Mining’s old guard needs strong medicine
A new report details subpar investor returns in the mining industry over the last decade, particularly big cap diversified companies which have not adapted to new realities.
Everybody wants a piece of the action.
Even the venerable diamond powerhouse, De Beers, is committing as much as $20 million to the hunt.
It’s the glittering lure of a possible multi-billion dollar diamond discovery that’s lighting up northern Saskatchewan. A number of mineral exploration companies have joined De Beers in a new staking rush in a region known as the Athabasca Basin.
The Early-Stage Entrant Advantage
Among these hopefuls is Arctic Star Exploration (TSX.V: ADD)—a veteran diamond hunter — that is expanding its search from the Northwest Territories (NWT) into Canada’s new diamond exploration hot spot.
Arctic Star has joined De Beers, CanAlaksa Uranium and Fjordland Explorations as early-stage entrants in this headline-grabbing new area play. All of them have been able to cherry-pick geologically prospective land holdings, which boosts their odds of success. However, it’s still a long shot gamble for all of them.
Nonetheless, it’s one worth committing big bucks to, as far as De Beers is concerned. What’s generated all the excitement is a government airborne geophysical survey that has revealed at least 75 buried “kimberlite-like anomalies”. This is geo-speak that suggests the possible presence of diamond fields in a part of Canada that has historically been mostly overlooked in the hunt for diamonds.
To put matters in perspective, the survey was originally commissioned to help identify new areas to search for uranium in a remote northern region. However, the only interesting revelation that came from the survey was the presence of a cluster of near-surface magnetic anomalies — ones that looked like buried kimberlite pipes that stand out on the survey like knots on a piece of plywood.
Kimberlite pipes are the cone-shaped structures that can host rich diamond deposits, though most pipes contain few diamonds or none at all. Also, kimberlite fields typically involve clusters of between 50-100 pipes spread out over areas of up to 100 kilometres.
What makes the discovery of the cluster of 75 kimberlite-like anomalies all the more intriguing is the presence only 100 kilometres to the south (at least in geological terms) of a trail of kimberlite indicator minerals.
This is potentially very significant. Here’s why: Many hidden sub-surface kimberlites have been found in the NWT by following trails of indicator minerals –- which are often found at or near surface, having been dragged long distances by ancient glaciers. Finding diamondiferous pipes this way is analogous to following a trail of crumbs to a loaf of bread.
If History Repeats Itself, Hold On to Your Seats
This methodology is how the kimberlite pipes that constitute the Ekati and Diavik diamond mines were found in the NWT. These two mines alone have produced nearly $25 billion worth of glittering gems so far.
Ironically, they were discovered by other diamond exploration “juniors” that were early-stage entrants in Canada’s first ever diamond rush.
Their stories are the stuff of legend among speculative investors. For instance, Dia Met Minerals, which discovered the Ekati mine, ran from mere pennies a share in 1991 to over $67 the following year.
Next came another junior mining rags-to-riches story—Aber Resources. Its share price had a similarly meteoric run after the company discovered what was to become the Diavik mine.
Last but not least, Winspear Resources also struck the geological jackpot when it unearthed a diamond deposit that became the Snap Lake mine. Its shareholders also enjoyed a home-run return on their investments.
Now the likes of CanAlaska, Fjordland and Arctic Star hope to be the next generation of stellar performers with their own discoveries. But there’s a lot of work to be done by all of them, as well as their other rivals in the region, before anyone can even think about striking paydirt.
In CanAlaska’s case, it has agreed to give up as much as 70% ownership of its land holdings in return for De Beers’ big-dollar commitment to finding diamonds. But it’s a small price to pay if a multi-billion dollar discovery is in the offing.
As for Arctic Star, it’s betting that CanAlaska wasn’t able to blanket stake all of the best diamond-hunting ground for itself. In light of CanAlaska’s limited budget prior to De Beers’ involvement, it’s a good bet that Arctic Star may be right.
Why the Diamond Race is Still Wide Open
Renowned diamond exploration analyst John Kaiser points out that the Saskatchewan government’s survey is an imprecise tool for finding all the kimberlite targets in the region.
“If indeed CanAlaska has snagged most of a new diamondiferous kimberlite field, a major exploration play will emerge,” he says in a recent edition of his investment newsletter, Kaiser Research Online.
“I use the word ‘most’ because not everybody believes that the 400-meter spacing of the geophysical grid flown by the SGS had sufficient resolution to highlight all kimberlite targets,” he adds. “A kimberlite pipe need not have a prominent magnetic signature that shows up on a 400-meter grid survey.”
This tantalising theory that CanAlasksa and De Beers likely haven’t zeroed-in on all of the best kimberlite targets in the region is what’s fuelling Canada’s latest diamond staking rush.
In fact, it’s exactly why Arctic Star has amassed a sizeable 40,832-hectare land position early in the race. And it’s why new life has already been breathed back into the company’s share price since the company announced its new venture late last week.
Next, Arctic Star will need to explore this summer for its own prospective kimberlite targets. And the company hopes to do that by using more precise geophysical surveying techniques than those used for the SGS survey.
No-one in this increasingly crowded hunt for new diamond riches is expected to drill any time soon. All eyes will therefore be on De Beers and CanAlaska, which could be drilling their joint-ventured project before the year’s end.
If any of their 75 or so kimberlite targets turn out to be the real deal, then the ensuing entourage effect on proximal players like Arctic Star promises to light up their share prices too.
Better still, De Beers or one or more of its rivals may yet beat very long odds to find kimberlites that are well-endowed with diamonds. In that case, diamond glory days reminiscent of the early 90s will be re-lived by a new generation of investors. And many of those who are early-stage, risk-friendly investors will enjoy the ride of lifetime.
