Diamonds in Canada May 2015 by The Northern Miner Group

—IN CANADA—

May 2015

Kennady’s

geological puzzle PG.12

delivers Miner balances dividend, caPital sPendinG PG.8

the latest from Canada’s juniors

PG.14

Notes on the

diamond marKet PG.5

Complimentary PM no. 40069240 May 2015 v

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Contents 5

May 2015

Editorial

is kEnnady north onE of a kind?

Plenty to do for proposed association . . . . . . . . . . . . 4

Project manager Gary Vivian discusses the projectâ&#x20AC;&#x2122;s unusual geology By Alisha Hiyate . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

diamond stocks strongEr than EvEr A Q&A with RBC Capital Markets mining analyst Des Kilalea . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

around thE world the latest news from Canadian-listed diamond plays . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

dominion dElivErs on the cover: Rough diamonds from Dominion Diamondâ&#x20AC;&#x2122;s ekati mine, in the northwest territories.

Miner balances dividend, capital spending By Trish Saywell. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

diamond association on thE horizon? Miners meet to discuss marketing, synthetics and research By Alisha Hiyate . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

Credit: Dominion Diamond

Digital copy available to subscribers at www.northernminer.com

PUBLISHED BY

38 Lesmill Rd, Unit 2, Toronto, Ontario, M3B 2T5 Phone: (416) 510-6768 Fax: (416) 510-5138 E-mail: ahiyate@northernminer.com

Publisher: Anthony Vaccaro

editor: Alisha Hiyate

Advertising sAles: Joe Crofts Dave Chauvin

Art director: Melissa Crook

Production MAnAger: Jessica Jubb contributing Writer: Trish Saywell

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Alisha Hiyate Editor

‘I think it’s very important for the producers to come together to really try to push the diamond category as a luxury item,’ — De Beers CEO Philippe Mellier

Plenty to do for proposed association

o one is forecasting that 2015 will be a boom year for diamonds, but diamond miners are still looking good. “Our view is that the diamond sector continues to offer one of the better medium-term investment cases given lack of new production once the likes of Renard (Stornoway), Gahcho Kué (De Beers and Mountain Province) and Jay (Dominion), as well as Petra Diamonds’ expansion, come onstream,” wrote RBC Capital Markets mining analyst Des Kilalea in a March research note. With several large mines, including Argyle, Ekati and Diavik, nearing the end of their mine lives in 2020, the analyst forecasts that production will be flat to falling that decade. “This bodes well for rough prices to be supported, provided global growth and jewelry sales growth remain robust,” Kilalea continued. That caveat is important, and diamond miners know it. While they can’t do anything about global economic growth, they are thinking about what they can do to feed demand for diamonds. It’s one of the reasons eight miners, representing the vast majority of the world’s supply of diamonds, got together in February to talk about forming a producers’ association (See Page 20). The idea is to create a group that would promote the sector, conduct research, and tackle common issues such as undisclosed synthetic diamonds and the need for generic advertising to boost diamonds’ competitiveness against other luxury categories. “I think it’s very important for the producers to come together to really try to push the diamond category as a luxury item,” said De Beers CEO Philippe Mellier in an interview with Bloomberg TV in March. “It has to start with the producers because it’s very important for us to create and sustain demand, so we

thought it was a pretty good idea to sit down with the other producers to talk only about one thing: promoting the category.” We see this as a positive development for the industry, for investors, and for consumers. Another topic we’re monitoring is the tight liquidity in the sector. While diamond miners are generating lots of cash, diamantaires are finding funding difficult to get. Antwerp Diamond Bank, which according to RBC Capital Markets was responsible for about 8-10% of midstream funding, announced in September that it was closing down. Other major diamond lenders, ABN Amro Diamond Bank and Standard Chartered, have put in place tougher lending criteria as non-performing loans have risen from 1% to 4-10% over the past decade. Another, perhaps more important reason for the lack of liquidity is actually due to concerns about undisclosed synthetic diamonds, says Lucara Diamonds president and CEO, William Lamb (see Page 21). Because of reports of synthetics being mixed into parcels, lenders began to insist last year on GIA certification for diamonds as small as 0.2 carat. That created a six-month backlog at GIA, which is not set up to handle such volumes. As Lamb points out, diamantaires aren’t able to sell diamonds they don’t have. That brings us back to the potential producers’ association — which could reassure lenders and consumers about the sector’s ability to detect synthetics. There hasn’t been any official word on the group yet, but the need — and the potential rewards for the industry — are clear enough.

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

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Diamond stocks stronger than ever: analyst Des Kilalea Fresh off RBC Capital Markets’ 8th annual diamond conference, held in March in Toronto, Diamonds in Canada interviewed RBC mining analyst Des Kilalea in late March. Kilalea discussed the state of the diamond market and spoke about the current disconnect between optimistic miners with cash flow to spare on one hand and the pain being felt elsewhere in the diamond sector. He also discussed some of his preferred diamond stocks.

Diamonds in Canada: What were your main takeaways from attending RBC's diamond conference? Were there any surprises? Des Kilalea: The main takeaways from the RBC conference included the strong financial position of the diamond miners and developers — perhaps the most financially robust the sector has ever been. This sees the likes of Petra Diamonds (LSE: PDL), Dominion Diamond (TSX: DDC; NYSE: DDC), Lucara Diamond (TSX: LUC) and Gem Diamonds (LSE: GEMD) all either paying dividends or about to pay dividends as free cash flow is generated. Another theme was improved investor interest in the sector, given diamond miners’ outperformance of most mining indices in the past two years. DiC: You’ve written that you expect diamond prices to be flat to slightly lower (up to 5%) this year. When do you see a robust market returning? Des Kilalea: We think rough prices will start recovering towards year end and into 2016 as the global economy improves. Diamond jewelry demand growth at present is relatively muted

A rough diamond from Rio tinto’s 60%-owned Diavik mine in the northwest territories. Credit: Rio tinto

as evidenced in the recent De Beers Diamond Insight Report. China’s 2014 jewelry demand growth was 6% in local currency and India 3% in local currency. A strong U.S. dollar is not helping retail demand in soft currency countries. Longer-term, it still looks as if supply will be flat to lower. So, if demand continues in the U.S., China and other jewelry markets, the prospect for a firm underpin to rough prices exists from 2017 onwards. Naturally, issues such as synthetics and competition from the likes of other “luxuries,” such as the new Apple Watch, need to be addressed — perhaps by renewed generic advertising. DiC: Diamantaires are having a tough time with liquidity. Why is liquidity so tight? Why are banks withdrawing from the diamond sector or cutting their exposure? Des Kilalea: The middle of the diamond pipeline started relying on bank debt when De Beers ceased to be pipeline manager. The global financial crisis probably precipitated the current tightness in funding as it led, eventually, to Antwerp Diamond

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Bank withdrawing from the sector (it announced in September 2014 it would not be making any new loans). In addition, other leading banks started reassessing the risk/reward proposition in lending to the sector and decided to reduce exposure. New funding sources will emerge, such as direct retailer deals with miners and Middle Eastern banks coming in, as well as a new player in India (Industind Bank), but it is likely to take

having to address their supply and prices. This resulted in De Beers and Alrosa (RTS: ALRS) reducing prices 3-5% in the first quarter of 2015, and both allowing customers to defer goods. The optimistic forecasts of leading producers, such as De Beers and Alrosa, are probably somewhat at odds with the mood in cutting centres right now. DiC: What are your thoughts on the idea of an industry association for diamond miners, as reported by Bloomberg in February? Is collaboration on synthetics, marketing and potentially other issues necessary now that De Beers is not in control of the industry?

Stornoway Diamond’s Renard project, in Quebec. Credit: Stornoway

Des Kilalea: An industry association makes sense to tackle synthetics. The association might also look at the benefits of some generic advertising to boost diamond jewelry's share of luxury spending. De Beers’ Diamond Insight Report last year showed that growth in demand for luxury jewelry was well below that of electronic gadgets, fine wines, accessories, etc., in the period 2004-2013. some time. In addition, it is likely the size of the pipeline will shrink with less rough and polished tied up between the mines and the retailers. DiC: It doesn't seem sustainable for diamantaires to be struggling while diamond producers are doing quite well. How do you expect that to get resolved? Des Kilalea: Diamond miners have been able to dictate prices to some extent because of the availability of funding in the pipeline. But with banks refusing to lend on low margin or loss-making business, the miners, in particular the big ones, are

DiC: Undisclosed synthetics have been a concern for the industry for a while now: How is the industry dealing with synthetics? Des Kilalea: The efforts to counteract undisclosed synthetics need to be boosted. De Beers is introducing new equipment and a producers’ association (see previous question) could help push this. It is a potentially serious issue unless the producers, cutters/ polishers and the retailers get to grips with it. Highlighting the importance of decent grading labs for better stones is also key to getting undisclosed stones off the market. DiC: What about recycled diamonds?

The Star-Orion South Diamond Project Feasibility Study confirms that a world class diamond mine is feasible in Saskatchewan. • Probable Mineral Reserves of 279 million tonnes containing 34.4 million carats at a weighted price of US$242 per carat. • Inferred Mineral Resources 9.1 million carats. Considerable upside potential: • Target For Further Exploration estimated to include between 983 million and 1.17 billion tonnes of kimberlite containing between 52 and 90 million carats of diamonds. Positive decision on EIS from Federal Ministry of Environment received in December 2014.

Des Kilalea: Recycled diamonds have always been around, but like anything, the larger the market, the more this grows. De Beers is trying to highlight the fact that diamonds sold secondhand may not be fetching real value. Overall, this is a natural result of a growth market and for cutters/polishers, it remains an attractive source of stones. DiC: You are not expecting an exciting year for the diamond sector in terms of diamond prices — you’re modelling flat to 3% lower. However, you expect diamond stocks to maintain their preferred status compared to other mining stocks. What are your preferred names and why? Des Kilalea: The major producing companies (Petra, Dominion, Lucara and Gem) are now finally very robust financially and

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Lucara Diamond’s Karowe mine, in Botswana. Credit: Lucara Diamond

able to pay dividends. This should underpin their investment case. We like the leading producers, such as Petra and Dominion, and also think developers such as Stornoway Diamond (TSX: SWY) and Mountain Province Diamonds (TSX: MPV; NASDAQ: MDM) are attractive because they have good projects and the funds to build them. DiC: You have an “outperform” rating on all of the diamond stocks that you cover except for Alrosa, indicating that the companies are in good shape and that the fundamentals for

diamonds are good. But the highest implied returns (based on current share prices and your target prices) are for developers Stornoway Diamond and Mountain Province Diamond. What makes the potential upside so high for these companies and what are the potential risks to that upside for each? Des Kilalea: The market tends to place a discount on developers with that discount narrowing as projects move closer to production. The risks to developers are slippage in project time lines and capex overruns. If companies are fully funded and are able to bring projects in more or less on time and within budget, re-ratings should follow. DiC: You note that here's a trend among diamond producers, who are doing very well, to start paying dividends. Lukas Lundin last year mentioned that Lucara (the first to institute a dividend last year) started paying dividends to attract a new class of investors. Do you see that happening yet? Des Kilalea: For investors to buy for dividends, the dividends need to offer decent yields of 4% or higher. Over the next year or two, the diamond sector will attract investors for the dividends, I think.

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delivers Miner balances dividend, caPital sPendinG

By trish sAywell speciAl to DiamonDs in CanaDa

espite a softening in rough diamond prices, Dominion Diamond (TSX: DDC; NYSE: DDC) generated significant free cash flow in fiscal 2015 — paving the way for the company’s first dividend payment since the benefit was suspended in early 2009 due to the financial crisis. The diamond miner generated US$183 million in free cash flow or free cash flow per share of US$2.15, in the year ended Jan. 31, 2015, compared with US$44 million or US52¢ per share in fiscal 2014. Profit before income taxes rang in at US$166 million with earnings per share at US78¢, up from last year’s comparable figures of US$23 million and a loss of US27¢ per share. As of Jan. 31, the company held cash and equivalents of US$458 million, an increase over the US$289 million reported at the end of the third quarter. “We’ve had a good run of late,” Brendan Bell, the company’s acting CEO, told Diamonds in Canada in an interview from his office in Yellowknife in April, adding that the company felt comfortable a regular annual dividend payment of 40¢ per share was viable.

From leFt: Rough diamonds from Dominion Diamond’s Ekati mine, in the Northwest Territories; The Jay project at Ekati. Credit: Dominion Diamond

“No company in this day and age can be blind to the fact that shareholders need to earn a return, and we felt, when we looked at our sources and use of capital, that this dividend was a sustainable and affordable dividend,” he says. The company paid a dividend of US20¢ per share in fiscal 2009, down from US80¢ in 2008, and US$1 per share in fiscal 2007. Dominion, then known as Aber Diamond, kicked off its dividend policy shortly after acquiring luxury jeweller and iconic retailer Harry Winston Diamond. (Aber paid US$266 million for Harry Winston in two transactions in 2004 and 2006.) The company then changed its name to Dominion Diamond in March 2013. The new dividend, which equates to a 2.3% yield, should broaden Dominion’s potential investor base and keep it competitive with other yielding diamond producers, such as Lucara Diamond (TSX: LUC) (2.2% regular dividend, 4.4% with estimated specials); Petra Diamonds (LSE: PDL) (1.1% yield); Gem Diamonds (LSE: GEMD) (2.4% yield); and Alrosa (RTS: ALRS) (2.1%), Matthew O’Keefe of Dundee Capital Markets commented in a research

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note to clients. “Combined with its strengthened balance sheet and attractive growth profile, Dominion offers a good combination of growth and income.” Dominion expects a lot of that growth will come from the Ekati diamond mine and specifically the undeveloped Jay pipe, which lies beneath Lac du Sauvage, north of Lac de Gras. In March, the company released an updated National Instrument 43-101 technical report for Ekati, which includes the Jay pipe. Jay is situated in the southeastern corner of the property, about 25 km southeast of the Ekati main camp and mine infrastructure, and about 7 km north-northeast of the Misery Main pipe. Jay is the most significant undeveloped deposit at Ekati due to its large size and high grade and will add about 11 years of mine life beyond the current projected closure of Ekati in calendar 2020. Earlier this year, Dominion upgraded the bulk of Jay's indicated and inferred resource to probable reserves, which now measure 45.6 million tonnes at 1.9 carat per tonne for 84.6 million carats.

“Our process plant handles about 4.3 million tonnes per annum from various different ore sources, and as Jay comes online, it will fill the mill on its own,” Bell says. “With the grade at Jay just under 2 carats per tonne, that gives you a sense of the carat projections.”

Jay prefeasibility Dominion released results from a prefeasibility study on Jay in January that evaluated the pipe as a standalone, open-pit operation. The study calculated an after-tax internal rate of return of 16% and a post-tax net present value of US$610 million, with total operating costs projected at C$75 per tonne processed. Initial development costs were tabulated at about US$657 million, of which about US$368 million will be spent on building a dyke and associated infrastructure, including roads and pumps. Bell says the company is on track to complete a feasibility study on Jay this fall, with engineering work and further optimization studies already under way.

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Permitting, he says, can be completed in 2016, with construction starting the same year. Dewatering the area isolated by the dyke and pre-stripping would then begin in 2019, with mining and processing starting from 2020. Bell says he doesn’t foresee any permitting problems, given the company’s long track record operating Ekati. “We’re into an environmental assessment, which will conclude in early calendar 2016, at which point the minister will give us a go, or a no-go,” he says. Based on positive feedback so far, Bell believes the environmental assessment will be approved in early 2016. After that, a water licence and land-use permits would take four to six months, with construction starting in the summer or early fall. “That remains the timetable and we are on track.” To be sure, he concedes, there are always issues through permitting, and it’s important to understand the local and aboriginal community in the Northwest Territories is concerned about any development. “They want to make sure it’s done right, that any negative impacts on the Caribou, or wildlife, or water, are mitigated,” he says. Bell, who notes that Dominion’s relations with communities are “very strong,” says that concerns about development have to be balanced with the desire for employment.

FROM EXPLORATION TO CLOSURE. JUST ASK GOLDER.

“We’re the largest private sector employer of people in this part of the world, and those jobs come to a halt in 2019 without Jay, and so people are happy about future employment, but that has to be balanced with minimization of impacts on the ecosystem.” As Dominion plans for Ekati’s future, it has already made improvements at Ekati’s processing plant that increased the recovered grade of reserve and resource material by about 15% during the fiscal year. “We’ve been very successful this year at being very diligent and methodical about how we process ore,” Bell says. “We are changing the screens out more frequently to make sure diamonds aren’t missed.” The focus has been on maximum recovery rather than pushing more tonnage through the mill, he notes. The company also raised its ownership in Ekati’s Core and Buffer zones by acquiring the interests of Fipke Holdings Ltd. For the Core zone, which includes the current operating mine and other permitted kimberlite pipes, Dominion increased its ownership by 8.89% to 88.9% for C$55.6 million. For the Buffer zone, an adjacent area hosting kimberlite pipes having both development and exploration potential such as Jay and Lynx, the company spent $14.3 million to raise its stake by 6.53% to 65.3%.

Diavik Congratulations to Dominion Diamond on advancing the Jay Project. Integrating engineering and environmental studies can result in a more robust design, streamlining the process and avoiding unnecessary delays and costly rework. Trust Golder to help you get your diamond project on the right track. Engineering Earth’s Development, Preserving Earth’s Integrity.

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At the nearby Diavik mine, in which Dominion holds a 40% stake, mine operator Rio Tinto (NYSE: RIO; LSE: RIO) announced in November that it has approved the development of the A-21 pipe, which is expected to enter production in late 2018. At the end of 2014, Diavik had 18.1 million tonnes of proven and probable reserves grading 2.9 carats per tonne for 53.3 million carats of diamonds. Looking ahead at upcoming capex demands, and with the new dividend in mind, Bell is the first to admit that the company has a lot of investment dollars in front of it. Dominion’s 40% share of development capex for the A-21 pipe at Diavik, for instance, will cost about C$157 million between calendar 2015-2019.

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From leFt: Brendan Bell, acting Ceo; Core from the Jay project at ekati; Drilling at Jay. Credit: Dominion Diamond

At Ekati, the company plans to spend about US$27 million in fiscal 2016 on exploration at Jay and US$6 million on exploration at the Sable pipe, about 16 km northeast of the Ekati plant. Also in fiscal 2016, Dominion plans US$70 million (on a 100% basis) in capital spending on the continued development of the Misery pipe; US$18 million to develop the Pigeon pipe, and US$16 million on the Lynx pipe. In fiscal 2017, Dominion expects capital costs to be US$38

million at Misery, and US$22 million at Lynx. That’s in addition to the roughly C$760 million that will be needed for development capital for the Jay pipe between fiscal 2016 and 2020. To help with its financing requirements, the company entered into a new C$210-million senior secured corporate revolving credit facility with a bank syndicate in April 2015. Bell says the company doesn’t plan to raise any more capital at this point and should be able to fund its commitments with money coming from Ekati and Diavik. In Toronto at presstime, Dominion’s shares traded at $22.56 per share within a 52-week range of $12.89-23.00. BMO Capital Markets has a target price of $27 per share and describes Dominion as its “top pick in the diamond space,” while Dundee Capital Markets has a target price of $25. “I think people are starting to be more familiar and more aware of our story,” Bell says. “We are a pure play diamond miner and I don’t have to tell you that many of the other commodities who would compete for investment are somewhat unloved these days; not so with diamonds.” — Trish Saywell is a senior staff writer with The Northern Miner.

This is our backyard… Kennady Diamonds - Kennady North Project - Kelvin Kimberlite

35+ years of geological, geophysical and exploration services in some of the most remote places on earth. Go ahead – pick our brains aurorageosciences.com May 2015 v

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Kennady ? d n North i k a f o e n o W By AlishA hiyAte

hen Aurora Geosciences was contracted to manage the exploration program at Kennady Diamonds’ ( TSX V: K DI) Kennady North project in the Northwest Territories in 2012, there weren’t any clues that the project would turn out to be as successful — or unusual — as it has. “I think the only thing we felt is that the Kennady North project hadn’t been systematically tested,” said Aurora president Gary Vivian.. The project, revived by Mountain Province Diamonds (TSX: MPV) in 2011, was originally part of the AK joint venture with De Beers that held the Gahcho Kué project (now in construction). While two diamondiferous kimberlites, Faraday and Kelvin, had been discovered on the claims in 1999-2000, they were thought to be small “blows” along a dyke system and therefore of limited size potential. The project, 280 km northeast of Yellowknife, hadn’t seen any significant exploration since 2004. Aurora started drilling at Kennady Lake in 2012, but it wasn’t until 2013 that pyroclastic kimberlite was recovered in drill core. “All of the previous drilling had suggested that these were coherent kimberlites, which suggests they’re hypabyssal or dyke-like bodies,” Vivian said. “It’s the pyroclastic kimberlite that told us that the body is probably much bigger than was originally

Kennady Diamonds’ Kennady north project, in the northwest territories. Credit: Kennady Diamonds

The Kelvin kimberlite complex, looking southeast. Credit: Kennady Diamonds

thought and would suggest that this thing has actually vented to surface. It opened our eyes to the possibility that this thing could be much bigger.” Since then, Aurora has outlined a very unusual kimberlite body at Kelvin. It’s not a dyke, or a classically carrot-shaped vertical kimberlite pipe, but a horizontal, boomerang-shaped, pipe-like body. “This is a very irregular-shaped type kimberlite complex that hasn’t been recognized before,” Vivian says. “If you took a vertical pipe like the most classic kimberlites, and you tip that on its side, that’s almost exactly what the Kelvin body looks like.” The kimberlite is about 600 metres long, between 75 and 200 metres thick (it thickens to the north), and 30 to 60 metres wide. It’s still open to the northwest.

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from Left: Kelvin-Faraday map; Drilling at Kennady North. Credit: Kennady Diamonds

On its south end, Kelvin surfaces beneath a shallow lake and is connected to the diamondiferous Kelvin sheet complex, which averages 8-10 metres thick. Drilling at Faraday, 3 km northeast of Kelvin, has also returned pyroclastic kimberlite. There are four targets at Faraday that may or may not be connected, but so far the Faraday 2 target has been defined across a strike length of 130 metres, and appears to be a pipelike body. The project also hosts the Doyle and MZ kimberlites and more than 40 targets.

surface at the bottom of a shallow lake, and the bottom of the Kelvin body is only 70 metres below surface. Towards the north, the body starts about 200 metres below surface and extends to 450 metres depth. “Three-quarters of the Kelvin pipe could be taken with a pit that’s about 250-300 metres deep and probably only 300-400 metres across.” Vivian says. Perhaps the most exciting thing about Kennady North is that it implies much more potential to find more unusual kimberlites with economic potential in Canada’s North. “I give Kennady a lot of credit for recognizing there was still potential left on the original AK claims,” Vivian said. “(Kennady CEO) Patrick Evans has proven that one or two passes don’t necessarily provide you with all the answers. Ideas and technology change.”

to deliver a parcel of 1,000 carats for an initial valuation. Kennady is targeting a 9-12 million tonne resource grading 2 to 2.5 carats per tonne. It also plans to conduct another 20,000 metres of drilling this year. While the Kelvin kimberlite is unusual, Vivian says it’s amenable to open-pit mining as it’s neither terribly deep nor large. At the south end, Kelvin comes to

Maiden resource Without grade, Kelvin might be little more than a geological curiosity. However, sample grades to date have been very promising. Samples taken from Kelvin in 2013 and 2014 and totalling 53.2 tonnes returned 124.9 carats of commercial-sized diamonds for a sample grade of 2.37 carats per tonne. A smaller 1-tonne sample from Faraday returned 4.76 carats of commercial-sized diamonds for a grade of 4.54 carats per tonne. Early this year, Kennady reported results from the south lobe of Kelvin and from the Kelvin sheet: a 1.8-tonne sample from Kelvin’s south lobe returned 6.68 carats of commercial-sized stones for a grade of 3.64 carats per tonne, while a 47kg sample from the Kelvin sheet returned 0.28 carats of commercial-sized diamonds for a grade of 5.95 carats per tonne. A 436-tonne bulk sample taken by reverse-circulation drilling from Kelvin early this year will be used to compile a maiden resource in the third quarter, followed by a preliminary economic assessment. The bulk sample is expected

TSXV:NAR

Exploring Diamond Opportunities

in Canada

info@northarrowminerals.com Suite 960, 789 West Pender Street Vancouver, BC V6C 1H2 604.668.8355

@narminerals northarrowminerals northarrowminerals.com

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Around The laTesT news from Canadian-lisTed diamond plays Alto VenturesI In April, Alto Ventures (TSXV: ATV) reported that 12 of 37 till samples taken at its West Fisher claims, 12 km northwest of North Arrow Minerals' Pikoo project in Saskatchewan, contained chromium-rich chromite grains. A subsequent high-resolution airborne magnetic survey identified 16 magnetic targets, several of them associated with down-ice trends of kimberlite indicator mineral (KIM) dispersion grains in tills. Just east of Pikoo, at Alto's GEFA property, sampling has identified multiple KIM dispersion trains. An airborne magnetic survey at GEFA early this year identified at least 16 kimberlite targets clustered in two areas of the project. Alto is earning a 100% interest in West Fisher and 60% of GEFA.

Arctic Star ExplorationI

From top: At Peregrine Diamond’s Chidliak project. Credit: Peregrine Diamonds Diamonds from North Arrow Minerals’ Qilalugaq project. Credit: North Arrow Minerals

Alto Ventures’ crew in Saskatchewan.Credit: Alto Ventures

In February, Arctic Star Exploration (TSXV: ADD) acquired the1,056-sq.-km Stein project in Nunavut, drawing on existing exploration data in the public domain. Past surveys identified circular magnetic anomalies up to 200 metres in diameter at the up-ice terminus of KIM trains. Arctic Star is planning a work program this spring in anticipation of drilling the targets. In January, the company staked the Triceratops property, adjacent to the Ekati mine in the Northwest Territories. The project contains six kimberlites with low diamond counts, as well as three unexplained KIM trains and other complex trains that may indicate further potential. Arctic Star plans to generate new drill

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the world targets at Triceratops using modern exploration methods. And in November, the company acquired the T-Rex property in the Lac de Gras field. T-Rex holds 13 known kimberlites, but the property has not seen modern exploration and Arctic Star notes that non-magnetic kimberlites may have been overlooked.

Canterra MineralsI In January, Canterra Minerals (TSXV: CTM) added the Rex project, adjacent to Kennady Diamondsâ&#x20AC;&#x2122; land package in the Northwest Territories, to its portfolio. The claims were acquired based on a review of public data and on reconnaissance sampling last year. The property contains several KIM anomalies that contain G9 and G10 garnets and two KIM trains. At Canterra's Marlin project, where Margaret Lake Diamonds (TSXV: DIA) is earning up to a 49% interest, 126

till samples were collected last year. The samples returned a 1-mm by 1-mm by 1.4-mm off-white modified octahedral diamond. Canterra recently identified several kimberlite targets coincident with KIM anomalies at Marlin, after flying a 1,500-line km airborne gravity and magnetic survey over the north part of Marlin last year.

Chalice Gold MinesI Chalice Gold Mines (TSX: CXN; ASX: CHN) has an indirect stake in Meteoric Resources' (ASX: MEI) Webb Diamond project in Western Australia. Meteroic has discovered 51 kimberlites containing both hypabyssal and diatreme facies after drilling 63 targets at Webb. While microdiamonds were not recovered from the drill core, microdiamonds have been recovered in the northern part of the kimberlite field in surface loam sampling. Less than 20% of the targets at Webb have been tested. Chalice owns 24% of GeoCrystal, a company that has a 70% interest in Webb. The company could own up to 51% of GeoCrystal, if it exercises its warrants in the company and participates in future financings.

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Diamcor MiningI Diamcor Mining (DMI: TSXV) raised $3.1 million in a private placement in December to help advance its Krone-Endora alluvial deposit in South Africa. The junior's in-field dry screening plant has proven effective at removing fine material under 1 mm, and now the company is ready to upgrade its infrastructure in order to treat large material in the +26 mm size fractions, which it has been stockpiling. Plant upgrades are expected to be complete by mid-year. To facilitate the investment, Tiffany & Co., which has a right of first refusal on Krone-Endora diamonds other than specials, has agreed to a one-year deferral and loan extensions of principal and interest payments accruing after December 2014. Diamcor sold 3,579 carats of diamonds in the quarter ended Dec. 31 for revenues of $886,840, net of commissions and fees, for an average price of US$221.96 per carat. The company realized a net loss of US$651,720 or 1¢ per share for the period. In its fourth quarter ended March 31, Diamcor sold 4,619.11 carats of diamonds for an average of US$182.38 per carat. Processing was suspended in early March to complete work on the plant.

GGL ResourcesI GGL Resources (TSXV: GGL) reported in December that its 1995 Doyle joint venture with De Beers has been terminated. The junior will get De Beers’ 60% interest in certain JV claims in return for relinquishing its 40% of other claims. De Beers will also pay GGL $300,000.

Lucara DiamondI As of late April, Lucara Diamond (TSX: LUC) had finished construction of a US$55-million plant upgrade at its Karowe mine in Botswana, and commissioning had begun. The company installed new XRT diamond recovery machines and a large diamond recovery circuit to help process the fresher, harder kimberlite in Karowe’s south lobe and improve recovery of large diamonds, for which the mine is known.

For 2014, Lucara reported revenues of US$265.5 million, an increase of 47% from the previous year due to higher prices and more diamonds being sold in exceptional tenders, which accounted for half of total revenues. Lucara reported adjusted net income of US$90.8 million, with adjusted earnings per share of US24¢, up from US17¢ in 2013. Lucara ended the year with $101 million in cash. The company received an average of US$644 per carat sold, up from US$411 per carat the previous year. For 2015, the company expects to bring in US$230-240 million from the sale of 400,000 to 420,000 carats of diamonds, with operating costs of US$33-36 per tonne of treated ore. At presstime, Lucara had agreed to sell its Mothae project, in Lesotho, for US$8.5 million and a 5% interest in initial profits from production.

Margaret Lake DiamondsI In April, Margaret Lake Diamonds (TSXV: DIA) reported that 12 high-priority drill targets have been identified at its 60%-owned Margaret Lake property adjacent to Kennady North. A total of 60 anomalies were identified following an airborne gravity gradiometry survey conducted late last year. The company can earn up to 70% of the project. (See also the Canterra Minerals entry.)

Metalex VenturesI Metalex Ventures (TSXV: MTX) is searching for alternative sources of financing for a bulk sample and potential development of the U2 kimberlite in northern Ontario. Last summer, Dundee Corp. (TSX: DC.A) terminated its agreement with Metalex to fund up to $51 million in costs to bring the U2 and T1 kimberlites to feasibility, citing delays in permitting and in negotiating exploration agreements with local First Nations.

Mountain Province DiamondsI Mountain Province Diamonds (TSX: MPV; NASDAQ: MDM)

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leFt to right: Diamcor Mining’s dry screening plant at Krone-Endora. Credit: Diamcor Mining

De Beers and Mountain Province Diamonds’ Gahcho Kué project. Credit: Mountain Province Diamonds

Lucara Diamond’s Karowe mine. Credit: Lucara Diamond

is now fully covered for its share of the $858-million capital cost of Gahcho Kué, its 49%-owned joint venture with De Beers (51%). The company closed a US$370-million term loan facility in April, after closing a $95-million rights offering in March. First production is expected in the second half of 2016. In March, the partners announced that they collected 434 kg of Tuzo kimberlite with five holes in their 2014 Tuzo Deep drill program. The program confirmed that Tuzo continues to more than 740 metres depth and returned 2,514 diamonds, including 2.46 carats of commercial-size diamonds for a grade of 5.67 carats per tonne. Further deep drilling at Tuzo will wait until construction at Gahcho Kué is complete. The project is expected to produce an average of 4.5 million carats per year over a 12-year mine life. In December, the partners signed impact benefit agreements with both the NWT Métis Nation and the Deninu Kué First Nation.

in larger sizes, and to collect enough diamonds for an initial valuation, which is forthcoming. Yellow diamonds account for 9% of the stones by stone count and 21.5% by weight and increase in stone count and weight in the larger sizes. Moreover, an analysis of 41 Q1-4 representative diamonds showed that 40 contained unaggregated nitrogen, a characteristic of rare natural Type 1b diamonds with fancy “Canary yellow” colours, the company reported in April. North Arrow is earning 80% of Qilalugaq from Stornoway Diamond. At its 80%-owned Pikoo JV with Stornoway in Saskatchewan, North Arrow discovered three new kimberlites early this year with a 24-hole, 3,240-metre drill program. The most significant kimberlite, PK314, is located in the North Pikoo area and has been drilled to 213 metres depth. PK314 appears to be an east-west trending, vertically

North Arrow MineralsI At presstime, North Arrow Minerals (TSXV: NAR) reported that 11,083 diamonds greater than 1 mm have been recovered from a 1,353-tonne bulk sample from the Q1-4 kimberlite at the Qilalugaq project in Nunavut. The stones weigh 384.28 carats, giving a sample grade of 28.4 carats per hundred tonnes. Fifteen diamonds were larger than 1 carat, including a 4.42-carat greenish-yellow cubic aggregate; a 4.16-carat intense yellow cubic aggregate, and a 3.53-carat pale yellow cubic aggregate. The sample is lower-grade than the existing inferred resource for Q1-4 (48.8 million tonnes grading 54 carats per hundred tonnes), however, the company noted it was not taken to confirm the grade, but to confirm the presence of yellow diamonds

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emplaced diatreme-like body that is 25 metres wide and at least 40 metres long. The diamondiferous PK150 kimberlite, discovered in 2013 at Pikoo, has been drilled to 199 metres depth and over 150 metres of strike.

Pangolin DiamondsI Four white diamonds have now been recovered in soil samples at Pangolin Diamonds’ (TSXV: PAN) Malatswae project, 90 km southeast of the Orapa mine in Botswana. Last year, three diamonds were found in a 1 sq.-km area: including a 1.5-mm by 1.13-mm by 1.38-mm stone. The diamonds’ characteristics suggest a nearby source. A fourth diamond, a 0.02-carat octahedron, was discovered 13 km to the northwest in January. Pangolin plans further exploration in the two areas (MSC and Modala Grids) the diamonds were found. The company has also added three new prospecting licences at Malatswae, which now totals 2,480 sq. km. In September, Pangolin announced drilling at the Magi target at its Tsabong North project in Botswana recovered four diamonds. A May 2014 hole returned three diamonds.

-125°

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SEARCH FOR

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Lena West

Talmora

LENA WEST DIAMONDS Great Bear Lake

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CSE : TAI Shares outstanding: 61,998,801 Contact: Raymond Davies Phone: 416 491 6771 Email: rayal.davies@sympatico.ca Website: www.talmoradiamond.com

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Cretaceous Basin

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Pangolin Diamonds sampling crew in Botswana. Credit: Pangolin Diamonds

Peregrine Diamondsi Early this year, Peregrine Diamonds (TSX: PGD) completed a reorganization, putting all of its properties other than its advanced Chidliak project into a wholly owned subsidiary. Former president Brooke Clements is now president and CEO of Peregrine Exploration. At Peregrine Diamonds, former VP Tom Peregoodoff is now president and CEO; Chidliak program manager Herman Grutter, is now vice-president of technical services; and former CEO Eric Friedland is now executive chairman of both companies. In May, Peregrine reported it is acquiring private Botswana diamond explorer Diamexstrat Botswana (DES Botswana) from Diamond Exploration Strategies Ltd. in return for a 1% gross overriding royalty, and for the assumption of a $450,000 loan. (The loan is owed to DES UK, but was originally advanced by Peregrine). DES Botswana holds eight prospective licences in Botswana totalling 5,746 sq. km that were acquired after reviewing 25 years’ worth of public data. The licences are situated in two areas along the Cretaceous kimberlite corridor, and in three areas that have unresolved geophysical and KIM anomalies. Through a service agreement, DES UK will continue to manage any work programs at the projects. At Chidliak, in Nunavut, Peregrine is preparing for a preliminary economic assessment in 2016. An updated resource at the CH-6 kimberlite added 15% in terms of tonnage in January. The updated inferred resource is 3.3 million tonnes grading 2.58 carats per tonne for 8.57 million carats in the first 250 metres of CH-6. The junior also increased conceptual tonnage estimates for other areas of CH-6 below 250 metres, and for the CH-7 and CH-44 kimberlites to a total of between 8.2 and 13.6 million tonnes. Bulk sampling of key kimberlites began in March. The company plans to collect 1,000 tonnes in total from CH-6, CH-7 and CH-44 to add resources and to collect diamonds for valuation from CH-7 and CH-44. A valuation of CH-6 diamonds last year gave an average price of US$213 per carat. Recent drill results from CH-7 indicated a geologic domain in the kimberlite that could be higher grade than CH-6.

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Of 30 samples taken in the Northern area of the project, only seven returned mantle-derived KIM grains.

Shore GoldI Shore Gold’s Star-Orion South project. Credit: Shore Gold

Rockwell Diamonds Rockwell Diamonds (RDI: TSX; RDI: JSE) plans to complete its acquisition of the Remhoogte/Holsloot and Bo-Karoo alluvial diamond projects by mid-year. Rockwell will pay $25.8 million for the early stage projects, which are located beside its current alluvial projects in the Middle Orange River (MOR) area of South Africa. The projects come with three processing plants that can treat 200,000 cubic metres per month, and have produced more than 7,300 carats of high-quality stones in the last nine months of 2014. The company expects the acquisition will allow it to grow production to over 500,000 cubic metres a month, a rate that would help smooth out its quarterly production. For the quarter ended Feb. 28, Rockwell sold US$10.6 million worth of diamonds from its MOR operations, with an average price of US$2,461 per carat influenced by the sale of two 120-carat-plus Saxendrift stones. Rockwell has suspended operations at its subeconomic Niewejaarskraal project at MOR to focus on increasing throughput and better understanding the orebody. The company sold its Tirisano project in South Africa for $6.3 million in cash in March.

Aiming to increase resources, reduce the $1.9-billion preproduction capital cost, and reduce the time to production at its Star-Orion South project in Saskatchewan, Shore Gold (TSX: SGF) is working to revise its mine plan. The company wants to mine the Orion South kimberlite — which is both higher grade and has 30 metres less overburden than the Star kimberlite — first, reversing the order of the current plan. To do so, Shore plans to re-estimate the Orion South resource and then re-optimize the open pit using updated resources and diamond prices. The company began a 12-hole, 2,600-metre, large-diameter infill drill program at Orion South in late April. The budget for the drill program and resource estimate is $5.5 million. Star is 100% owned by Shore, while Orion South is part of the Fort à la Corne joint venture with Newmont Mining (32%), in which Shore has a 68% interest. Continued on page 22

Strike DiamondI In March, Strike Diamond (TSXV: SRK) announced results of a fall 2014 till sampling program at its Sask Craton North project, in Saskatchewan. The regional sampling program identified four potential KIM trains, however, infill sampling is needed to better assess the property. Strike sampled selective areas of Sask Craton adjacent to the Pikoo project and Alto Ventures’ GEFA and Fisher properties. Two of the potential KIM trains are in the eastern area of Sask Craton North. The site, which also returned a G9 garnet and other indicator minerals, is 8 km down-ice from a cluster of small, subtle magnetic anomalies, and 5 km up-ice of a potential KIM train identified by Alto. The Southern area of the project, where 17 till samples were collected, contains two potential KIM trains. One sample site contained over 55 KIMs; the company believes the source is nearby.

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Diamond producers’ association

on the horizon By AlishA hiyAte

ore than a decade after De Beers relinquished control of the diamond sector, the major diamond miners are looking at forming a new industry association to co-operate on common issues, such as generic marketing of diamonds, undisclosed synthetics, and industry research. Bloomberg reported in February that eight producers had a confidential meeting, organized by Rio Tinto (NYSE: RIO; LSE: RIO) and Alrosa (RTS: ALRS), to discuss the topic. The meeting, which took place at Rio Tinto's London headquarters, al so included De Beers, Dominion Diamond (TSX: DDC; NYSE: DDC), Lukoil (RTS: LKOH), Petra Diamonds (LSE: PDL), GEM Diamonds (LSE: GEMD) and Lucara Diamond (TSX: LUC). “What they’re trying to create, the industry should have done a long, long time ago — the same as the platinum guild and the gold bourse and everything else,” says William Lamb, president and

Polished diamonds from Rio Tinto’s Argyle mine in Australia. Credit: Rio Tinto

CEO of Lucara Diamond, who attended the meeting. “It’s a forum I think for discussion of where the industry is going as a whole.” While he could not talk specifically about what happened at the meeting, Lamb agreed to discuss some of his views on a potential association and some of the issues a producers’ group could address. Lamb sees the association as a chance to shed light on the sometimes mysterious workings of the diamond sector: “I think the primary goal of the association has to be to enhance transparency of the industry as a whole.” Details of the meeting were not disclosed, but participants did confirm that marketing, undisclosed synthetic diamonds, and industry research were discussed. In an email to Bloomberg, Rio Tinto explained that the producers discussed the need for an association, which would promote the interest of diamond producers and the sector in general. In response to a request for comment, a Domin-

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A 342-carat, Type IIa gem from Lucara Diamond’s Karowe mine in Botswana. Credit: Lucara Diamond

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expected to decline after 2020, diamond miners can't take demand for granted. “De Beers' Diamond Insight Report last year showed that growth in demand for luxury jewelry was well below that of electronic gadgets, fine wines, accessories etc., in the period 2004-2013.” Kilalea noted. Advertising spending on diamond jewelry has fallen over the past decade relative to other luxury categories. Meanwhile, demand for luxury jewelry in the U.S. grew at just over 2% between 2004-2013 while demand for high-end, high-tech gadgets grew at 14% a year. Also consuming a lot of consumers’ discretionary spending — at the expense of luxury items such as jewelry and designer handbags — is travel, says Lucara’s Lamb. As opposed to cruise, vacation and other travel companies, which spend a vast amount of money on advertising, there is really no generic marketing for diamond jewelry. An association could help with a coordinated strategy to nurture demand — especially with younger consumers who are less enamoured with diamonds than previous generations. Before De Beers launched its supplier of choice strategy in 2000, the diamond giant spent $150-200 million a year on

I think the primary goal of the association has to be to enhance transparency of the industry a whole. — William Lamb, president and CEO of Lucara Diamond

ion Diamond spokesperson in April said the discussions were still early stage and no agreements have yet been reached. “Preliminary discussions have been held between a number of producers to explore the potential remit and scope of an industry association for diamonds that would seek to better understand, address and protect the needs of diamond consumers,” the spokesperson said in an email. The major players have talked about forming such an association before. Whether or not the idea sticks this time around, it's clear that some collective action on the part of the producers could benefit the industry. “An industry association makes sense to tackle synthetics,” said Des Kilalea, a mining analyst with RBC Capital Markets. “The association might also look at the benefits of some generic advertising to boost diamond jewelry's share of luxury spending,” he added. Competition from other luxury products was one of several big challenges facing the diamond industry that De Beers outlined in its inaugural Diamond Insight Report last year. While demand for diamonds is growing and supply is

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advertising and marketing — much of that generic. It's now spending about $100 million on branded advertising for its Forevermark brand.

Synthetics In the past few years, there have been increased reports of synthetic diamonds being mixed in with natural diamonds in an attempt to pass them off as natural, another issue that the diamond miners discussed. However, Lamb says the industry is generally on top of the synthetics issue. De Beers has developed technology to detect synthetics, which it has shared with the wider industry. Machines that can detect synthetics can be easily bought for anywhere from $2,000 to $30,000, and qualified jewellers will have their own machines. In addition, synthetic production is a tiny proportion of mined production — around 50,000-70,000 carats compared to 130 million carats a year, Lamb says. “It's a very small percentage when you compare the two,

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Continued from page 19

The Star-Orion environmental assessment was approved by the federal government in December. The company is awaiting provincial approval.

Stornoway DiamondI

Rough diamonds from Rio Tinto’s 60%-owned Diavik mine, in the Northwest Territories. Credit: Rio Tinto

which is actually creating a massive issue — and it's not the fact that it’s undisclosed, it’s what it does to consumer confidence, in my opinion.” Still, more could be done to weed out undisclosed synthetics and to reassure consumers that their jewelry is authentic. Lamb adds that the liquidity problems in the diamond sector at the end of 2014 were because of undisclosed synthetics — not to the Antwerp Diamond Bank's September announcement that it was withdrawing from the sector. Because of the fear of undisclosed diamonds, lenders insisted on GIA certificates for diamonds as small as 0.2 carat — creating a backlog of up to six months. “If you look at how people finance diamonds, the bank will not give a diamantaire money based on the fact that he’s got polished stones,” Lamb explained. “They will loan him money on a receivables invoice — so he actually has to demonstrate that he sold those diamonds. But you can’t sell the diamonds if they’re all sitting at GIA.”

Investment diamonds A producers' association would also conduct industry research, and Lamb suggests it could even help develop new markets for diamonds, such as investment. “Up to forty per cent of gold which is produced ends up in an investment portfolio,” he said. “And yet less than five per cent of diamonds plus 10.8 carats ends up in a portfolio — so less than 1% of production ends up as investment quality stones. There is definitely an opportunity there where we can move more product into the market as investment quality.” Lucara is particularly interested in this market because its Karowe mine in Botswana accounts for 40% of all stones over 100 carats mined each year while producing only 0.4% of the world’s diamonds.

A Renard Diamond. Credit: Stornoway Diamonds

Construction at Stornoway Diamond’s (TSX: SWY) Renard project in Quebec is on track, with first concrete poured for the processing plant in April. Plant commissioning is slated for late 2016, with commercial production following in the second quarter of 2017. Stornoway is also working on an updated resource for its Renard 2 kimberlite, due out in June. The company completed 12,010 metres of drilling in November, focused on adding resources from 600 metres depth and 1,000 metres depth, where Renard 2 remains open. A preliminary geological model suggests that Renard 2 holds 9 to 12 million tonnes between 600 metres and 1,000 metres depth. March was an eventful month for Stornoway: the company started prestripping activities at Renard 2 and Renard 3 and also officially opened its Clarence and Abel Swallow airport. It also completed the drawdown of its first US$80-million tranche of US$250 million in diamond stream funding. Lastly, Stornoway president and CEO Matt Manson received the Viola R. MacMillan award for company or mine development for his success leading the development of Renard.

True North GemsI In February, True North Gems (TSXV: TGX) announced the results of an updated prefeasibility study for the Aappaluttoq ruby and pink sapphire project in Greenland. The study pegged total project capex at US$25 million, and the project’s post-tax net present value at US$171 million at an 8% discount rate. The post-tax internal rate of return was pegged at 122%. True North is building the project with partner LNS Greenland, which will own 27% of Aappaluttoq once it begins production.

advertiser’s index Aurora Geosciences Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Dominion Diamond Corp.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Golder Associates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Kennady Diamonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Mountain Province Diamonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 North Arrow Minerals Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

Peregrine Diamonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Saskatchewan Research Council. . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Shore Gold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Stornoway Diamond Corp.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 Talmora Diamond Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Tundra Airborne Surveys . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

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BUILDING QUÉBEC’S FIRST DIAMOND MINE TSX: SWY 24 v Diamonds in Canada

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