Prospects develop despite record lack of investor confidence.
[Editor’s note: The following article by Diopside first appeared on the website KIM Report on September 26.]
Recent market activity, to be conservative, has been devastating to resource stocks. Over the past six months, junior mining/exploration companies have been hit hard with up to 80% depreciation in their share prices. Many of these have slid strongly in spite of what would be considered by many to be positive news releases: financing obtained, higher than expected resource grades, large extensions of mineralized zones, etc.
Diamond stocks in particular continue to be a source of scorn for retail investors. Gone are the days seen in the 1990s and early 2000s when diamond companies were the darlings of the Canadian mining sector. However, recent financial market woes and investor panic do not change the fact that many of these companies hold properties with strong upside for the presence of an economic diamond deposit.
Two companies that appear to hold such projects, despite seeing their share prices drop over 70% in the past year or so, are Shear Minerals (TSX: V.SRM, Stock Forum) and Stornoway Diamonds (TSX: T.SWY, Stock Forum). Both of these companies jointly operate the Churchill Project near Rankin Inlet, Nunavut.
This project has been described in earlier articles posted on the KIM Report, but the discovery of a new kimberlite body named “Killiq” on the property this season has expanded the potential for a significant diamond mine in the area. This kimberlite was found during RC drilling of a target established by following the G10 garnet-dominated indicator mineral train in the Sedna corridor, along with geophysics. Churchill has already been established as a leader in diamond developments with the evaluation of the large Kahuna kimberlite dyke. Killiq is of note as it is very similar petrologically to the PST kimberlite also on the property that has an established grade of 2.18 c/t. Petrologically, characteristics that PST and Killiq both share include large olivine macrocrysts, purple-red pyropes, and blue-green phlogopite mica.
Shear Minerals, the project operator and majority interest holder, has sent heavy mineral concentrate from Killiq for chemical analysis. If any of the garnets in the concentrate have high Cr and low Ca contents like the G10 garnets in the till samples that led to the drilling, then there is significant potential for diamond.
This is one of nine kimberlites discovered this field season at Churchill, and is one of two, alongside the Kahuna breccia discovery, that was found to have significant petrological similarity to other pipes on the property with high diamond grades. The Kahuna breccia is interesting as it appears to be an extension of the Kahuna hypabyssal dyke, but it is of explosive, rather than magmatic nature.
Other activity that has occurred with Churchill includes a mini-bulk sample of 26.1 t (wet) from the Notch kimberlite for an initial assessment of diamond content and quality for stones >0.86 mm in diameter. Further till sampling programs and geophysical (gravity, magnetic, etc.) surveys are ongoing.
In total there are 88 known kimberlite occurrences on the property with many at or beyond the mini-bulk sampling stage.
Stornoway has another property (90% owned) at the advanced exploration stage with Aviat on the Melville Peninsula in eastern Nunavut. Earlier this year, a 20.6 t mini-bulk sample from AV267 sheet, the largest body on the property, returned a grade of 1.62 c/t including a 3.64 c white gem. A larger bulk sample of 202 t is currently being processed with results expected by the end of the year. There are ten other kimberlite occurrences at Aviat discovered so far, although some of these bodies may be separate outcrops of the same. All of the Aviat bodies are similar in petrology and diamond content (so far) and are of 535 Ma (Cambrian) age.
An obscure property on the sidelines discovered a relatively short time ago, the high diamond grades coming out of Aviat have made it approach (and potentially exceed) the Churchill project in terms of importance.
Of course, all of these developments are being overshadowed to some degree by the impending pre-feasibility report on the Renard kimberlites. Part of the Foxtrot property that includes the Lynx and Hibou dykes as well, Renard already has had detailed diamond tonnage and valuation work done. Investor relations at Stornoway has acknowledged that there have been numerous delays in releasing the report, and not all of them related to the project. Peregrine Diamonds (TSX: T.PGD, Stock Forum) and Shore Gold (TSX: T.SGF, Stock Forum) have also employed AMEC, the same firm used by Stornoway to get its studies done, and this has resulted in a backlog. The revised date is now sometime is the later half of October. It will include the resource calculation and the economic study with an aim to be understandable to the non-expert investor. Unsurprisingly, the company remains optimistic that the report will allow them to move to the feasibility stage.
All of this has been accompanied by a drop in stock price from almost 90 cents to the 25 cent level. Brief reversals in the downward trend have been provided by the encouraging diamond valuations for Renard last fall (over $100/c) and an arrangement with the company’s creditors to eliminate its outstanding debt. However, current market pressures have kept this stock, along with all others in the sector, down.
Diamond companies and investors are desperate for a catalyst that will stop the hemorrhaging in the sector. Much of this will occur when (if?) the financial sector is done cutting out the dead wood; the rest will have to come from the companies themselves in the form of breakthrough news. Perhaps the impending pre-feasibility study for Renard will do that for Stornoway.
Disclosure: The author holds 2000 shares of SWY and 500 of SRM. This article is based on the personal opinion and experience of the author. Please do your own due diligence when investing.
This article was written by a member of the Stockhouse community.
