We’ve been bullish on the future of diamonds for as long as we can remember. The trick is, of course, finding the right company to invest in. Open-pit diamond mines can command premium prices like nothing else in the resource sector, but they’re hard to find with only select pockets globally available. Washington Companies this month offering to pay $1.2 billion for Dominion Diamond Corp. and DeBeers re-upping its partnership with Nambia for offshore diamond dredging efforts have reinvigorated our attention to this investment space.
There is still strong diamond demand and expectations for that to continue for decades to come. There’s a good reason that Washington is willing to pay a 44% premium for Dominion and for DeBeers to ink a ten-year agreement with Nambia to scour its seabed for diamonds washed out to sea by the Oranje river.
It’s also more than adequate information telling us that now is the time to get into a diamond miner with strong upside. And we’ve found one in Arctic Star Exploration Corp. (TSX-V: ADD)(OTCPK: ASDZF).
A Nose for Diamonds
Believe it or not, there is a common thread between little Arctic Star and Dominion Diamonds’ 40% stake in the Diavik Mine that Washington Companies is paying a premium for. His name is Buddy Doyle, currently Vice President Exploration and Director at Arctic Star. Doyle previously worked at Rio Tinto (NYSE: RIO) for over 23 years, most recently serving as Exploration Manager / VP of Kennecott Canada Exploration, a unit of Rio Tinto, where he was in charge of diamond exploration in North America.
Doyle was a key member of the Kennecott Exploration Australia team that discovered the multi-million ounce Minifie gold deposits at Lihir in 1987-1988 and he also led the team that discovered the Diavik diamond deposits in Canada in 1994-1995. Rio still owns 60% of the Diavik Mine, which produced 6.6 million carats of diamonds in 2016.
If you think about multi-billion-dollar mines, it’s quite an accomplishment to be a part of one discovery. Doyle has done it twice. That’s why he is recognized across the industry as an expert in kimberlite geology – areas of igneous rock named after the 83.5-carat diamond found in the same geology in Kimberley, South Africa in 1869 – and authored or co-authored numerous industry papers on the subject. So, when Doyle says he likes what he sees for a new diamond find, it makes our ears perk up.
Now add in Roy Spencer, who just joined Arctic’s board of directors two weeks ago. Who is Roy Spencer, you may ask? He is the man who discovered the multi-billion-dollar Grib Kimberlites in Russia, as well as the Wolf Kimberlites in Finland. Late in 2016, the Russian investment group Otkritie Holding acquired the Grib mine, which produced 4.5 million carats of diamonds last year, from Lukoil for $1.45 billion.
It’s also worth noting that the nearby Lomonosova Mine of Alrosa has been producing at commercial scale since 2005. The deposit consists primarily of six kimberlite pipes, with resources estimated at over 115 million carats of diamonds.
The two diamond-bearing kimberlite gurus have collaborated previously on diamond projects in Finland and on the development of the Liqhobong Diamond Mine in Lesotho, South Africa.
Arguably two of the most accomplished diamond explorers in the world uniting to work on another project together grabs our attention for sure.
Black Wolf and White Wolf
Spencer, Doyle and the rest of the seasoned Arctic Star team believe that they could have a district-scale discovery with the Wolf kimberlites in Finland, about 24 kilometers from the Russian border. To that end, the company this month inked an agreement to acquire a 100% interest in a 243-hectare Exploration Permit over the Black Wolf (Masta Susi) and the White Wolf (Valkoinen Susi) diamond bearing kimberlites, which are collectively referred to as the "Wolf kimberlites” by the company for the sake of simplicity.
In the words of Spencer, "Kimberlites are likely to occur in fields - also known as clusters - which typically contain 30 or more separate kimberlites. The Wolf kimberlites are just the first discoveries in a more extensive cluster.”
Moreover, Arctic Star filed an application for an Exploration Reservation spanning some 95,700 hectares surrounding its 243 hectares, giving the company exclusive rights to acquire more permits over the next two years. To add some color to the size of the property, consider that 96,000 hectares is equal to about 370 square miles, a land mass larger than all but 14 cities in the U.S., including the likes of Dallas, San Diego, Indianapolis and New York City.
Broadly, the combined regional exploration and diamondiferous kimberlite property has been named the Timantti Project, making use of the Finnish word for “diamond.”
Timantti could be part of what is known as the Karelian Craton, a geological formation that hosts world-class deposits in Russia. Cratons are characterized as parts of the earth’s crust that have remained stable for approximately three billion years and act as the primary source of diamonds globally.
For the sake a brevity and because it gets quite technical, we’re not going to go deep into the geology of Timantti. However, a NI 43-101 report has been filed with SEDAR by Arctic Star, lending evidence of the diamond-bearing nature of the Wolf kimberlites. The discovery was made by Spencer while at European Diamonds in 2005 by drilling a low-magnitude magnetic high anomaly at the head of a prominent G10 pyrope garnet-bearing kimberlitic indicator mineral train they had traced over 30 kilometers. Eight angled diamond drill holes and trench sampling further added to a body of evidence confirming diamond resources exist on the project.
Latest Evidence of Diamonds
What we do want to point out is that yesterday Arctic Star disclosed receiving more diamond results from the White Wolf kimberlite. The company took advantage of the Finnish Geological survey’s policy of storing core samples at its facility in Loppi and the fact that the Finnish authority permitted Spencer to take another look at the prior samples.
A 48.65 kilogram split core was analyzed through caustic fusion by the Saskatchewan Research Council laboratory in Saskatoon. The results showed a total of 111 diamonds, 47 of which were greater than 0.106mm and six that were greater than 0.60mm, including one at 1.18mm.
Additional assays from earlier surface sampling by Arctic Star analyzed at the Microlithics Laboratory in Thunder Bay also showed diamonds at White Wolf, including 58 stones in an 18.9-kilogram sample and 169 stones in a 67.55-kilogram sample.
These microdiamonds being found is tantamount to the potential for a large kimberlite discovery. The majority of diamondiferous kimberlites around the world show an exponential relationship between the number of small diamonds and large diamonds. The next step will be to commence a drill program to collect more caustic fusion samples, and delineate the size and shape of the kimberlites. This program would commence on the completion of ground geophysical surveys designed to help plan this drill program.
In short, better define White Wolf and Black Wolf and look to collect data on new kimberlite discoveries at Timantti. In our view, corporate value will continue to build based upon the two known kimberlites alone and proof of additional clusters will lead to talk of Spencer and Doyle “doing it again” to add to the billions of dollars’ worth of diamond discoveries already in their C.V.’s.
Given the impeccable credentials and legacy of massive diamond discoveries by the Arctic Star leadership and the exploration work to date suggesting a strong diamond resource, it is a bit surprising to us that the company is still only commanding a market capitalization of less than C$12 million. We view this pullback from a 52-week high at 37.5 cents to around 20 cents as an unquestionable opportunity for us to start building our position in Arctic Star.