The diamond and specialty minerals stocks box score for Monday was a mediocre 88-111-111 as the TSX Venture Exchange slipped two points to 677. Ewan Mason and Ken MacNeill's Star Diamond Corp. (DIAM) rose one-half cent to 13 cents on 186,000 shares.
Star remains silent about the "enormous amount of data" it received in early March from Rio Tinto Exploration Canada Inc. (RTEC), its seemingly disillusioned co-venturer at the FalCon project in central Saskatchewan. Silence about important information is never a good thing with diamond juniors, especially with the limited public data pointing to a weaker grade. Still, there is a potential silver lining on the valuation side of the equation, one that makes the silence more perplexing.
At the end of May, George Read, Star's senior technical adviser, rolled out dollops of enthusiasm about the haul of Type IIa diamonds recovered in the 10-hole bulk sample RTEC collected using a Bauer trench cutter in 2019. Mr. Read cheered the Type IIa gems endlessly, as he has been wont to do for more than a decade, but he also provided appraisals for the 12 most valuable diamonds recovered in the test, as assessed by the Saskatchewan Research Council.
Nine of the 12 stones were Type IIa diamonds, Mr. Read gushed, with a chorus of retail investors cheering along. The news got Star's stock back to the 30-cent mark briefly, as the market swallowed the enthusiastic hope that a high proportion of Type IIa diamonds would translate to the recovery of one-thousand-carat, flawless diamonds, just like those that occasionally pop out of the Karowe mine in Botswana to the benefit of Lucara Diamond Corp. (LUC: $0.65.).
That may well happen -- there is no doubt about the coarse size distribution profile of the diamonds in the Star and Orion North pipes at FalCon -- but based on the several larger Type IIa gems recovered that did not make the list, the FalCon pipes appear not to have quite the same proportion of impeccable value attributes as do the Karowe diamonds.
Or might they? Well, perhaps: The combined value of the dozen most valuable diamonds works out to $358,130 (U.S.). Spread across the full 1,428.9 carats of diamonds recovered from the Early Joli Fou kimberlite in the Bauer test, that works out to $250 (U.S.) per carat even without any value being ascribed to the other 1,348 carats. That is not unusual. As Grenville Thomas once said about his mid-1990s Diavik bulk sample, all 12,000 carats from a 3,000-tonne test would fit in a one-pound coffee can, but those accounting for 70 per cent of the value would fit in a shot glass.
It appears realistic to expect that the 12 largest diamonds in the Bauer test might account for two-thirds of the total parcel value, leaving the full parcel valued at roughly $375 (U.S.) per carat. That is an eyebrow raiser, as Star Diamond's most recent appraisal and modelling of the EJF diamonds, completed in 2015, came in at about $227 (U.S.) per carat. Diamond prices were higher when SRC did the current valuation -- probably 30 per cent higher -- but even so, the previously modelled value would have translated to about $325 (U.S.) per carat early this year.
It is unclear why Star Diamond, while it hypes its Type IIa gems endlessly, fails to hop aboard the valuation bandwagon. It is true that the Bauer parcel is considerably smaller than the well over 7,000 carats the company collected from its underground dig and large diameter drilling, and those diamonds will therefore heavily influence the overall result toward the earlier projection. Still, it is not as though the Bauer test was markedly skewed by one fluky find: The most valuable diamond weighed $110,000 (U.S.), less than the combined value of the second and third most valuable diamonds.
Still, there was an influence, and it is worthy to note that the five most valuable diamonds came from just two of the 10 Bauer holes -- No. 5 and No. 7 -- adjacent tests dug just east of the underground workings. Even so, such a nugget effect is to be expected and however large the statistical error of small samples of rare items might be, it is always better to be on the promotable side of a margin of error than the alternative.
What the Bauer test does show, is that while the grade appears lower than the earlier Star estimates, the diamond value does appear to be there and might at least partially compensate for a lower grade, especially if rough prices remain strong. And so, given what the Bauer results suggest, RTEC's decisions to mothball the project and ponder an exit leave Star's shareholders perplexed.
Of course, major uncertainties still abound, nearly 20 years into the assessment of the FalCon kimberlites, and as Newmont Corp. (NGT: $59.27) decided 14 years earlier, RTEC may choose to move on rather than deal with the multibillion-dollar risks that diamond grade and valuation uncertainties still imply.