MINING MARKETS & INVESTMENT NEWS — INVESTMENT COMMENTARY — Analyst sees buying opportunity in Canabrava’s share decline

John Hainey, mining analyst for Yorkton Securities, was among the first to understand the significance of the diamond discoveries in the Lac de Gras region of Canada’s Northwest Territories. These days, he’s broadened his sights to include diamond projects elsewhere in the world, including Brazil’s Minas Gerais state, which has a long history of production of high-quality alluvial diamonds.

The search for commercial diamond deposits in Brazil has been a frustrating exercise for majors with expertise in the field and for juniors such as Canabrava Diamond (CNB-V) trying to crack the geological puzzle.

As Hainey points out, the lack of news on the Brazilian front and the market disenchantment for resource stocks led to a steady decline in Canabrava’s share price, to $1.75 per share from roughly $5. “As a consequence, the shares, in our view, have moved back into the speculative-buy range and are again attractive for several reasons,” he notes in a recent research report.

Hainey says Canabrava’s improved prospects have much to do with the recent appointment of Rory Moore as president and chief executive officer. “He brings to the company something which has been lacking since its inception — that is, a wide experience and international background and reputation in diamond exploration,” he writes. Moore’s experience includes a 2-year period of consulting for Dia Met Minerals in the early 1990s, after which he joined BHP Minerals to manage the exploration program on what is now the Ekati diamond mine in the Northwest Territories.

A geochemist by training, Moore also worked with John Gurney in South Africa on the development of technology that allows companies to differentiate between barren and diamondiferous kimberlites without drilling.

Hainey also cites this summer’s drill program on the Whitefish Lake project in northern Ontario, where two new kimberlite discoveries will be tested, and the systematic continuation of the search for diamonds in Brazil. “In addition, the company is now looking beyond Brazil and Canada for opportunities, particularly in Africa.”

Canabrava’s Brazilian work program is being funded by Teck (TEK-T) as part of a US$10-million obligation to earn a 60% interest. The project area covers 850,000 ha in the Coromandel diamond district, noted for its alluvial diamond production. The program is aimed at identifying the primary kimberlite source of the area’s historical production.

While 130 kimberlites and lamproities have been found by drilling to date, none is believed to have economic potential. The partners are now reviewing results of past work and re-assessing the 430 remaining targets so that ongoing work will be more focused on areas with the best potential.

Canabrava has other diamond projects in Brazil, including one in the northern part of the country that it has optioned to another junior.

Meanwhile, a South African diamond producer is reportedly examining the alluvial diamond potential of the Canabrava joint-venture properties. If the due diligence exercise is positive, the proposed transaction would allow Teck and Canabrava to each retain a 25% interest in the alluvial project.

Meanwhile, closer to home, a summer program will test the two kimberlite bodies on the Whitefish Lake project. Hainey notes that, based on initial airborne geophysical work, “the two pipes appear to be part of a cluster in an area which produced abundant diamond indicator minerals in subsequent surface sampling.” Only part of the kimberlite bodies outcrop, with the bulk of each lying beneath lake water or swamp.

Canabrava has two joint-venture projects in Ontario, one of which is 250 km northeast of Whitefish Lake.

Canabrava Diamond, which is 52% owned by Southwestern Gold (SWG-T), has 28.3 million shares outstanding (30.5 million fully diluted). Hainey has set a 12-month target of $5 for the junior.