 |
| |  | |
| | Tue Jul 17, 2007
Allan Barry Report on Canadian Diamond Exploration
Publisher: Allan Barry Reports
Author: Allan Barry
|
| | Welcome to the 11th edition of our report on Canadian Diamond Exploration. In our last couple of editions, we noted evidence that the sentiment toward diamond exploration companies is improving. For the past three years, sentiment had grown progressively more negative and reached a low point in the last quarter of 2006. Since the beginning of 2007, the market values of several of the companies featured in this report have improved from the lows they reached in late 2006. This improvement is the recovery phase at the end of the recent bearish market; the next phase should be a more bullish market.
In recent editions, we also discussed the current supply and demand outlook for diamonds. In this edition, we will begin with more on our outlook for supply and demand and follow that with more on sentiment in the market.
Much like other commodities, the price of diamonds in the long term is dictated by supply and demand. For several years, the annual supply of diamonds has been lower than the demand and this imbalance has improved prices. If the deficit between supply and demand had not been filled by supplies of previously mined diamonds, then the prices would be much higher than they are today.
Many people in the diamond mining business and those that deal with rough diamonds have been aware of the stronger demand than annual production situation. There has also been a great deal of speculation about where the diamonds are coming from to fill the gap. We are not interested in this speculation because it tends to make one lose sight of the long-term picture. This source of supply is most likely not that significant and is probably running short of diamonds.
The bigger picture is looking at where diamonds come from throughout the world. Most of the diamond mines were found many years ago -- some more than fifty years ago. These mines are getting old, and getting really deep, and in the near future will run out of diamonds to mine. This is true from Africa to Russia, which are the two regions of the world where most of the world's diamonds are mined. Canada came on the scene in the last ten years and is now a significant player as the world's third largest producer of diamonds in dollar value terms. The aging diamond mines are much more numerous in Africa and Russia because they have been producing for so many years. Canada, while still in its infancy as a diamond mining country, could run into the same situation unless more mines are found to replace what is being mined currently.
Based on current mines throughout the world, which are nearing the end of their production, it is reasonable to see diamond production flat for the next five years or so. Beyond five years that production can fall from its current level. Some signs that production can decline is to look no farther than South Africa. This country has been producing diamonds for more than 100 years. Several of the mines that have been in production for many decades are being shut down by De Beers or they are considering shutting them down. Naturally, the only reason mining companies would stop mining a deposit is because they can no longer make money from what they are producing.
Although getting statistics from Russia is not easy, they also have been producing diamonds from some of their mines for decades. They will run into the same situation as South Africa with declining production because of aging diamond mines, if they haven't already.
In order for diamond production not to decline significantly in the coming years, there will need to be more new discoveries and development of more mines. That is much easier said than done; diamond mines are not easy to find.
If the production of diamonds from mining were just to stay flat for the next several years or decline somewhat, and if demand only grew at a moderate pace, then our outlook would be for prices to improve consistently but not to double in the next ten years. The demand growth from emerging economies, combined with the supply outlook, is why we think prices could go up by double or more over the next ten years.
The two most dominant emerging economies are China and India. As they have developed rapidly, more people in these countries are able to afford luxury products like diamonds; as they continue to grow so will their demand for diamonds. Other economies that have increased their wealth in the last few years from high oil prices have also created a large market that seems to really appreciate diamonds and is seriously affecting demand.
With the growth in demand from emerging economies and the current demand from more mature markets, it is easy to make a case for impressive growth in demand for many years into the future. With impressive growth in demand and flat to declining production, it is more than reasonable to expect significant increases in the price of diamonds.
Now is a very good time to be exploring for and finding new diamond discoveries. As prices go higher it will only enhance the economic potential of discoveries and the chances of proving their economics. In our opinion as diamond prices go higher the market valuations of companies making discoveries or developing mines will get more heated. We can see that sentiment for diamond companies has improved recently when comparing the lows reached in market values in the last quarter of 2006 with the much improved prices currently.
In our opinion it is no coincidence that as sentiment for diamond mining companies has improved so has the near term outlook for diamond prices. Based on following the diamond mining business closely, it looks to us that there is a link in sentiment for companies in the business and optimism for diamond prices in the near term.
If diamond prices increase at the pace we think they will, it is reasonable to expect that there should be an increased confidence in companies involved in the diamond mining business. With a looming strong market for diamond prices and a corresponding improving sentiment toward companies in the diamond mining business, it is readily apparent that a bull market is close at hand.
We are very happy to have selected a group of companies that are determined diamond exploration companies that have been improving their fundamentals while the market was less than enthusiastic. We focus in this report mainly on diamond exploration companies because they are the ones most likely to go out and find new diamond mines.
The potential for success in finding new diamond mines in Canada is very good and as this industry has evolved rapidly so has the exploration experience. All of the companies featured in our past reports have made significant discoveries and are continuing to look to advance those discoveries. Even though sentiment has improved, we still feel all the companies we follow are currently under appreciated for the realistic potential they have. Therefore we are going to feature almost all of them in the next section. When the market is stronger for companies in the diamond business some of these companies will prove to lead the way.
Our Diamonds In The Rough
In our recent 10th edition in this section of the report we featured a group of companies that were in the midst of the diamond exploration season in the Northwest Territories of Canada. For most of these companies, their main seasons for drilling are over and they are currently awaiting results from their exploration efforts. We are now coming into the time of the year when the companies in the eastern Arctic region get underway with their exploration seasons.
In this edition, we will begin with features on some of our past picks that have projects in the eastern Arctic. We will then discuss some of our feature companies that are awaiting results from their work in the Northwest Territories of Canada that were busy during the colder months of the year. For past picks that aren't featured in either of these areas, we will have updates in the "Our Report Card" section.
As is always the case, we list the companies in alphabetical order.
Our eastern Arctic diamond explorers
Arctic Star Diamond Corp.
Arctic Star is a new arrival to the group of companies we feature in this report with projects in the eastern Arctic region of Canada. They have come to this area by entering into a joint venture on some of Diamonds North Resources' ground. Arctic Star has planned a significant amount of work that will include drilling on this project. We are shareholders of the company. </p>
These new projects are not the key reason we have featured Arctic Star, however. Their Credit Lake project in the Northwest Territories of Canada is the main reason we follow the company. At Credit Lake there has been a great deal of work in the past that has found diamond indicator minerals in the surface sampling but as of yet the drilling has not found the kimberlite source of these minerals.
This spring they drilled a number of holes that were focused on testing geophysical targets in the area around where they have found these indicator minerals. Geophysics doesn't work in every area often because some kimberlites can have very quiet magnetic responses. They have been drilling these geophysical targets and have learned that geophysics hasn't been helpful in finding the kimberlite source of the indicator minerals. This summer they plan on using an auger drill that can drill shallow holes fairly quickly and relatively inexpensively compared to core holes. They can grid drill near the areas where they have high indicator mineral counts using this auger drill.
This new focus is a reasonable way to go about thoroughly testing this area for the kimberlite source of the indicator minerals found at the surface. Diamond indicator minerals grow in the upper mantle and make their way to the surface via a kimberlite so they all have a source. The main reason to continue the search is because the diamond indicator minerals demonstrate a high probability that the source kimberlite they come from is significantly diamond bearing.
While they are doing this auger drilling on the Credit Lake project in the summer months, they will also be drilling their projects in the eastern Arctic. A new emerging area in the eastern Arctic is where two of our picks (Diamonds North Resources and Indicator Minerals Inc.) have found new discoveries. Later in the report we will discuss this area in greater detail. The early indications from these companies are that this area has the potential for a large kimberlite field and that some of the previous kimberlites are diamond bearing, with one in particular being fairly large.
Arctic Star has made their way into this area by doing an option deal with Diamonds North on some of their ground. Now they are involved in the heart of this new area that is becoming a good spot to look for diamonds.
Although we are disappointed that the Credit Lake project has not yet led to a discovery, we are very encouraged that the company continues to be determined in their commitment to the search for diamonds on this property. Nobody ever said diamond exploration was going to be easy. They have two projects that will be drilled during the summer months and at any time these efforts can lead to a discovery; because of the areas they are in that include close proximity to two of Canada's prolific diamond mines, a discovery would cause a great deal of interest.
Arctic Star's stock symbol is ADD and the shares trade on the Toronto Stock Exchange Venture Market. Their website is www.arcticstardiamond.com. On their website you can find past news releases and additional information to do your own due diligence.
What makes the Allan Barry Report Unique
For the last 13 years, the editor of this report has had a career as a consultant to publicly traded junior exploration companies. Services provided to these companies include investor relations, corporate communications, strategic planning, and fund-raising.
These efforts have provided a unique opportunity to learn, from an insider's perspective, the challenges that junior exploration companies face. Additionally it has opened doors to meeting a very accomplished group of people. Spending this time as a consultant to junior exploration companies has provided a unique perspective that is an asset few analysts or newsletter writers possess.
In Closing
We would like to take this opportunity to thank you for taking the time to read this report. We hope this information proves to be informative and helpful. We ask the reader not to post this report on any website for at least three days after you receive it and that if it is posted to post the entire report without any editing. We invite our readers to pass on our contact information to anybody they feel may be interested in receiving this report or future reports and we would be glad to add them to our email list for future publications.
There is no charge for this publication. In order to be added to our email list we prefer to have your name, phone number and email address. You can call us on our toll free number at 1-877-574-4575 or locally at 604-574-4575 or email allanbl@shaw.ca with the above information.
Regards,
Allan Barry Laboucan,
Editor & Writer
Allan Barry Reports
Disclaimer: The information included in this Allan Barry Report on Canadian Diamond Exploration, is for information purposes only. No statement or expression of opinion, or any other matters herein, directly or indirectly, is an offer, solicitation or recommendation to buy or sell any securities mentioned. The information contained in this e-mail is drawn from sources believed to be reliable, but the accuracy and completeness of the information is not guaranteed, nor in providing it does the editor Allan Barry Laboucan or his companies, or affiliated companies, assume any liability. We do not receive or request compensation in any form in order to feature companies mentioned herein. The editor may have equity positions in companies referenced in this newsletter, or offers consulting services to some of these companies and will notify the reader of these positions or services provided in the section of the report on each individual company. The editor his personal company or affiliated companies, disclaims all responsibility and accepts no liability (including negligence) for the consequences for any person acting, or refraining from acting, on the information provided in this publication. |
| |
| | You can return to the Top of this page
|
| |
