Who will find canada’s next Ekati? Canada’s untapped diamond potential is fuelling an exploration boom that has elevated the search for diamonds to record levels.

Global diamond exploration expenditures in 2004 soared 47% to US$471 million, the highest level since Halifax-based Metals Economics Group began tracking such spending patterns in 1989. And although Africa has long been the sweetheart of diamond hunters, Canada is cutting in on the dance.

“Since the discovery of the Ekati diamond pipe deposits in the Lac de Gras area of Canada’s Northwest Territories, which sparked a diamond exploration boom in the early 1990s that is continuing today, Canada has increasingly vied with Africa as the most popular destination for diamond exploration allocations,” MEC says in a recent report.
Last year, roughly US$165 million was spent looking for diamonds in Canada, vs US$204 million in Africa.

The main players are Vancouver-based BHP Billiton Diamonds Inc. and Toronto-based De Beers Canada Mining Inc., both large companies holding tens of millions of acres of ground. The two diamond producers, as well as rival Rio Tinto PLC of London, are in a quiet but fiercely competitive race to find the next diamond mine that could influence market share as much as the N.W.T.’s Ekati and Diavik discoveries did.

The North, especially Nunavut, remains the focus of exploration, although more is being spent in Saskatchewan, Ontario and Quebec as a result of significant diamond discoveries in these provinces by De Beers and Toronto-based Ashton Mining of Canada Inc.

The Canadian boom is being fuelled by good geology, ongoing discoveries, above-average stone values and a shortage of gem-quality diamonds that has pushed the price of rough stones up by 40% in the past few years.

“What Canada has going for it is that it has 35% of the world’s Archean [rocks that are 2.3 billion to 4 billion years old, which host most of the world’s diamond deposits],” says Mark Kolebaba, president of Vancouver-based Diamonds North Resources Ltd., which boasts the third-largest Canadian land package behind De Beers and BHP. “A lot of it has never been explored for diamonds or has only had one pass.”

Canada also benefits from deterrents associated with other major diamond-producing countries, says John Kaiser, a newsletter writer based in California who keeps a close eye on the Canadian diamond scene.

In South Africa, for instance, producers are threatened by a proposed 8% royalty on production and pressure to have their diamonds cut and polished, at greater expense, within the country. In Botswana, De Beers is embroiled in controversy over recent evictions of the Gana and Gwi bushmen from their reserve by the Botswana government, a shareholder of De Beers. At the recent opening of De Beers’ flagship retail store in New York, protestors heckled the diamond company for its alleged role in the evictions.

In Angola, where most production has come from alluvial deposits, there is huge potential to find source kimberlites. But the country is considered politically unstable and the government heavy-handed in its diamond dealings, factors that tend to keep diamond explorers at bay.

Although Canada has its own challenges — including an expensive and lengthy permit process and the twin logistical nightmares of mining in permafrost and under lakes — it has become a haven for companies such as De Beers, whose future depends on reliable diamond supplies in stable countries.

De Beers expects to put three Canadian mines into production in the next decade, including, in order of development, Snap Lake in the N.W.T., Victor in Northern Ontario and Gahcho Kué in the N.W.T.
“
We have the potential by the year 2015 of
mining an additional US$1 billion of diamonds a year from these Canadian projects,” Gary Ralfe, managing director of De Beers, told a mining conference in Cape Town earlier this year. De Beers’ 2004 sales were US$5.7 billion.

In 2006, Tahera Diamond Corp. of Toronto will join De Beers in the select group of diamond miners when it puts the small Jericho mine in Nunavut into production. It also has an aggressive exploration program on nearby kimberlites that could feed the Jericho processing plant. Tahera recently raised $3.4 million in flow-though financing to complete the next phase of drilling.

Other high-profile exploration projects in the North are Vancouver-based Diamondex Resources Ltd.’s Lena West project in the Mackenzie River Delta; Diamonds North’s projects on Victoria Island and at Amaruk, Nun.; Vancouver-based Stornoway Diamond Corp.’s Churchill and Aviat projects near Nunavut’s Rankin Inlet and Melville
Peninsula, respectively; and
Vancouver-based Peregrine Diamonds Ltd.
re-evaluation of Tli Kwi Cho, a diamond-bearing kimberlite complex discovered in the N.W.T. by Kennecott Canada Exploration Inc. more than a decade ago.

@page_break@“If you looked at the early days, you had hundreds of companies all picking up little pieces of ground,” says Kolebaba. “Now it seems to be more sophisticated, and companies have their own regions.”

Diamondex recently attracted attention when Toronto-based gold giant Barrick Gold Corp.
made its first foray into diamond exploration with the purchase of an 11% interest in the junior for $6.8 million and the option to increase its stake to 20%.

Diamondex will spend about $8.5 million —
more than half of which will be allocated to Lena West — evaluating its diamond prospects in Nunavut and the N.W.T. this year. To date, the company has spent $7.8 million on airborne magnetics and geochemical sampling at Lena West, identifying 80 geophysical targets ranging in size from 300 metres to 1,000 metres in diameter.

Although the junior has yet to find a bedrock kimberlite there, its president and CEO, Randy Turner — who ran Winspear Diamonds Inc., the firm that found Snap Lake (which was bought by De Beers Canada in 2000) — believes Lena West has all the hallmarks of a kimberlite field. Five diamonds have been found in streams on the property.

Diamonds North is also vying to discover the North’s next diamond mine. The company holds more than 27 million acres of ground in the N.W.T. and Nunavut, encompassing six known diamond-bearing districts and 10 potential diamond-bearing districts.

Whereas Diamondex controls 100% of its properties, Diamonds North has teamed up with three major mining companies — Vancouver-based Teck Cominco Ltd., BHP Billiton and Kennecott, a division of Rio Tinto, to finance exploration on its extensive land package. The three majors are expected to spend a total of $7.2 million on geophysical testing, till sampling and diamond drilling to find new targets on the junior’s properties this year.

“We’re not trying to go it alone, because it is too hard to do. If you look at the capital investment on these mines, you need that big partner,” says Kolebaba, who identifies the Blue Ice on Victoria Island and Amaruk in mainland Nunavut as the company’s priority projects.

Drilling is also ongoing at Stornoway’s Churchill and Aviat properties in the eastern Arctic. This year’s program, which will represent the bulk of Stornoway’s $15-million exploration budget, is designed to drill-test several targets in addition to prospecting, sampling and ground geophysics.

Closer to established mining operations is Peregrine’s Tli Kwi Cho kimberlite. Recent work has surprised diamond experts because the pipe, a precursor to the Diavik discoveries, was dismissed as uneconomical after a 3,000-tonne underground bulk-sampling program more than 10 years ago.

Peregrine’s 151-tonne bulk sample, which tested the higher-grade central portion, returned an encouraging grade of 0.98 carats a tonne — higher than the Jericho pipe — from the main vent. “Not only that, but on a proportional basis, the stone-size recovery and the apparent quality of the larger stones is significantly better,” says Kaiser.

In recent years, central Saskatchewan — which hosts one of the largest kimberlite fields in the world — has become an increasingly important target. The two main projects are Fort à la Corne, a joint venture among De Beers, Kensington Resources Ltd. of Vancouver and Cameco Corp. of Saskatoon; and the nearby Star kimberlite project held by Shore Gold Inc., also of Saskatoon.

As operator of the Fort à la Corne project, De Beers expects to spend $25.6 million on advanced exploration this year in the hopes of outlining a diamond resource of at least 70 million carats. Shore Gold has launched a $43-million pre-feasibility study on its Star kimberlite.

In Ontario, Contact Diamond Corp. of Toronto is hoping proximity to roads and other infrastructure will make mining its marginal kimberlite bodies near Témiscaming, Que., worthwhile. The company is spending $4 million to test existing pipes for diamond content and to drill-test other kimberlites.

And in Quebec, a 50/50 joint venture of Ashton Mining and Quebec government-owned Soquem Inc., based in Sainte-Foy, Que., is the dominant force. So far, Ashton, 58%-owned by Rio Tinto, has found six diamondiferous kimberlites in the Otish Mountains region. The joint venture will evaluate potential mining scenarios for four of the kimberlites, which have a combined 22 million tonnes and an average value per carat of US$88. IE