Can Diavik alumni hit the mark with North Arrow?

Since March, North Arrow Minerals (TSXV: NAR; US-OTC: NHAWF) has added six projects to its diamond exploration portfolio for a total of seven.

The junior’s decision to focus on diamond exploration — until this year, it’s had a mixed portfolio of properties in the Arctic — is notable, not just because of the current funding climate for juniors, but because diamond juniors have been dealing with a funding drought for far longer.

They have never really recovered since the financial crisis in 2008, and as a result, there has been little exploration for diamonds in recent years, with diamond juniors abandoning the space or ceasing work altogether.

“The companies that were focused on diamond exploration over the last five or ten years, they’ve either shifted to focus on their flagship project to see it through to development, similar to what Stornoway’s doing with the Renard project, or they’ve hit a wall where they’re not able to raise the capital to advance their projects,” says North Arrow president and CEO Kenneth Armstrong.

But North Arrow sees opportunity in the current lack of diamond activity in Canada.

“There are twenty or twenty-five years worth of pretty intensive diamond exploration that has occurred since the early 1990s,” when the Ekati discovery set off a diamond rush in the country, Armstrong says.

The company is combing over information in the public domain in the form of assessment filings with the territorial and provincial governments, as well as their own database.

“What we’re really looking at is trying to take advantage of some of this high-risk money that’s been spent over the last twenty-odd years, and, on a technical basis, identify the most prospective diamond projects in Canada.”

Add to that the diamond backgrounds of the company’s principals, who have had enormous success, largely with Aber Resources, which discovered the Diavik mine in the Northwest Territories.

The company’s chairman and founder is Grenville Thomas, a founder of Aber; Chris Jennings, who was an Aber consultant and principal of SouthernEra Diamonds, is a director; and Thomas’ daughter Eira Thomas, who was also on the Aber team and was a founder of Stornoway Diamond (TSX: SWY; US-OTC: SWYDF), is an advisor to the company; while Armstrong worked on the initial resource model of Diavik for Rio Tinto predecessor Kennecott.

“We all have a history in diamond exploration and we had the opportunity to marry that with some pretty compelling diamond exploration properties at a time when there’s not a whole lot of diamond exploration happening,” Armstrong says.

The company began to prepare for that opportunity by completing a 10-for-1 share consolidation in February, a $3-million private placement financing in March and shuffling management in April, when Armstrong took over from Grenville Thomas as president and CEO. (Thomas remains chairman.)

The junior started its acquisition spree in March by optioning three projects from Stornoway, which is building its Renard diamond mine in Quebec.

North Arrow can earn an 80% interest (subject to a 20% back-in right) by completing work programs at each project.

It has already earned its stake in the Timiskaming project in northern Ontario and Quebec, which contains six kimberlites. North Arrow drilled five holes on four targets at the project in the first half of the year but did not hit kimberlite, leaving the project with an unexplained kimberlite indicator mineral (KIM) train.

It’s also conducting 2,000 metres of drilling at the Pikoo project in Saskatchewan, where the lion’s share, or $1.5 million, of this year’s budget will go. Drilling started in June and has so far intersected a 60 cm (0.6 metre) kimberlite dyke. The company is drilling a half-dozen targets in total at two well-defined KIM trains: one at Pikoo North, and the other at Pikoo South.

Armstrong says the mineral chemistry in the Pikoo KIM trains is “really quite attractive,” with the bulk lying on the dividing line between G9 and G10 garnets. G10 garnets have high chrome and calcium contents, indicating they have come from “well within” the diamond stability field — the part of the earth’s mantle where diamonds form.

Qilalugaq

The last project North Arrow is optioning from Stornoway is the most advanced. Qilalugaq is located 9 km from Repulse Bay in Nunavut and only 7 km from the ocean.

Stornoway completed an inferred resource for the Q1-4 kimberlite in 2012, totalling 26.1 million carats in 48.8 million tonnes grading 0.54 carat per tonne. At 12.5 hectares, Armstrong notes that Q1-4 is the largest kimberlite in the eastern Arctic.

“The one piece of information that’s lacking for the project to advance it is an estimate of the average value of the diamonds in the resource,” Armstrong says.

To do that, North Arrow is planning a 1,000- to 1,500-tonne mini-bulk sample in mid-2014 to collect a 500-carat parcel for a diamond valuation.

The existing 50-carat sample ­collected by Stornoway contains a population of yellow diamonds, and a mini-bulk sample is key to determining whether they are fancy yellows that could dramatically increase the value of the project.

“If those yellows carry on into the larger diamond sizes that we’d see with a larger parcel, and if they have good crystal form, and if they are indeed fully saturated yellows or fancy yellows, then that could have a really significant, positive impact on the diamond valuation,” Armstrong says.

The company points to the Ellendale mine in Australia as an illustration of how important fancy yellows could be. Yellow fancies at the mine, which produces half of the world’s yellow fancies, account for only 9–16% of overall production, but 80% of the revenue.

North Arrow estimates that collecting a mini-bulk sample at Q1-4 could cost $3.5 million. The plan is to use a mini-excavator to take surface samples of the portion of the kimberlite that’s accessible from land (it’s partly under a lake).

Aside from the Stornoway deal, North Arrow has acquired three more projects this month, including an option on Arctic Star Exploration’s (TSXV: ADD) Redemption project in the Lac de Gras region of the Northwest Territories.

The company can earn a 55% interest in Redemption by spending $5 million in the next four years, including $1 million in next 12 months. North Arrow is conducting an airborne survey at the property, to be followed by ground geophysics and drilling in the first half.

Like Pikoo, Armstrong says the mineral chemistry at Redemption, which has seen around $12 million in exploration spending over several years, is encouraging.

Finally, the company has added two projects in Nunavut that were staked by a private company owned by Grenville Thomas, in return for a 1% gross overriding royalty. The Mel and Luxx projects both host unexplained KIM trains. Both properties will see airborne magnetic surveys this month, followed by till-sampling programs.

The company will need to raise money again before year-end — which is where its principals’ diamond cred will be especially helpful.

With its tightened share structure of 28.4 million shares outstanding (31 million fully diluted) and the expertise behind the company, Armstrong is confid
ent the company will be able to get the funding it needs.

Part of his pitch to investors is that North Arrow has chosen projects, like Qilalugaq, where the technical risk is lower because of the amount of work that’s already been done.

“In the case of a project like that, we can go to our investors and potential investors and say: ‘Look, all this really high-risk money has been spent already and all we need to do now is [the mini-bulk sample] for $3.5 million. And if we get a positive indication of diamond value, then this becomes a really important project pretty quickly,’” he says.

North Arrow also holds the Lac de Gras project, a 330 sq. km land package just south of Diavik.

Dominion Diamond (TSX: DDC; NYSE: DDC), which owns 40% of Diavik, is earning a 55% stake in Lac de Gras with $5 million in exploration spending. Dominion is conducting an initial $1.3-million overburden drilling program this year.

North Arrow recently traded at 65¢, versus its pre-consolidation price of 2¢.

Management and directors own 22.3% of the company, with Zebra Holdings & Investments — wholly owned by a Lundin family trust — being North Arrow’s largest shareholder at 19.9%.