Looking for Diamonds, in the Face of a Supply/Demand Imbalance
|CEO Bruce Counts at drill target 702 where micro diamonds were recovered from a 10kg sample in 2018.|
By Jason Smith
Those familiar with the diamond industry know that few mineral discoveries can reap larger fortunes than an economic diamond mine.
A case in point is the Ekati diamond mine discovered in the Northwest Territories in 1991. Dia Met Minerals, which had a 29 per cent stake in the project that would become Ekati, saw its shares soar from $0.65 to $65.00 in the 18 months following the discovery.
Dia Met eventually sold its interest in Ekati for $800 million in 2001. To give you a sense of how lucrative the mine has been, consider that, despite having a capex of $900 million and being located in the Canadian barren lands, it paid back that total in just 18 months.
The discovery of Ekati set off a diamond rush that would put Canada on the map as a diamond destination.
But as analysts pore over the world’s current and future diamond production, it’s projected that demand will grow faster than supply. A recent Bain report forecasts that demand will grow by 4% annually while rough diamond production will only grow by 1% or less.
Clearly, more diamond mines need to be found to meet demand, but where will they come from?
“[Lithoquest’s North Kimberley] project has a similar geochemical signature to the one we used to find Ekati.” — Ed Schiller, Supervisor for the Ekati Mine discovery hole in 1991
Looking for Diamonds in Western Australia
One Canadian explorer, Lithoquest Diamonds Inc. (TSX.V: LDI), believes the answer to that question may be the Kimberley Region in northern part of Western Australia.
Ed Schiller, who supervised the drilling of the key discovery hole at Point Lake that led to Ekati, sees great promise in Lithoquest’s North Kimberley project. Schiller notes, “The project has a similar geochemical signature to the one we used to find Ekati in 1991.”
Lithoquest controls two exploration licenses that cover 1,000 square kilometres and collectively make up the North Kimberley project. The project is road accessible and has access to tidewater. Historical stream samples in the area have yielded macro-diamonds throughout the exploration area, including a 1.73 carat diamond valued at US$740 per carat.
Kimberlites: The Key to Finding Diamond Mines
In order to establish a diamond mine on North Kimberley, Lithoquest first has to vector in on any kimberlites on the property. Kimberlites are small volcanoes that start from very deep in the earth’s mantle. As the kimberlite magma moves up, it enters the diamond stability field, where it sometimes picks up economic quantities of diamonds on the way to the Earth’s surface.
Kimberlites often occur in clusters. According to Lithoquest CEO Bruce Counts, “Ekati had 150 kimberlites, and the Orapa field in Botswana had around 80 kimberlites.” In other words, where you find one diamond-bearing kimberlite, you often find many of them.
That’s the hope for Lithoquest, which has already identified four separate occurrences of what it believes may be weathered kimberlite on the North Kimberley project. These samples have yielded kimberlite indicator minerals (“KIMs”) similar to the indicator minerals at Ekati.
More intriguingly, they have yielded a key potential marker of diamond-bearing kimberlites: micro-diamonds. Counts notes that finding micro-diamonds with a process designed to identify KIMs in sample rock is unusual, “The process for identifying KIMs is different than that for recovering diamonds. The fact that our KIM process yielded micro-diamonds was a proof of concept for North Kimberley.”
|2018 target 702. Rock (float) sample yielded micro-diamonds in 2018.|
In a sign of just how important the presence of those micro-diamonds has the potential to be, Lithoquest’s share price spiked from C$0.24 to almost C$0.90 after the company’s announcement about the find in early April.
|Lithoquest Diamonds Inc.’s road-accessible Kimberley Diamond project camp, July 2018.|
Next Up: Drilling
The company’s share price has come back a bit since then, as investors await the results from upcoming drilling at North Kimberley.
That work is imminent, and it will seek to confirm that the weathered rocks that produced the micro-diamonds did, in fact, come from kimberlite. Assuming the answer is “yes,” the next step will be to assess the size of that kimberlite and its potential to host economic quantities of diamond.
|Geophysical crew working on delineating new targets for future drill testing at the Kimberley Diamond project.|
If successful, Counts anticipates taking “a mini bulk sample of the kimberlites in 2019 based on the success of results this year.” Beyond that, with an eye to the clustered nature of kimberlite deposits, Lithoquest (TSXV: LDI) will be using surface exploration techniques to identify other kimberlite targets on North Kimberley.
Plus, as Schiller notes, any diamonds that the company finds here in Western Australia don’t need to be of the same value as those at Ekati. He says, “You have much easier access in Australia, so you’ll likely have a much lower capex to access any potential deposits.”
Will North Kimberley follow Ekati’s path to diamond production? Investors will start to get an answer to that question with the upcoming drilling program on the project.