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A Canadian Natural Diamond Story

Posted on July 11, 2023

Canada’s natural diamond market needs a new discovery to invigorate investor interest in a flagging industry, says sector heavyweight Eira Thomas.  The Lucara Diamond (TSX: LUC) CEO says several diamond fields in Canada are approaching their sunset years after the initial discoveries were made nearly 30 years ago. “We need a new discovery…to generate some excitement…and to attract investor interest,” Thomas told The Northern Miner in an interview.

However, the recent US$136 million acquisition of Ekati by Burgundy Diamond Mines (ASX: BDM) does signal a flicker of investment interest and potential opportunities to extend the mine’s life in the Northwest Territories, the location of Canada’s three producing diamond mines (besides the small-scale Renard mine in Quebec).

Thomas highlighted the importance of investing in diamond exploration to drive new discoveries. She mentioned North Arrow Minerals (TSXV: NAR), a company she is personally invested in, and its attractive portfolio of projects across Canada, including Lac de Gras in the Northwest Territories, located just south of Rio Tinto’s (NYSE: RIO; LSE: RIO; ASX: RIO) Diavik Diamond Mine. However, she noted the challenge of attracting investor interest to the sector, meaning discovery rates remain stubbornly low, while demand for natural diamonds remains strong.

“We are facing global supply shortages of natural rough diamonds…the fundamentals around the business are looking far more attractive than they have for a very long time,” Thomas says.

The supply-demand fundamentals of diamonds are marked by aging assets and declining production from world-class mines globally. As mines approach the end of their life or require additional capital for deeper mining, global diamond supply is on a downturn. On the other hand, Thomas suggests there’s reason for optimism, amid softness in the market due to geopolitical concerns and economic factors.

“Despite the global declines, demand has remained very healthy. Prices are still far healthier and far more stable than we saw in the pre-Covid period,” Thomas says.

When asked about the potential impact on diamond prices and the rise of lab-created diamonds, she emphasized the increasing differentiation between the natural diamond market and the lab-grown market. While lab-grown stones continue to improve and prices decrease, she believes that lab-grown diamonds are carving out their own market segment. She highlighted that consumers who purchase lab- grown diamonds may still be interested in natural diamonds, and the two markets are not mutually exclusive.

“We don’t really see synthetics as encroaching on the natural diamond market. They’re really developing and growing a different market segment,” Thomas says.

Additionally, she disputed claims that lab-grown diamonds are more sustainable, stating that careful examination shows they are not as environmentally friendly as often portrayed.

Spotlight on Botswana

Among her other industry roles, Thomas is also the top executive of Lucara Diamond. She provided an update on the company’s ongoing underground expansion at the Karowe mine in Botswana, confirming that the project has been ongoing for about 20 months and they still have another 3.5 years to go. The company plans to start delivering diamonds during that time frame.

The expansion will extend the mine’s life by another 17 years, with the possibility of further expansion beyond 2040.

“We’ve been mining diamonds at Karowe for about a decade and we’re looking forward to at least another US$4 billion in revenues coming from the underground, building on the US$2 billion in revenue recognized thus far,” Thomas says.

One of the key benefits of the underground development, according to Thomas, is the access it will provide to the highest-value part of the ore body. This section of the mine has been responsible for the recovery of Lucara’s large diamonds exceeding 1,000 carats. Currently, the deposit accounts for only 15% of the diamonds mined from the open pit. However, once the underground operation is in full swing, around 85% of the ore delivered to the mill will come from this unit, which is expected to be a significant economic driver for the project.

While Lucara is undertaking its underground expansion, even here the lacklustre investor interest is apparent. Up to the start of June, the share price was down 35% over the past 12 months period, despite regaining some value at 46.5¢ per share, down 24% over the same time frame.

Thomas acknowledged that development projects often receive less attention from the public marketplace. However, she said she believes the current share price represents a buying opportunity and emphasized Lucara’s commitment to executing the underground development successfully.

Shifting the discussion to Botswana, Thomas dismissed claims of resource nationalism creeping into the country. The Jul. 1 agreement reached between De Beers and the government of Botswana, renewing their relationship for another decade is in her mind testament to ongoing collaboration between the parties and underscores Botswana as a top-tier jurisdiction. However, the deal doesn’t come with some pain for De Beers, who had to cede a greater portion of its rough stones to Botswana amid public threats by President Mokgweetsi Masisi to torpedo Botswana’s 54-year ties with De Beers, Reuters reports.

The global supply shortages and the demand for natural diamonds indicate that the fundamentals of the diamond business are becoming more attractive, signalling potential price increases in the future and leverage to that price increase for undervalued juniors producing gems today.

Click below to watch an exclusive video produced by diamond companies including Rio Tinto, Lucara, Arctic Canadian Diamond Company, Clara Diamond Solutions, Diamonds de Canada, and JDS Energy & Mining Inc. to name a few. These collaborators have come together to bring awareness of the importance of investing in natural diamonds. | A film by PENDA Productions Inc.