Financial PostDiamond find in Nunavut sparks trading frenzy
Peter Koven, Financial Post
Published: Tuesday, January 08, 2008
A stunning diamond discovery in Canada's Far North sent investors into a frenzy on Tuesday and put the spotlight on a sector that has been largely overlooked during the commodity run of the past few years.
Vancouver-based junior Diamonds North Resources Ltd. said it found 550 diamonds in a small drill sample of 81.75 kilograms at its Amaruk Project in Nunavut. That works out to a remarkable 6.7 diamonds per kilogram, making it one of the best Canadian discoveries in years. The stock soared 129% to close at $1.79, with nearly 13 million shares changing hands.
"We would normally get excited by one stone per kilogram," chief executive Mark Kolebaba said in an interview. "We were pretty shocked by this result." He added that the multi-billion dollar Ekati and Diavik mines had up to about three stones per kilo.
Mr. Kolebaba' phone is ringing "absolutely off the hook" as analysts and investors try to determine the potential of the project, which is located on the coast in the northern part of the province.
"There hasn't really been a discovery of a new [diamond] district like this in a long time in Canada," said Gary Baschuk, an analyst at Clarus Securities.
It comes on the heels of another promising find by Sanatana Diamonds Inc. in December.
Mr. Kolebaba is hopeful that this discovery could bring some investor attention back to diamonds, which have been overshadowed by the stellar performance of gold and base metals.
As he sees it, the next generation of diamond projects are in the early stages where they rarely generate the type of results that investors are looking for. They have gravitated to formerly unsexy metals like copper and nickel.
The number of diamond firms has also shrunk, and there was a high-profile disaster last year: Tahera Diamond Corp. The company opened its Jericho Mine in 2006 and is fighting off bankruptcy after a number of well-documented problems.
"Five or six years ago, there were 100 or 200 diamond companies," Mr. Kolebaba said. "There aren't very many now. You're down to a handful."
The Diamonds North discovery is in its very early stages, but the company will have more details soon as it gets diamond results from 18 other kimberlite samples. It is also going to proceed with a drillcore program, which will allow it to identify larger diamonds under the ground and get a better sense of the project's potential. But that will likely take several months.
"It takes a lot of time to develop a diamond mine," Mr. Baschuk said. "You may find big stones, but if they're of low value, you're not going to recover your money. In the case of Diamonds North, the indications are that they're of very good quality."
John Kaiser, an analyst and junior mining specialist, said Diamonds North is the most likely of any of the juniors to deliver a "major diamond home run."
"If later results confirm that this is a field that has good macro-grade pipes with quality diamonds, it could be another Ekati, which was ultimately bought out for $2-billion," he said.