from stockwatch by Will Purcell
The diamond and specialty minerals stocks box score on Thursday was an upbeat 121-81-108 as the TSX Venture Exchange rose nine points to 564. Grenville Thomas and Ken Armstrong's North Arrow Minerals Inc. (NAR) added one-half cent to 3.5 cents on 295,000 shares.
Just limited work is planned for North Arrow's Naujaat project on southern Melville peninsula in central Nunavut this year -- a proposed 10,000-tonne test of the Q1-4 kimberlite now not expected until at least 2024 -- but a diamond valuation exercise purportedly under way could aid -- or kill -- the promotion of Naujaat as a potentially profitable source of fancy orange and yellow diamonds.
A first glance at the data -- not to mention a lingering look at the company's stock chart -- suggests that expectations of profits are farfetched. Recall that North Arrow's 2014 bulk sample, a 1,350-tonne test that averaged 28.4 carats per hundred tonnes, yielded a diamond appraisal of just $36 (U.S.) per tonne and a modelled diamond value roughly double that meagre amount -- perhaps $70 (U.S.) per carat. The resulting arithmetic produced a rock value of just $20 (U.S.) per tonne, far below any realistic threshold.
That seemed to be that, but also recall that North Arrow began touting the population of yellow diamonds within the pipe -- no matter that those gems got a modest assessment from the valuators and a derisive snort from John Kaiser, who likened them to having the colours of ear wax and boogers, or worse. Mr. Armstrong, president and chief executive officer, nevertheless persevered and after he had some of the diamonds cut and polished, the once ugly ducklings got at least grudging admiration.
As North Arrow's pitch had it, if the company could show the orangey-yellow fancy diamonds were present in sufficient numbers and in sufficient quantities, the average diamond value determined by larger bulk sampling, or better yet, mining, could top $200 (U.S.) per carat. Mr. Armstrong did line up some believers, including an important one in Australia, when Peter Ravenscroft's Australia-based Burgundy Diamonds Ltd. agreed to pay for a new 2,000-tonne test in return for a 40-per-cent interest.
Both Mr. Ravenscroft and Mr. Armstrong applauded the results of that test, which they limited to the recovery of diamonds larger than about 0.18 carat. Why were they pleased? Well, consider that the cumulative 2014 test showed the orangey-yellow fancies graded 1.05 carats per hundred tonnes with an average size of 0.385 carat, while all the other gems present graded 8.5 carats per hundred tonnes and averaged 0.387 carat apiece.
Meanwhile, the new test produced the fancies with a grade of about 1.75 carats per hundred tonnes and an average size of 0.548 carat, while the lesser gems graded 7.82 carats per hundred tonnes and averaged 0.459 carat in size. Therefore, there were 75 per-cent more of the fancies than before and better yet, they showed a significantly improved size distribution profile. Further, the colours of the latest batch of fancies were far more orangey than yellow in several cases, and orange fancies carry considerably more value than do yellows.
All that resurrects the question of value. While data is crude and sparse at best, the fancies in Burgundy's Ellendale mine in Australia appear to average roughly 10 times or more the value of the lesser-coloured diamonds. If a 10,000-tonne test at Q1-4 were to show the proportion of fancy orange and yellow gems at about 20 per cent of the full parcel and with a significantly coarser size distribution profile, and if the lesser diamonds are modelled at a modest $90 (U.S.) per carat today, in line with increased prices since 2014, then it would be reasonable to expect the orange and yellow fancies might be worth something approaching $1,000 (U.S.) per carat.
Pulling in that cheerful signal from the current data requires investors to stand on one leg while holding their tongue just so, but those numbers do crunch to an overall diamond value of about $250 (U.S.) per carat. And so, with the calculated grade of 28 carats per hundred tonnes, the Q1-4 rock value could swell to about $70 (U.S.) per tonne -- high enough to make things interesting.
Much can go wrong, of course. While the latest sample improved the grade of the fancies and their colour, there are plenty of questions about the quality of the stones and whether there will be top-quality gems in the larger size classifications. The coming valuation of the existing parcels will be just a start -- the real answers will have to wait until North Arrow and Burgundy complete the much larger test in a year or two. Stay tuned in other words but be patient.