Canada re-vitalises diamond exploration 25 years on

Mining engineer, analyst and investor Paul Brockington, 71, is CEO of the new company, which holds an option to earn up to 70 percent of the Margaret Lake Diamond property, adjacent to Kennady Diamonds ($110 million market cap). Margaret Lake is also just a few kilometers from Mountain Province Diamonds ($540 million market cap) in Canada’s Northwest Territories.

The $1.2 million financing Margaret Lake Diamonds closed yesterday values the company at a market cap of just over $2 million.

After several conversations with Mr. Brockington, other stakeholders involved with the project and experts in the industry, I am in a position to share what I know about Margaret Lake’s people, project and plan.

Please note that as a shareholder and former director of the company, my comments might swing toward a positive bias.

People

CEO Paul Brockington was educated at the Camborne School of Mines in the UK. He worked on several mines early in his career, ranging from copper in Zambia to iron ore in Canada’s Labrador Trough, and copper and molybdenum mines in British Columbia. At the latter he found the last deposit on the property to be mined.

Mr. Brockington settled in Winnipeg in 1972, and became a mining analyst with Richardson’s, then one of Canada’s most prominent mining and energy stock underwriters. By the time he left the firm 10 years later to pursue interests in the public sector, Brockington was Richardson’s senior mining analyst.

Brockington became chairman of Manitoba Mineral Resources Ltd., a crown mining corporation with interests in tantalum and copper zinc mines. He also worked on several provincial economic development programs.

Throughout his career Brockington always tracked and staked himself to Canada’s junior markets. He assembled large positions in some early-stage companies that hit it big.

In the early 1990s, Canada’s Northwest Territories was beginning to experience a diamond exploration rush sparked by Chuck Fipke’s DiaMet Minerals. DiaMet discovered diamondiferous kimberlites at Ekati in 1991. Brockington was one of the first analysts to value Diamet, a company in which he had acquired a significant stake.

When Gren Thomas’s Aber Resources began staking next to Diamet, Brockington was already a large holder of Aber, too.

Both DiaMet and Aber went on to deliver multi-hundred percent returns to investors, including Brockington. He for the most part held on to stakes in these companies to realise the long term value.

Fast forward to today: Brockington says he is still a long term investor in diamonds.

He’s flush from the three fold (in a year) gain he’s just received from Lukas Lundin’s Lucara Diamond Corp. Lucara will soon pay a dividend after its first mine, Karowe, exceeded all expectations.

He’s a shareholder in Mountain Province Diamonds, which is developing the Gacho Kué mine in a partnership with De Beers.

Brockington also owns Kennady Diamonds, a spin out of Mountain Province and its immediate neighbour to the north.

At age 71, Brockington had no desire to become the CEO of a publicly traded junior mining company. Until, that is, he learned of the Margaret Lake opportunity in the autumn of 2013.

Brockington was introduced, in September 2013, to London, England based Mark Thompson, a former fund manager at Trafigura.

Thompson, so Brockington’s story goes, attended a Mountain Province site visit 2 years earlier and was so impressed with the project he arranged to stake the open ground in the area. He wound up calling it Margaret Lake Diamonds Ltd.

Two years went by and Thompson had yet to spend the required money to keep the property in good standing, when Brockington made him a proposal.

Through his private company, Brockington offered to put up the $102,000 required for payment in lieu of work and struck a deal with Thompson to earn 70 percent of the Margaret Lake property by spending $1 million per year in exploration over the next two years.

Shayne Nyquvest, the President of Jordan Capital Markets, joined Brockington in his negotiations with Thompson, and helped arrange the $1.2 million financing that closed yesterday.

Brockington and company identified Varshney Capital Corp. public shell company, JDV Capital, because it provided a tight share structure for the company’s launch on the capital markets.

Hari Varshney, founder of Varshney Capital, says he felt positively about getting involved with another diamond explorer.

In the 1990s, Varshney helped finance the staking that led to the Gacho Kué discovery. It has been said that he was a creator of Mountain Province Diamonds, which has since spun out Kennady Lake Diamonds as well. Both stocks now trade at more than $4.

“Paul [Brockington] is a gentleman,” Mr. Varshney told me by phone Tuesday afternoon. “He doesn’t need to work but has found something good enough to put his name on.”

Mr. Doyle

Hari Varshney is not the only stakeholder in Margaret Lake Diamonds with past successes in the diamond sector. Buddy Doyle, formerly in charge of North American diamond exploration for Rio Tinto, led the team that made the Diavik / Aber discovery in 1994, now in production. Doyle will be Brockington’s VP of Exploration.

Brockington will not be taking a salary from the company, hoping instead to profit from his equity holdings in the deal.

The project

The Margaret Lake property has Kennady Diamonds immediately to the south, and Kennady, of course, shares a border with the De Beers / Mountain Province joint venture.

Low-res map showing Margaret Lake’s property in relation to Kennady and Mountain Province / De Beers (Gacho Kué) in Canada’s Northwest Territories.

In the past, the joint venture held the grounds that both Kennady and Margaret Lake are exploring.

Kennedy’s project has indications of significant diamond potential, with the Kelvin and Faraday kimberlites that were identified during the existence of the joint venture. De Beers opted out of the land package that is now Kennady, and Mountain Province spun it out as a separate company in 2012. Work in 2013 and 2014 by Kennady Diamonds, the 100% owner, is adding to the picture with ongoing drilling.

Brockington believes there is more news to come from Kennady as they conduct their bulk sample and produce a NI 43-101 resource later this year.

He also says the potential kimberlite drill targets that Kennady has likely do not stop at the Margaret Lake property border a few hundred meters to the north.

The plan

In the past the Margaret Lake property was the subject of indicator minerals sampling and wide spaced geophysical work but Brockington’s focus is not the historical data.

His plan is to look for diamondiferous kimberlites using modern exploration methods, starting with a helicopter gravity gradiometer and magnetic survey next month.

Kimberlites would be expected to show as gravity low anomalies and this system has been shown effective on known kimberlites in the Northwest Territories.

The same technology was used by Mountain Province/ De Beers and Kennady. Brockington has hired the same consultant who oversaw those surveys for Margaret Lake to be on the ground during its survey.

Brockington will spend some $800,000 on that endeavour, which should yield a preliminary interpretation this June, followed by a final data interpretation in Perth, Australia in July of this year.

A summer work program will also be conducted to follow up on any anomalies from the airborne survey, and will require bathymetric work over lake targets.

Brockington is optimistic that some targets can be found on land, as opposed to under water, so his team can get to work on looking at these areas sooner.

Noting the development of the Gacho Kué mine just a few kilometers to the south, Brockington says he doesn’t need the massive scale that would be required to justify a standalone operation. The winter road that services Gacho Kué passes through his property. He hopes Margaret Lake can find an economic resource that will be incremental to another diamond operator which would justify increased production or extend an existing mine life.

When asked why he has taken the responsibility of becoming a public company CEO, Brockington responded, “I foresee a project here that has dynamic potential and I can set the wheels in motion to evaluate it and advance it in a methodical manner.”

Margaret Lake Diamonds is at a very early stage of exploration, which explains the CEO’s $1 salary and the company’s $2 million market cap, however CEO Paul Brockington, VP of Exploration Buddy Doyle, and Varshney Capital have track records as diamond investors and explorers. They have the credentials to grow Margaret Lake’s market cap, raise more money and build out a team in pursuit of an economic diamond discovery.

From nothing 25 years ago, Canada is now the third largest producer of diamonds by value in the world.

It all starts with exploration companies like Margaret Lake Diamonds.

Disclaimer: Author is a shareholder in Margaret Lake Diamonds Inc. and a former director of the shell company, JDV Capital, therefore the article is not to be considered unbiased and fully independent. This article is not intended to meet your specific individual investment needs and it is not tailored to your personal financial situation. Nothing contained herein constitutes, is intended, or deemed to be — either implied or otherwise — investment advice. This article reflects the personal views and opinions of Tommy Humphreys and that is all it purports to be. While the information herein is believed to be accurate and reliable it is not guaranteed or implied to be so. The information herein may not be complete or correct; it is provided in good faith but without any legal responsibility or obligation to provide future updates. Neither Tommy Humphreys, nor anyone else, accepts any responsibility, or assumes any liability, whatsoever, for any direct, indirect or consequential loss arising from the use of the information in this article.