2022-08-09 17:54 ET - Market Summary
by Will Purcell
The diamond and specialty minerals stocks box score on Tuesday was a mediocre 84-107-119 as the TSX Venture Exchange fell four points to 663. Grenville Thomas and Ken Armstrong's North Arrow Minerals Inc. (NAR) closed unchanged at 7.5 cents on 10,000 shares.
Investors have assessed -- but largely ignored -- the complete results of North Arrow's 1,814-tonne bulk test of two lobes of its big Q1-4 kimberlite pipe, less than 10 kilometres north of the costal community of Naujaat, in central Nunavut. That test was designed to flesh out the size distribution profile of the two main diamond populations, fancy orangey-yellow diamonds and all the others -- mainly whites, greys, browns, non-fancy yellows and other colours.
The ho-hum attitude comes despite the company producing significantly greater numbers of fancy diamonds in the latest tests, along with better colour and quality attributes. Nevertheless, probably because there were no huge, top-quality gems, the market is unsure whether the latest test will move the diamond valuation range enough to warrant a larger test, much less make the project economically viable.
Indeed, investors inclined to dive deep into the data, both old and new, are left perplexed by shifting standards and changing assessments. Mr. Armstrong, president and chief executive officer, says that there is no universally accepted colour grading scheme for rough diamonds, adding that the graded colour of rough does not necessarily represent the final colour of a polished gem, which leaves North Arrow to use the Gemological Institute of America colour scale for polished diamonds and hope for the best.
Still, that is a vast improvement over what the company and investors relied upon in 2015, when North Arrow had the diamonds from a 1,353-tonne test of Q1-4 valued in Antwerp by WWW International Diamond Consultants. WWW's appraisal of the 383.55-carat parcel came in at just $36 (U.S.) per carat, and its modelled range was little better, at between $43 (U.S.) and $92 (U.S.) per carat.
Worse, WWW saw little to offer much hope for the yellows. It pegged the value of the non-yellows and light yellows at just $35 (U.S.) per carat, while gems classified as dark yellow were appraised at $46 (U.S.) per carat based on a parcel of just 24.49 carats. Investors also recall -- all too well -- stock guru John Kaiser dismissing many of North Arrow's diamonds as "coloured like boogers, urine, gall stones or earwax."
While North Arrow found Mr. Kaiser's words galling, and while it may have proven him wrong after having a few of its diamonds cut and polished, Mr. Kaiser also pointed out that words like "aggregate" and "cubic," applied to so many of the company's gems, are negative descriptors for diamonds. Indeed, the lower proportion of high-quality gems was a key reason for the low appraised and modelled values.
Still, that appraised parcel was tiny, and North Arrow did better with its latest test. The best gems weighed 0.82 carat and 0.57 carat -- both fancy intense orange diamonds -- compared with the two gems the company had cut and polished after the 2014 test, which weighed about 0.45 carat each. North Arrow never classified those two diamonds publicly, but they probably were orangey yellows with intense colouring.
While the quality of all the Q1-4 diamonds is a concern, North Arrow's test should show a significantly improved diamond value based on the limited data currently available. For one, diamond prices are currently 25 per cent above their 2015 levels, and two -- diamond appraisers have a better idea about how the fancy gems look after cutting and polishing.
As for the data, North Arrow's latest test significantly improved the proportion of fancy diamonds present in the Q1-4 pipe, and it also improved on the size distribution frequency for the fancies, if not for the entire yellow population. Further, the parcel sizes remain small and so the range of modelled values will remain large, leaving the low end looking uneconomic but the high end likely to support collecting a 10,000-tonne test as soon as possible -- probably 2024.