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KMW Blog Oct 13, 2015: Sheahan Diamond Literature Compilation


Posted: Oct 13, 2015JK: Sheahan Diamond Literature Compilation
Published: Oct 1, 2015KRO: KRO Diamond Resource Center
The KRO Diamond Resource Center is a new feature established during September 2015 that is intended to make it easier for KRO members to track down KRO comments and news releases related to companies in a specific sector, in this case diamonds. Currently I am tracking only 20 Canadian listed companies that I regard as having a primary and serious diamond focus. Interestingly, there remain very few superfluous juniors pretending to be engaged in diamond exploration compared to the hundreds that clogged the market during the nineties in the wake of the diamond discoveries in Canada's Arctic by Dia Met, Aber, Mountain Province and Winspear, Kensington/Shore Gold in Saskatchewan, and Ashton/Stornoway in Quebec. Diamond juniors lost their allure during the feasibility demonstration boom of the past decade as the market focused on advanced metal projects whose value was pegged to readily available metal prices. But even in the arena of discovery exploration the market had tired of diamond exploration because of the long timelines and heavy expense needed to establish the potential economic value of a new discovery. Today there is little appetite for grassroots diamond exploration, which is not surprising because glaciated terrains have been scoured for indicator mineral trains since the 1990's, and covered regions such as Botswana have seen nearly every geophysical anomaly lurking beneath the Kalahari Sands or thin Karoo basalt veneer poked at with a drill. The potential for discovering major new kimberlite fields is severely diminished, though hope still burns that world class loner pipes remain to be discovered on cratons known to have been blessed with a diamond stability field.

The diamond exploration focus, however, has shifted to brownfields exploration of known kimberlites and clusters where discoveries discarded by past owners as lacking economic potential are being revisited. The inspiration is not higher diamond prices, or even the hope thereof, for while long term supply shortages for gem diamonds are projected as existing diamond mines deplete, slowing emerging market growth and China's corruption crackdown have softened demand for luxury goods and weakened rough diamond prices. The inspiration comes from the realization that kimberlite evaluation has undergone gigantic strides since the early days of the Canadian diamond boom when nonsensical "results" such as single grain indicator mineral chemistry and "longest dimension" micro-diamond counts served as the basis for spending decisions. The initial decades also had a bias toward the "grade times tonnage" equation which overlooked the potential for sub-populations of very high value diamonds whose confirmation entailed expensive and statistically competent bulk sampling. The focus of today is more the re-evaluation of known kimberlites than the quest for new kimberlites.

In this regard "brownfields" diamond exploration still qualifies as discovery exploration, for although the physical kimberlite has been found, the key to economic value, namely value per carat, remains to be determined. In terms of grassroots exploration, diamond exploration cannot compete with grassroots precious and base metals exploration when a "game on" mood pervades the market. When a geochemical or geophysical anomaly yields a metal "discovery" intersection, the scope of the potential economic value in the geological context can be quickly discerned, enabling the junior to raise funds for discovery delineation at substantial premiums to prices that prevailed during the target generation and testing stages of the exploration-development cycle. But with diamond exploration the discovery of a new kimberlite kicks off another year of grade and tonnage determination, followed by at least another year of carat value determination, at which point the market finally has a basis to estimate a potential economic value range ahead of feasibility studies. If the current "glass permanently empty" mood were to switch to a "glass half-full" mood such as prevailed during the eighties and nineties, perhaps triggered by a surprise discovery involving a widely held junior that has replication implications, the market will rush into grassroots metal plays with their two year success delivery timeline while it shuns grassroots diamond exploration with its minimum four year delivery timeline.

In fact, given the current tremendous aversion to discovery exploration for metals - "why would one look for new deposits when there are so many left over from the past boom now available at a fraction of their sunk feasibility demonstration costs?" - brownfields diamond exploration has a superior attraction. The knock against the ounce and pounds in the ground projects is that until we see higher metal prices, these projects are nothing more than options on future trends over which the company management has zero influence. Bottom-fishing for these projects with a patient time horizon incurs the risk that management will succumb to a very dilutionary financing so that it can busy itself doing something other than watching paint dry, or the risk that a bigger company with a longer time horizon than management and deeper pockets scoops the junior with a buyout offer whose 100% premium to market sounds impressive when compared to pitiful treasury bill yields, but which still represents a fraction of the valuation multiple gain the project would undergo with a mere 50% rebound in the metal price. Deposits which are marginal at current metal prices are bogged down by the world's current supply over-capacity which may take several years to unwind, possibly longer if state owned enterprises resist rationalization for socio-political reasons. The potential for higher metal prices is also bucking a demand head-wind as China's economy shifts to a less capital intensive consumption basis, and the global economy's descent into secular stagnation approaches a stall threshold that could usher in a global recession for which to turn around monetary policy has no bullets left while fiscal stimulus policy remains off limits thanks to the overwhelming influence of the austerity scolds. Gold is another matter, since the 5.4 billion ounce above ground stock already sits around serving only an "insurance" function, and thus could trade at any price. But in the global recession scenario which is bad for metal prices, gold prices are unlikely to increase unless the market senses that the crisis is so severe it will force nations to ramp up fiscal spending on infrastructure renewal.

If we are stuck with an extended period of flat or possibly lower metal prices, bottom-fishing for existing deposits is not a recipe for five, ten, twenty fold price gains of the sort that have historically made resource juniors an attractive target for investors seeking high risk, high reward exposure. Past resource junior bear markets have often ended in the midst of an economic downturn when new discoveries like Hemlo, Eskay Creek, Ekati and Voisey's Bay erupt out of nowhere. The downside for discovery exploration in this context of weak metal prices is that the bar is very high for what counts as a new discovery, namely one whose grade and tonnage imply a substantial economic value using prevailing metal prices. In the case of a brownfields diamond project it may appear to have marginal value, but this marginality needs to be confirmed by exploration work that targets the diamond quality and to some degree a better understanding of diamond grade which can vary within a kimberlite body. The difference between a grassroots metal play and a brownfields diamond play is that with the former one has nothing until a target emerges and is turned into a discovery, a possibly eternal timeline, while with the diamond play one has something potentially valuable whose assessment involves a fairly clear-cut exploration program with a distinct timeline.

I constructed the KRO Diamond Resource Center because I believe the timing is good for a revival of market interest in diamond exploration, the field has been reduced to a manageable group of diamond juniors, valuations are very low compared to the diamond boom decades, and diamond evaluation is far more sophisticated and transparent than it has ever been. The main inspiration, however, came from a conversation I had with Pat Sheahan, who has chaired the diamond technical session at PDAC for decades. Pat has spent her career sifting through technical journals in search of articles related to geology, with an emphasis on diamond geology. In 2000 she donated her reference compilation to the Mineral Deposit Research Unit of the University of British Columbia which formed the subscription-based Sheahan-MDRU Literature Service. But MDRU stopped the service several years ago, stranding the compilation in limbo. Fortunately Pat had continued to compile diamond related references which since 2004 she has made available as a monthly pdf emailed to a small list of people interested in the diamond sector (see the latest monthly SLS issue - October 2015).

I have been on that list for a number of years, but found it about as useful as a printed catalog of titles whose hidden content was effectively inaccessible. If I were fully immersed in the diamond sector I would be reasonably abreast of the academic and media literature, and would look forward to Pat's monthly compilation to see if there was anything new I should track down. But my focus on the diamond sector is sporadic, requiring me to periodically immerse myself in the literature to get caught up. The problem was that each monthly issue was just a snapshot, and the idea of going back through many monthly pdfs, well, that was never going to happen.

When it became apparent that there was no commercial basis for Pat's Sheahan Diamond Literature Compilations, that it was a labor of love intended to benefit the broader scientific community, I suggested that she could reach a much larger community in a much more efficient manner if she migrated her reference compilations online to a site such as Kaiser Research Online. So Pat and I spent September migrating her 2004-2015 compilations into a digital format that is now available through the KRO Diamond Resource Center. Each year has its own web page that also includes links to each of that year's monthly pdfs. It was quite a scramble for Pat, because she had not maintained her source files in one location. They were scattered about on various memory sticks and semi-defunct old computers, but eventually she tracked down every single month and we completed the migration in early October.

Now every reference is at the finger-tips of anybody in the world with Internet access. It is not a proper database system with search functionability, such as as the KRO Search Engine which allows paying KRO members to search on the basis of company and project level critteria, but one can use the browser word search function to find certain authors or technical terms. Best of all, when I have tracked down and added the link to each reference's online location, whether it be unrestricted or free, a viewer could achieve instant gratification from any reference that caught his or her attention. In the case of scientific articles that usually requires a credit card, though because scientific articles come with free abstracts that sometimes are quite detailed, I've added those to the online version of Pat's references. Each annual compilation is sorted alphabetically by author, company or media organization, with references from the most recent monthly issue highlighted in yellow. I have tracked down the links and abstracts for the September and October issues (see the 2015 Sheahan Diamond Literature Reference Compilation), and will gradually work my way backwards. I have to admit, having all this diamond related stuff at my finger-tips has played more than a minor role in spurring my renewed interest in the diamond sector. And my hope is that others will also discover it as a gateway to renewed interest in the diamond juniors.

 
 

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