Topic: Mining Stocks

What is one of the most promising Canadian diamond stocks?

Canadian diamond stocks

Here’s one Canadian diamond stock for aggressive investors.

Diamonds are a transparent form of pure carbon, and their dense crystal structure makes them the hardest substance known.

Aside from jewelry, they’re widely used for machining plastic, glass and metal. Diamonds’ resistance to wear makes them essential for automated processes that produce many copies of the same product, while their hardness makes them useful as an abrasive and grinding material. They’re also used in knives, scalpels for precise surgery and dental drills.

So far, established Canadian diamond stocks have developed five mines in Canada:

  • the Ekati mine in the Northwest Territories, which developed from Charles Fipke’s discovery;
  • the Diavik mine in the Northwest Territories;
  • the Jericho mine in Nunavut;
  • the Snap Lake mine in the Northwest Territories (owned by De Beers Canada);
  • and the Victor mine in northern Ontario (also owned by De Beers).


Mining stocks—the inside story

Mining stocks play a key role in your portfolio whether commodity prices are up or down. Pat McKeough tells you why in this special report—and gives you the outlook on gold, copper, uranium, and the remarkable story of Canadian diamonds.

 

Learn more  >>

 


De Beers once produced about 90% of the world’s diamonds by number of carats. Its output is now about 35% of the world total, but the company remains a major factor in global diamond production and De Beers continually aims to boost its share of global diamond marketing.

Here’s one project that is influencing Canadian diamond stocks:

Stornoway Diamond Corp., $0.81, symbol SWY on Toronto (Shares outstanding: 825.0 million; Market cap: $671.2 million; www.stornowaydiamonds.com) owns 100% of the Renard diamond mine in north central Quebec. It also owns interests in two exploration properties in Nunavut and Northern Ontario.

The Renard mine began commercial production on January 1, 2017. It is Quebec’s first diamond mine; the Quebec government owns 29% of Stornoway. The original budget to open the mine was $811 million; it actually cost $774 million and opened six months early.

In the first 10 years of its 14-year mine life, Stornoway expects to produce 1.8 million carats annually which represents 1.5% to 2.0% of annual global diamond production. The mine’s processing plant is run by liquiefied natural gas, the first Canadian mine to do so.

The company estimates that mine will produce total revenues of $4.6 billion over its 14-year life, with after-tax profits of approximately $974 million.

Renard is Stornoway’s most advanced project, but its Aviat project, on the Melville Peninsula in the eastern Arctic, also holds promise. It has a 90% interest in that project. Stornoway also has a 20% interest in a diamond exploration program in Timiskaming, Ontario that’s operated by North Arrow Minerals.

As of December 31, 2016, Stornoway held cash of $86.0 million, or $0.10 a share. Its long-term debt of $231.7 million is a reasonable 34.5% of its market cap.

Stornoway has successfully opened its mine….but its growth prospects are limited. There is room to expand its reserves with further exploration, and global diamond prices are recovering. However, the company will now need to find a new mine or make an acquisition to spur growth. Whether it can do that is uncertain.

Stornoway Diamond Corp. is okay to hold, but only for aggressive investors.

Should you invest in Canadian diamond stocks?

Investing in Canadian diamond stocks is risky. It’s a long way between the exploration phase and commercial production, when they begin to produce diamonds for sale and start making money. As well, there’s often a long time lag between news of progress toward a mine, and share prices can drift down in the meantime.

However, finding diamonds in mineable quantities can be hugely profitable. For example, the $700-million Ekati mine started up in 1998 and is generating over $500 million a year in revenue; it has an expected life of more than 20 years.

Cut your risk in the volatile resource sector by investing mainly in Canadian diamond stocks with profitable, well-established mines with high-quality reserves. For that matter, resource stocks (and this includes oil and gas, of course) should make up only a limited portion of your portfolio—say less than 20% for a conservative investor or as much as 30% for an aggressive investor.

While we think you should maintain some exposure in resource stocks, you should still aim for balance among all of our five main economic sectors: Resources & Commodities, Finance, Manufacturing & Industry, Utilities and the Consumer sector. You should always resist the temptation to load up on mining stocks, no matter how attractive they appear. If the market does go into a downturn, these stocks could suffer more than average.

What’s a mining stock?

Mining stocks are investments in companies that produce or explore for minerals, such as diamonds, uranium, coal, molybdenum (which is used in steelmaking), copper and silver. Many would-be mining stocks are just promotional vehicles, but a select few are well-run corporations. The more efficient a mining company is at finding minerals and extracting minerals, the more profitable it will be.

Mining stocks can in general be broken up into two categories, majors and juniors. Majors are mining companies that have been in the mining business for many years and more often than not they operate on a global scale. Majors have proven methods for exploration and mining, and have consistent output year over year.

Junior mining stocks are mining companies that are new or have been in business for a decade or less. They are usually smaller companies and take on risky mining projects. But if a junior mining stock is successful at finding and mining a mineral deposit, it can mean huge returns for investors.

Do diamonds better as jewelry or investments? Please share your experience in the comments.

Comments

Tell Us What YOU Think

You must be logged in to post a comment.

Please be respectful with your comments and help us keep this an area that everyone can enjoy. If you believe a comment is abusive or otherwise violates our Terms of Use, please click here to report it to the administrator.