Discovery adds sparkle to ailing sector

The same day Vancouver-based miner Lucara made the biggest gemstone find in a century, another company announced it was floundering

Lucara Diamond president and CEO William Lamb with a resin model of a 342-carat diamond that sold for $20.5 million. It was dwarfed by the 1,111-carat stone the company discovered in Botswana in November | Rob Kruyt

This story has been corrected. The previous version stated Eric Friedland is the son of Robert Friedland. They are brothers.

On November 19, Lucara Diamond Corp. (TSX:LUC) stock shot up 30%, closing at $2.10 per share on news that the Vancouver junior mining company had just made the second-biggest diamond discovery in history.

The diamond, a 1,111-carat Type IIa stone found three days earlier at the company’s Karowe mine in Botswana, was spectacular news for a sector that has otherwise been struggling with falling diamond prices and high operating costs – both of which were blamed for De Beers’ recent decision to shutter its Snap Lake mine in the Northwest Territories.

Lucara announced its historic find on November 18; the next day, it announced it had also pulled up an 813-carat white diamond (the sixth-largest) and a 374-carat stone.

The largest diamond ever unearthed was the 3,106-carat Cullinan diamond discovered in South Africa in 1905.

“I think everyone’s reaction is one of being stunned,” said Ken Armstrong, CEO of North Arrow Minerals (TSX-V:NAR), a Vancouver diamond exploration company that has also had some promising discoveries lately. “To get two of the largest gem-quality diamonds ever mined to come out of the same deposit in probably a 48-hour period is pretty unfathomable.”

But something else happened in the diamond mining business on the same day that Lucara discovered the 1,111-carat stone that got less notice.

Paragon Diamonds – the Guernsey-based miner that bought a 70% stake in a Lucara property in Lesotho for $6.5 million – announced it was floundering.

On November 16, the same day Lucara unearthed its 1,111-carat stone, Paragon announced a temporary suspension in trading of its shares “pending clarification of its financial situation.”

The company announced it had limited working capital and that there was “material uncertainty over the financial position of the company.”

Lucara and North Arrow are among more than a dozen Vancouver juniors in the diamond space, but Lucara is the only one to have put a mine into operation.

The two companies have one thing in common: both are backed by Lukas Lundin, chairman of Lundin Mining Corp. (TSX:LUN).

Then there’s Peregrine Diamonds Ltd. (TSX:PGD), whose chairman is Eric Friedland, brother of mining magnate Robert Friedland.  Peregrine has been finding diamonds in bulk samples taken from its Chidliak property in Nunavut, and recently began drilling in Botswana.

When it comes to diamonds, Botswana and South Africa are the mecca, but Russia and Canada are also significant diamond producers.

It is a particularly important industry in the Northwest Territories, where there are three operating diamond mines, and a fourth planned to go into production by the third quarter of 2016.

The $859 million Gahcho Kué diamond mine being built by Mountain Province Diamonds (TSX:MPV) is billed as the world’s largest and richest new diamond mine. Companies like North Arrow and Peregrine have been focusing mostly on diamond properties in Canada: the Northwest Territories, Nunavut and Saskatchewan. North Arrow has prospects in all of those regions, but Saskatchewan holds the best promise for North Arrow.

“Saskatchewan has been known to have diamonds for a long time but there’s never been a diamond mine developed,” Armstrong said.

Diamonds are found in kimberlite “pipes” that are formed in the Earth’s mantle and pushed up toward the crust in carrot-shaped formations. Canada has some significant kimberlite deposits, but there’s a reason not many of them turn into producing mines. Most of the best properties are in regions that are so remote that they are simply uneconomic to develop.

Underscoring that point, De Beers announced December 4 that it is shutting down its Snap Lake mine in the Northwest Territories. De Beers has spent $2 billion on the mine, which went into production in 2008. De Beers said it is a marginal producer. Hampered by its remote location and harsh climate, the mine has never been profitable.

“In southern Africa, you can build a mine for $200 million,” said Lucara CEO William Lamb. “In Canada, it’s a billion dollars. The economics and the value and the resources have to be so much higher than what you would find in South Africa.”

However, he concedes it’s getting difficult to find or acquire properties in Botswana or South Africa where exploration has already been done, which is why the company has created an exploration division to look for new kimberlite deposits. 

nbennett@biv.com