By Paul Zimnisky
On June 20th, Russian diamond major, ALROSA, announced that, as a safety precaution, they would be suspending deep-mine construction at the company’s International mine in Siberia. The result being a 500,000 to 800,000 carat annual production cut at the mine from 2019-2022. This follows closure of the company’s Mir mine after a fatal flood last summer that resulted in approximately 3.5 million carats of lost annual production for the foreseeable future.
The latest news out of ALROSA further constrains what can already be described as a pending global diamond supply gap, as annual production is estimated to decline from 152 million carats in 2017 to 131 million carats by 2021, a 14% decrease.
However, while diamond supply slides, demand currently appears robust. Shares of the largest jeweler in the world by market capitalization, Tiffany & Co., have rallied over 30% to an all-time high following the company’s fiscal Q1 earnings announcement on May 23. The company raised sales, earnings and same-store sales guidance for the fiscal year ending January 31, 2019, while also boosting the dividend 10%. Tiffany management attributed the move to “solid sales growth in all jewelry categories,” further noting that the company was “especially encouraged with an 11% sales increase in the engagement (diamond) jewelry category.”
The current supply scenario matched with positive end-consumer demand for diamond jewelry, as evidenced not only by Tiffany, but also LVMH (parent of Bvlgari), Richemont (parent of Cartier), Van Cleef & Arpels, and Greater China jeweler Chow Tai Fook, has resulted in rough diamond prices rising approximately 4.5%* in the first half of 2018.
This attractive fundamental backdrop has made the prospect of exploring for new diamond deposits a compelling proposition. To capitalize on the opportunity, leading diamond explorer, North Arrow Minerals (TSX-V: NAR) has built a portfolio of four primary projects that are all 100%-owned and strategically located in Canada.
With diamond consumers demanding more sourcing transparency than ever before, Canadian diamonds are especially well positioned with the North American consumer market which represents about half of global diamond demand; the appeal for Canadian stones ranges from reputable sourcing practices to simply being closer in proximity to home than say African, Russian or Australian gems.
North Arrow’s current focus is the company’s Mel project in Canada’s Nunavut Territory, which was proven to host diamond-bearing kimberlite rock last October following a grass-roots exploration program, making it Canada’s newest diamond discovery. The anticipated next phase of Mel exploration is a core-drill program testing at least 6 high-priority targets, which is scheduled to commence the week of July 16th.
Success at Mel by hitting significant intercepts of additional kimberlite could prove quite exciting, as is the inherent nature of grass-roots exploration, especially if results indicate that Mel hosts a large diamondiferous pipe --which would not be the first in the area.
Mel lies within the Qikiqtani Region, or Baffin Region of Nunavut on the Melville Peninsula, 200km northeast of North Arrow's most advanced project Naujaat. At 12.5 hectares in size, Naujaat’s primary kimberlite, Q1-4, has already been proven to host over 25 million carats of diamonds according to a 43-101 resource. Naujaat is arguably a top-10 undeveloped diamond project in the world and could be one of only a handful of new diamond projects advanced to a mine over the next few decades if ongoing project analysis and favorable rough prices deem it economic.
On June 19th, North Arrow closed a C$3+ million financing, over half of which was supported by company insiders and advisors including Canadian diamond legends Gren and Eira Thomas. The capital raise will not only support the Mel program and advancement of Naujaat but also the company’s Loki project located in the Northwest Territories, a region hosting world-class diamond mines including: Diavik, Ekati and Gahcho Kué; the latter operated by De Beers.
Loki hosts several kimberlites, including one which was discovered by North Arrow just this past April – the first discovery in the region in over five years. The site of the discovery is less than 30km from both Diavik and Ekati; for context Diavik has produced over 115 million carats since commencing production in 2003, Ekati has produced over 75 million carats. The aforementioned Gren Thomas is credited with discovering Diavik. North Arrow will be drilling at least one high-priority target at Loki this summer.
Between the busy workload at Mel, Naujaat and Loki, North Arrow will have a steady stream of catalysts to look forward to over the remainder of the year. A near-term company-changing event at Mel or Loki along with continued advancement of company-staple Naujaat provides a compelling proposition for a pure-play diamond explorer just at a time when discoveries of large new commercially viable diamond projects are increasingly harder to come by.
*According to the Zimnisky Global Rough Diamond Price Index. More information can be found at: www.roughdiamondindex.com.
Disclosure: Paul Zimnisky has been compensated by North Arrow Minerals to produce the above content. This content includes views that are based on observations and opinions. The author has made every effort to ensure the accuracy of information provided, however, accuracy cannot be guaranteed. This content is strictly for informational purposes and should not be considered investment advice. Consult your investment professional before making any investment decisions. None of the parties involved accept culpability for losses and/or damages arising from the use of this content.
