Global Fancy Yellow Diamond Production Uncertainty Creates Opportunity For Canada

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Canada is typically not known for producing fancy colored yellow diamonds, which is what makes the recent exploration results from the Qilalugaq Diamond Project in Nunavut so interesting. “Fancy yellow diamonds are the most common of natural coloured diamonds, however they are still very rare and typically attract prices that are an order of magnitude higher than prices for regular commercial or white diamonds,” said Ken Armstrong, CEO of North Arrow Minerals (NAR:CA) in an exclusive interview with Equities.com.  

In recent years, approximately half of the world’s supply of fancy yellow diamonds has come from one mine in Australia.  However, the Ellendale mine, owned by Kimberly Diamonds (KDL.ASX), was put on care-and-maintenance in the second half of last year due to apparent economic resource exhaustion.  Given Ellendale’s closure, the future global production of fancy yellows is uncertain, perhaps creating an opportunity for a project like Qilalugaq.

 

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Three weeks ago North Arrow (NAR:CA) announced diamond recovery results for the first 609 dry tonnes of a 1,500 tonne bulk sample taken from a large 12 hectare kimberlite located on their Qilalugaq Diamond Project, located just 9 km away from the arctic coastal town of Repulse Bay (Naujaat), Nunavut.

The sample, collected from the Q1-4 kimberlite last summer, has so far contained eight diamonds larger than one carat, including a 4.42 carat intense yellow, a 4.16 greenish yellow and a 3.53 carat pale yellow diamond.

Qilalugaq already has an inferred resource of over 26 million carats; 48.8 million tonnes grading 53.6 carats per hundred tonnes. Early stage sampling by BHP Billiton (BHP) and current project-partner Stornoway Diamonds (SWY:CA) in the early 2000’s resulted in the recovery of a 64 carat parcel of diamonds with approximately 3% of the diamonds classified in the yellow spectrum.  However, it was unknown whether yellow diamonds existed in larger sizes and if so, what the impact would be on the valuation of the overall population.

 

 

With the largest stones recovered thus far being yellows, the percent by carat weight of the total population has grown to over 21% yellow diamonds; so not only are the yellows present in the larger sizes, they seemingly have a coarse size distribution that could be unique in comparison to the white diamonds that have been recovered from the sample.

The processing of the Qilalugaq bulk-sample should be completed in April at which point a diamond parcel will be sent to Antwerp, Belgium for valuation.  Results of the valuation are expected by the end of May.  

Given a favorable valuation, North Arrow’s next move would be to conduct a preliminary economic assessment, or PEA, at the property which could possibly be completed in a relatively short 8 to 12 weeks given that an inferred resource already exists.

 

Once the valuation is complete and a report been submitted to Stornoway, North Arrow will have earned an 80% interest in the project.  Stornoway will then have 60 days to exercise a one-time buy-back right for 20% of the project (increasing its interest to 40%), for a price equal to 3-times what NAR spent on the work program (approximately $11M).

While sample processing is continuing at Qilalugaq, North Arrow is also advancing exploration at the company’s Pikoo project, Canada’s newest diamond discovery.  Since making the discovery in east-central Saskatchewan in the summer of 2013, at least six other diamond explorers have aggressively staked the surrounding area, arguable making it Canada’s hottest new diamond district.

The standout discovery at Pikoo was the PK 150 kimberlite which returned 23 commercial-sized diamonds larger than 0.85mm from a 210-kg sample, considered to be the cut-off size for economic recovery.  North Arrow’s current ~3,000 meter drill program aims to better delineate PK-150 and test new well-defined targets in hopes of discovering new kimberlite bodies within the property.  An update on the $1.5 million drilling program is expected before the end of March.

Pikoo is 80% owned and operated by North Arrow and 20% by Stornoway.

For more information on North Arrow Minerals, go to www.northarrowminerals.com.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

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