Editorial: Reading the tea leaves

Lukas Lundin, the chairman of Lucara Diamond may be bullish on diamonds (see Page 5), but he doesn’t see things improving for diamond juniors in the near term.

“The general mood in junior exploration across the board is tough. I think you need the whole sector to pick up and you’re going to get some of this going,” he said in a recent interview. “There’s no gold exploration, no base metals exploration, there’s very little going on right now — and those poor junior guys, it’s very tough to raise a couple of million dollars.”

But Lundin does see things turning around eventually: “It always does,” he says. “Exploration never goes away — it just goes in troughs.”

According to De Beers’ first-ever Insight Report detailing the state of the diamond industry, released this fall, diamond supply peaked in 2005 at 176 million carats. While new mines coming onstream over the next few years will lift production temporarily to around 160 million carats, supply is expected to decline again after 2020.

At the same time, diamond exploration spending in 2013 was roughly US$500 million — about half of what it was at its peak of US$1 billion in 2007. Moreover just two entities, De Beers and Alrosa (the world’s two largest diamond miners), accounted for nearly 75% of total exploration spending last year.

All this as diamond demand is expected to grow over the coming decade, even in scenarios of low economic growth.

The disparity is obvious.

But even as exploration dollars remain limited, some advanced explorers have found the cash they need to move forward — with the help of deep-pocketed backers.

Grenville Thomas’ North Arrow Minerals, which started its exploration programs in 2013 after a restructuring last March, has raised $13 million in the past 18 months thanks to the backing of the Lundin family (see Page 4).

Peregrine Diamonds completed a $15.1-million rights offering in October back-stopped by its three largest shareholders: Robert Friedland, CEO Eric Friedland, and Ned Goodman.

Even Kennady Diamonds, which has raised $21.3 million over the past year, has had the help of a major shareholder: Irish billionaire Dermot Desmond owns about 20% of the stock through Bottin Investments.

Still, interest is returning to the diamond space as the reality of shrinking supply and a lack of discoveries sets in. Without that interest, we wouldn’t be seeing large financings for project development — including nearly $1 billion for junior Stornoway Diamond’s Renard project in April (see Page 8), and the nearly $500 million Mountain Province Diamonds is expected to raise for its portion of Gahcho Kué construction before the year is through (see Page 18).

In May, noting that diamond equities outperfomed gold equities in 2013 (albeit in a bad year for gold), Dundee Capital Markets initiated coverage on five diamond companies — two diamond developers and three explorers. Dundee is so enthusiastic about the sector that it organized its first diamond conference in October.

Sensing a change, and hoping to emulate the success of junior Kennady Diamonds, diamond juniors are starting to return to the market (Page 14). Several new listings are in the works, familiar faces are reactivating their diamond exploration vehicles, and staking activity and land deals have picked up.

If they’re reading the tea leaves correctly, it’s only a matter of time before the interest in more advanced diamond stories reaches the juniors tasked with finding the next generation of diamond mines.

As ever, we welcome your feedback at ahiyate@northernminer.com.

— This editorial originally appeared in the November 2014 issue of Diamonds in Canada.