Can I hit the ball out of the park once again?
More specifically, can I identify a hidden gem of an investment opportunity that will outperform in spectacular style like I did with Great Bear Resources? That was my last big investment call. And it is truly a home run for the ages.
Yes, I am being bold enough to say I think I can do it again.
The last time I got this enthusiastic about a mining stock’s upside potential was in 2018. It was Great Bear when it trading at around $0.50. The shares subsequently rallied to a high of nearly $20 within two years, and it is still trading within several dollars of its all-time highs.
I’ve been a stock market journalist and commentator for 30 years. And it is rare for a company to tick off all the right boxes – thereby setting the stage for an extraordinary, headline-grabbing success story. I think I have found a new one.
The Fickle Art of Picking Extraordinary Winners
Prior to Great Bear, I admittedly have only had the good fortune to identify a small handful of outsized success stories long before they hit the big time.
Interestingly, the first I took an interest in was Dia Met Minerals back when I was a youthful business journalist. This was before this tiny mining start-up became a stock market sensation. Dia Met turned out to be the very first of a small handful of diamond exploration companies to hit paydirt.
In a parabolic rise, Dia Met rallied from pennies in 1991 to a high of $67 the following year, turning quite a few small-time investors into newly-minted millionaires. I met a few of them. They were a happy bunch.
This all came about because Dia Met discovered what was to become the Ekati diamond mine – Canada’s first of its kind – which is in the Northwest Territories (NWT). It has since proven to be one of the richest diamond mines in the world, yielding billions of dollars worth of high-grade, ethically-sourced diamonds.
A few of Dia Met’s happy investors even ended up rolling some of their winnings into
Arctic Star Exploration Corp. (
TSXV: ADD,
OTC: ASDZF,
Forum)when the company went public in 2002 in a lofty bid to replicate Dia Met’s spectacular success. But their wait for a lucrative payback is taking a lot longer than was the case with Dia Met’s meteoric rise to fame.
Now it is finally Arctic Star’s time to shine. And I believe the company is destined for a big breakout year in the wake of its recent discoveries in the NWT.
Why the Odds Finally Favour Arctic Star
Since 2002, Arctic Star has drilled extensively all over Canada’s frigid northern climes, with a primary focus on the NWT. It has even ventured into Finland, where it has had some encouragement with its development of a diamond project there. But after numerous rolls of the dice, it has yet to roll anything close to a six.
Simply stated, the company has become a bloodied but unbowed veteran of a handful of unsuccessful diamond hunting expeditions in some of Canada’s most inhospitable terrains. But its luck seems to have finally changed.
And luck has been in short supply over the past few decades for the vast majority of Canada’s diamond hunting exploration companies. Keep in mind that 95% of Arctic Star’s peers ran out of money and gave up long ago. The sobering truth is that diamond dreams and the harsh realities of mineral exploration don’t make good bedfellows.
All told, over 100 junior diamond exploration companies have spent an estimated $400 million-plus on scouring the NWT and other remote regions of Canada over the last 25 years. And they nearly all came up empty-handed.
As one of the last several diamond explorationists, Arctic Star has learned some hard lessons and plenty of exploration wisdom along the way, while spending an estimated $40 million or more on scouring thousands of square kilometers of barren wilderness – an area the size of France, Spain and Germany combined. In short, the company has more than paid its dues to earn its apparent new-found good luck.
Even from a statistical standpoint, Arctic Star is long overdue the thrill of rolling a six after nearly two decades of rolling low numbers.
Match this reality with the reality of the company’s recent breakthrough discoveries among some of the world’s richest diamond fields and its prospects begin to glitter with promise. With this in mind, I’m backing Arctic Star to become the next Dia Met.
Also, it’s worth considering the fact that Canada is long overdue a new multi-billion-dollar diamond discovery. There has not been a truly world-class mine of prolific size discovered in Canada since the Ekati and Diavik mines were found in the 90s in the Lac de Gras diamond fields.
To date, Diavik and the nearby Ekati mine have together produced over $40 billion worth of some of the best-quality diamonds in the world. Both are located within a 36-kilometre radius of Arctic Star’s new discoveries.
Drilling Diamond Dreams: Is History Repeating Itself?
Arctic Star’s recent discovery of kimberlite pipes (anomalous rock structures that often contain large quantities of diamonds) in Lac de Gras may yet prove very significant in terms of the big picture potential. More on this in a moment.
The company has so far demonstrated an initial proof of concept by drilling into four kimberlite pipes in five attempts. This high success rate is in itself quite remarkable because kimberlites are elusive prey, especially diamondiferous ones.
Also, the kimberlites encountered by Arctic Star are big and have no magnetic signatures. It is key to note here that the richest, most prolific pipes in the nearby Diavik mine all have similar geophysical signatures in this regard to Arctic Star’s pipes.
This is according to Buddy Doyle, Arctic Star’s vice president of exploration. And how good is his assessment that Arctic Star is hot on the trail of prospectively world-class diamond pipes?
Well, he’s the guy who found the nearby diamond pipes that become the Diavik mine nearly 30 years ago when he was running Kennecott Canada’s diamond exploration program – which was subsidiary of the world’s biggest mining company, Rio Tinto plc.
All told, he discovered 101 diamond pipes, of which 91 had magnetic signatures. The remaining 10 had no magnetic signatures. And it was four of those differentiated pipes that proved to be the very best of them all, becoming the multi-billion-dollar Diavik mine.
However, it’s proven a lot easier to find diamond pipes that have magnetic signatures than ones that don’t. And so for most exploration companies, this has become the go-to methodology of choice for finding pipes in the NTW in recent years – sometimes yielding positive results.
In short, the upside is that the magnetically responsive diamond-laced pipes can be easier to find. The downside is that they may be of poorer quality compared to the diamondiferous pipes that have no or very little magnetic signature.
Hence, Doyle is opting to use “gravity” and “EM” – very scientific geophysical surveying tools for identifying small “anomalous” (standout) geological targets among the vast swathes of homogenous barren rock in the NTW’s desolate tundra regions. These are the best tools for finding the better-hidden non-magnetic pipes, he says.
For investors trying to picture this, using geophysics to locate the surface features of diamond pipes is not an easy science. It requires considerably fine-tuned skills for interpretating all the data being examined. It’s much like trying to find the knots on a piece of plywood but with a blindfold on, with only your sense of touch to guide you.
So far, this geophysical methodology – which served Doyle so well at Kennecott – is getting the kind of early-stage validation that he’s hoping and dreaming for.
The key takeaway here is that his discovery of four diamond pipes to date promises to help unlock the value of any other undiscovered proximal pipes – some of which may exhibit excellent geological potential to be diamond-bearing.
That said, Arctic may have already uncovered a gem of a find in the form of the very large Sequoia pipe. Remember that this discovery exists in plain sight of the nearby Ekati and Diavik mines, which have produced tens of millions of carats.
Doyle’s Dream: Duplicating His Past Glory
Finding a multi-billion-dollar diamond discovery a second time is something that geologist Buddy Doyle has been dreaming of every day. For two decades, it’s been his obsession.
Doyle is convinced that the NWT has at least one more dazzling secret to give up at the heart of Canada’s most prolific and richly-mineralized diamond fields.
Remember, back in the early 90s, it was Doyle whose team revealed the exact whereabouts of Diavik’s huge treasure trove of diamonds among over 100 pipes, most of which were barren or contained relatively few diamonds.
Now we’re about to see if he’s amassed enough geological savoir faire to pull off a masterstroke in the sunset of his 30-year-plus career. The timing would be serendipitous, Doyle says.
"Both the Ekati diamond mine, which first began production in 1998, and the Diavik diamond mine, which began production five years later in 2003, are approaching the ends of their expected lifespans. Arctic Star's timing could not be better."
Investment Summary
It bears repeating that a truly world-class diamond discovery has not been made in Canada since the 90s. A new discovery is long overdue. To complicate the threat of dwindling supplies, only several smaller mines have been commercialized in Canada in recent years with varying degrees of success. Outside of Lac de Gras, only the smaller Gahcho Kue (NWT) and Renard (Quebec) mines mine are still in operation.
So will Arctic Star be the next Dia Met Minerals? Only time will tell if Arctic Star has finally triumphed over very long odds to find one more extraordinarily rich, world-class diamond mine.
The next step to Arctic Star’s long-awaited shot at glory is the announcement of assay results within the next several weeks. This will reveal whether the four pipes so far discovered contain diamonds.
The stock has already rallied on big volume in the wake of the recent pipe discoveries. Until the assay results are published, the company’s share price will presumably continue to trade high volumes in a sideways trading pattern in anticipation of a pivotal news announcement.
So it seems that no-one has missed the boat as yet.Arctic Star’s share price is still very inexpensive relative to the company’s risk/reward profile.Indeed, the company’s big picture is only now beginning to come into sharp focus. This clearly offers plenty of runway for higher share price multiples in the advent of upbeat news flow in the coming months.
Will the news be good? I’m betting plenty of my own money that it is.
For other investors who are joining me on this ride, remember that investing in diamond exploration stocks is not for the feint of heart. It’s high-risk, high-stakes stuff! But if you have the stomach for it, then you’d better buckle up your seatbelts, brace yourselves, and settle in for what promises to be an exhilarating rollercoaster ride.
ABOUT THE AUTHOR: Marc Davis has a deep background in the capital markets spanning 30 years, having mostly worked as an analyst and stock market commentator. He is also a longstanding financial journalist. Over the years, his articles have appeared in dozens of digital publications worldwide. They include USA Today, CBS Money Watch, The Times (UK), Investors’ Business Daily, the Financial Post, Reuters, National Post, Google News, Barron’s, China Daily, Huffington Post, AOL, City A.M. (London), Bloomberg, WallStreetOnline.de (Germany) and the Independent (UK). He has also appeared in business interviews on the BBC, CBC, and SKY TV. An enthusiastic shareholder of Arctic Star Exploration, his opinions are therefore biased and should not be relied upon for making investment decisions. That said, Arctic Star did not pay for this article. Nor did anyone else.