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The Canadian Shield could become the world's largest producer of gem quality diamonds: investors in the junior diamond sector balance risk with the possibility of huge returns.

The discovery of economic quantities of gem quality diamonds in the 1990's catapulted Canada into a complex and intriguing industry. In less than a decade, Canada has become the world's fourth largest producer of rough diamonds and has developed a whole new economy around this brilliant little gemstone. Today, an emerging group of home-grown companies involved in every aspect of the business gives good reason to believe that Canada's involvement will continue to develop long into the future.

The diamonds mined today were formed deep in the earth billions of years ago and were delivered to the surface by a volcanic rock known as "kimberlite". Diamond bearing kimberlites are found in areas geologically known as cratons--the oldest and thickest parts of the earth's crust. The Canadian Shield is the world's largest exposed craton, making it prime hunting ground for diamond deposits.

The prospect of finding more diamond deposits has brought large international mining firms to Canada as well as a group of Canadian junior mining companies, all actively seeking Canada's next diamond mine. Many of the junior diamond explorers are led by professionals that participated in the first wave of discoveries in the 1990s, applying what they've learned in their search--and the search is proving successful.

Diamond bearing kimberlites have been discovered by junior explorers in every province and territory where the Canadian Shield is present. Since the Canadian geological community first started learning how and where to explore for diamonds, the rate of discovery of diamond bearing kimberlite has been increasing, and new discoveries are being made every year. In addition to the three operating diamond mines, there are advanced projects in Saskatchewan, Ontario, Quebec, the Northwest Territories and Nunavut. Most of these advanced projects were discovered by Canadian junior diamond explorers.

That is not to say that all diamond bearing kimberlites will become diamond mines. Economic diamond deposits are very difficult and expensive to find. Every year for the last decade, diamond explorers have spent tens of millions of dollars looking for economic quantities of diamonds in Canada and most will never find what they seek. However, the rewards are staggering for those that are successful.

The best way to illustrate the reward for success is by the examples set in the first round of economic discoveries made in the 1990s. Canada's first diamond mine, Ekati, was discovered by junior explorer Dia Met Minerals. Dia Met Minerals owned a 29 per cent stake in Ekati and was bought by a major mining corporation in 2001 for approximately $800 million. Aber Diamonds, a 40 per cent owner of the second Canadian mine, Diavik, was a junior explorer that was trading for less than one dollar per share in 1992. Today, Aber Diamonds trades for more than $40 per share on the Toronto Stock Exchange. Diamond mines are not only worth a lot of money, they are incredibly profitable as well.

Located in a remote part of the Northwest Territories, the Ekati and Diavik mines are accessed by plane for approximately nine months of the year and by a winter ice road for the remaining three months. As a result, the constructing and operating costs of these mines is exceptionally high. The cost to build the Ekati mine was approximately $900 million and the cost for Diavik was about $1.3 billion. However, these mines are so profitable that construction costs were paid back in a little more than two years for Ekati and about 39 months for Diavik.

Given these returns, it is no surprise that the Canadian junior mining industry is participating in the search for new diamond mines despite the long odds for success. And with dedicated explorers and the vast area of the Canadian Shield, Canada could become the world's largest producer of gem quality diamonds.

Bruce Counts is the president and CEO of Indicator Minerals. To learn more about Bruce Counts and the Canadian diamond industry, visit or call 604-331-5097.

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Author:Counts, Bruce
Publication:Western Standard
Geographic Code:1CANA
Date:Apr 9, 2007
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