North Arrow Minerals (NAR: TSXV) is one of the companies taking part in this next wave of exploration and evaluation, directed by several of the pioneers that are responsible for the discovery and development of the storied Diavik Mine, which is now jointly owned by Rio Tinto plc. and Dominion Diamonds.
Diamonds were first discovered in the Lac de Gras area in the early 1990s and the pipes that make up the Diavik deposit in 1994. Since commencing production in 2003 Diavik's extremely high-grade pipes have produced over 80 million carats of rough diamonds.
However, Diavik has roughly 5 years left of production and is not alone; many of the world's major diamond deposits are entering their senior years and production is starting to slow down as they go underground. At the same time the exploration and discovery of new deposits has dropped off significantly. All the while the demand for diamonds has marched onwards.
As noted by Matthew O'Keefe, analyst for Dundee Capital Markets in a recent piece on the diamond space: "Diamond prices have risen steadily over the past 2-years on increased global demand driven by growth in China and India and the economic recovery in the United States. Demand growth is expected to continue in line with the global economy while diamond supply remains limited and set to decrease in the medium and longer term."
Exceptional Management Depth
The Chairman of North Arrow Minerals is diamond industry icon and founder of Aber Resources, the company that discovered Diavik, D. Grenville Thomas (right). His daughter, Eira Thomas, serves as an advisor to North Arrow and was integral in bringing some of the company's key properties together as well as attracting its largest shareholder, Lukas Lundin, through her relationship with Lucara Diamonds. That relationship also led to Lucara's President and CEO, William Lamb joining North Arrow's board last September.
North Arrow's President and CEO, Kenneth Armstrong, worked with Rio Tinto, Aber's JV Partner at Diavik, then Aber and also has extensive experience working with DeBeers and Stornoway Diamond Corporation.
So the management provenance is exceptional and as investors will note, so are the properties. Canadian diamonds are a sought after commodity and are projected to experience strong fundamentals for the foreseeable future. As well, in recent years there has been very little diamond exploration competition in Canada or globally. North Arrow is focused on some of Canada's premier diamond projects, many previously explored at costs exceeding $40 million. Mr. Thomas recently stated: "Distinguished by the quality of projects at various stages, North Arrow anticipated a resurgence of interest in diamonds two years ago and took steps to position itself by making deals and acquisitions at an appropriate time."
North Arrow has interests in 7 properties from Nunavut to Saskatchewan to Ontario. The three current flagships are Qilalugaq in Nunavut, Pikoo in Saskatchewan and Redemption in the Northwest Territories.
"North Arrow is fully funded for our exploration programs and will be active on all seven of our Canadian diamond projects in 2014," stated Ken Armstrong. "In particular, there is potential for material, positive news from each of the Redemption, Pikoo and Qilalugaq projects."
For Redemption and Pikoo that news could include the discovery of new diamond bearing kimberlites. Qilalugaq is an advanced project and a positive diamond evaluation from a 2014 bulk sampling program could be transformative with the potential to move the company from an exploration focus to an explorer/developer.
Qilalugaq, Nunavut – the Q1-4 Kimberlite
The Qilalugaq property is being optioned from Stornoway and under the agreement North Arrow can earn an 80% interest upon completion of a work program that includes taking a 1500 tonne sample from the Q1-4 kimberlite, processing the ore for diamonds and having the resulting ~500 carats valued. In May 2013, North Arrow confirmed an inferred resource estimate of 26.4 million carats. It appears that the diamond grade, at 0.54 carats per tonne, is relatively consistent across the kimberlite and the Company believes that the 12.5 hectare pipe is the largest diamondiferous kimberlite in the eastern Arctic. Overall, the size and grade of the body compares quite favourably with other operating diamond mines and advanced stage projects, however the actual value of the Q 1-4 diamonds is still unknown. While definitive economic values and indicated resource numbers are a ways off, the initial Q1-4, 64 carat diamond parcel includes a population of yellow diamonds that could have a significant impact on the diamond valuations if they are present in the larger sizes and have good crystal forms. Regular white commercial diamonds sell for roughly $150 a carat, while those yellow fancy diamonds have reportedly sold for more than $5000 per carat.
The compelling economics for yellow diamonds can be evidenced through the current situation at Kimberley Diamonds' Ellendale Mine in Australia, which produces approximately 50% of the world's yellows. The Company recently announced they were switching focus from Ellendale to its Botswana holdings and not spending a reported $15 million on an expansion at Ellendale. This fact suggests that there may be limited production left—maybe a year—at Ellendale. A shortage of yellows, of which Tiffany's buys the majority, may be in line for a significant price jump.
Grenville Thomas continues: "Qilalugaq already has an inferred resource of approximately 26 M carats down to 200 m, which could be expanded at depth with further drilling. The big unknown is the dollar per carat value of the diamonds, which we believe could be significant based on the characteristics of the current diamond parcel, including the presence of yellow stones."
Should Qilalugaq prove up a good percentage of yellows, it bodes extremely well for the viability of an eventual mine, North Arrow and of course, shareholders. The fact is that the perceived shortage and Tiffany's growing appetite for yellows could likely make that $5000 per carat price look cheap quite soon.
Next step is a $3.7 million program to collect 1500 tonnes of kimberlite from surface pits commencing late June. The goal is to recover a 500 plus carat diamond parcel to help define grade, size distribution and value. Once results are determined by March 2015, North Arrow will have a sense of the yellow diamonds' impact on the overall value.
Pikoo Project, East Central Saskatchewan
While planning and permitting has been underway in the lead up to the Qilalugaq bulk samples, North Arrow has focused its attention on the Pikoo diamond project in east central Saskatchewan. The Pikoo claims were originally staked by North Arrow's partner, Stornoway Diamond Corporation, based on results of earlier regional exploration programs intended to test the diamond potential of this area. A drilling program in 2013 was hugely successful, with the partners hitting kimberlite in 9 out of 10 holes and in the process discovering a new diamond district in Canada.
Located close (10 km) to highway and good local infrastructure in Deschambault Lake SK, the area has yielded its first diamonds from the PK150 discovery. A 209.7 kg sample of drill core from the kimberlite returned 745 diamonds larger than the 0.106 mm sieve size, including 23 diamonds larger than the 0.85 mm sieve size. The total weight of the +0.85 mm diamonds recovered from the sample was 0.2815 carats, for a total recovery sample grade of 1.34 carats per tonne for stones over +0.85 mm. Over 95% of the diamonds were described as intact, white octahedrons and aggregates. Since this news was announced last November the area has seen a huge influx of activity and new claim staking.
A follow up till sampling program is currently underway and additional drilling is planned for fall 2014 and winter 2015.
Redemption Project, Northwest Territories
In the middle of the Lac de Gras area, famous for the prolific Diavik and Ekati mines, lies North Arrow's 11,000 hectare Redemption Project. The Company has an option to spend $5 million by 2017 to earn a 55% interest on the property from Arctic Star Exploration. Extensive work was conducted from 2004-2012 by Arctic Star and others, including over 3000 till samples that have revealed a large unsourced kimberlite indicator mineral train called the South Coppermine train. The amount of work done gives North Arrow the confidence necessary to take the property to the drilling stage
The latest ground survey conducted in April 2014 identified at least 9 priority targets at the head of this train, 6 of which are land based targets and will be tested in a planned July/August 2014 drilling program.
While these areas are the current focus for North Arrow, there are also 4 other properties including the Lac de Gras Diamond Project, which is on trend with Diavik and Ekati mines on which North Arrow has an agreement with Dominion Diamond Corporation, which is acting as operator and can earn a 55% interest by spending $5 million over 5 years on exploration.The final three properties are the early stage Luxx and Mel Projects in Nunavut and Timiskaming in Ontario. The Timiskaming Project covers a portion of the Superior craton that is considered prospective for diamondiferous kimberlites and is an 80/20 JV with Stornoway.
The Bottom Line
Even if an investor is not a diamond aficionado, this story has legs. Management is comprised of industry veterans who have virtually peerless expertise about the space and have delivered exceptional value to shareholders in previous incarnations.
The Company closed a $5 million Private Placement in March, securing the exploration, development and corporate funds to proceed with its aggressive plans to explore several properties with compelling potential. The possibility of high value yellow diamonds at Qilalugaq merely adds to that significant potential. And, the waning of the Ellendale Mine in Australia coupled with Tiffany's apparently strong if not insatiable appetite for these high value yellow stones could also bode well for North Arrow and investors.
Diamond mining is a tough business, but having the right targets, cash, and most importantly, the best management at the helm, makes North Arrow, which trades at $0.77 with a market cap of ~$40 million, a very reasonable add to a mining portfolio. As well, those who want to have exposure to a storied commodity that has a very Canadian history of delivering exceptional returns and shareholder value should have an interest.
As noted by Dundee diamond analyst O'Keefe "North Arrow's strategy of leveraging management's deep expertise in diamonds to evaluate its current portfolio of properties in a cost effective manner, as well as generative new discoveries should lead to value creation."Legal Disclaimer/Disclosure: A fee has been paid for the production and distribution of this Report. This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment. No information in this Report should be construed as individualized investment advice. A licensed financial advisor should be consulted prior to making any investment decision. The Bottom Line Report makes no guarantee, representation or warranty and accepts no responsibility or liability as to its accuracy or completeness. Expressions of opinion are those of the Bottom Line Report only and are subject to change without notice. The Bottom Line Report assumes no warranty, liability or guarantee for the current relevance, correctness or completeness of any information provided within this Report and will not be held liable for the consequence of reliance upon any opinion or statement contained herein or any omission. Furthermore, we assume no liability for any direct or indirect loss or damage or, in particular, for lost profit, which you may incur as a result of the use and existence of the information, provided within this Report.
North Arrow Minerals
Suite 960 - 789 West Pender StreetVancouver, BC - Canada - V6C 1H2Tel: +1.604.668.8355Fax: +1.604.336.4813
SOURCE: North Arrow Minerals