful, it can create its own momentum. Jody Dahrouge, senior geologist/president of Dahrouge Geological Consulting, says Canada’s initial exploration boom, sparked by Fipke’s early 1990s Ekati discovery, “finally faded just like any exploration or commodity cycle.” But interest has revived, partly due to the Pikoo discovery announced last November by North Arrow, which is earning 80% of the project from Stornoway. Dahrouge credits Pikoo with “fantastic diamond counts, albeit at a very small sample size from a small kimberlite body.”
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