Rough times for diamond explorers and miners

Despite excitement over recent blue diamond discovery, the gem sector’s lacklustre returns have dampened investor interest

William Lamb, president and CEO of Lucara Diamond Corp.: facing a depressed market, diamond producers are watching their costs and delaying some sales

Success in B.C.’s diamond exploration and mining sector now might not be quite as rare as the 9.46 carat blue diamond Lucara Diamond Corp. (TSX:LUC) just recovered and sold for $4.5 million, but it’s not far off, according to the local industry.

Diamond exploration has all but ground to a halt, according to Matt Manson, president and CEO of Stornoway Diamond Corp.(TSX:SWY), which moved its head office from Vancouver to Montreal last year to be closer to the company’s Renard diamond project, which is set to be Quebec’s first diamond mine.

Stornoway is still doing a small amount of exploration, but the company is focusing primarily on raising financing for its $800 million Renard mine.

Manson said it’s “lonely” times for diamond explorers.

“There are very few companies doing exploration per se because it’s very hard to raise exploration dollars.”

He added that while all mineral explorers are currently facing tight capital markets, diamond explorers face larger hurdles in raising financing than, for example, gold explorers.

“It’s always been easier raising money for gold exploration because it’s a much bigger playing field, so there are more investors who know gold, who invest in gold,” he said. “There’s institutional and retail investors, so it’s a much more familiar thing. And in terms of the places you can go explore or the deals you can do on existing assets, it’s a much bigger world.”

Manson said the diamond business in Canada has been “small and focused” since initial discoveries in the 1990s. He said the industry has advanced in “fits and starts” and is currently at a low point for activity and dollars being spent.

He added that a key challenge for the sector is that too few investors have made much money from diamonds over the past decade.

“What we need in this sector is a diamond company that has a success and maintains its valuation and rewards shareholders. That’s what we’re trying to do at Stornoway. We need more of that to really have a buoyant sector and allow people to go out and raise money for diamonds, because the track record on making a good return for your investors isn’t there yet.”

Mark Kolebaba, president and CEO of Vancouver-based Diamonds North Resources Ltd.(TSX-V:DDN), said the money is so scarce now for diamond exploration that the company has put its diamond projects on the backburner to focus on gold exploration in Washington state.

“We’ve got some diamond projects, but we’ll keep them on hold, and we hope to explore them down the road, but right now they just go on hold until there’s a market that can finance that work.”

William Lamb, president and CEO of Vancouver-based diamond miner Lucara, said that while diamond mining is doing better than diamond exploration, producers have been contending with a depressed market since early this year.

He said that while producers globally achieved record prices for rough diamonds in 2011’s second and third quarters, a sudden slowdown in China’s purchasing of polished diamonds early this year has dampened the market.

He said producers are now watching their costs and, in some cases, delaying sales until the market improves.

Lamb said he’s expecting 2013’s first half to remain challenging.

“Even if China suddenly started buying diamonds again, it’s going to take a while for the glut of both polished and rough diamonds in the current market to make its way into the consumer’s hands before we start to see recovery in the sector.” •

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