Topic: Mining Stocks

Investing in Canadian diamond mines offers huge promise—but risk to match

stock dividend dates

Canada’s kimberlites have created Canadian diamond mines that offer investors huge potential, but also huge risk

Investing in Canadian diamond mines is risky business because of the time it takes diamonds to get from the exploration stage to the cash register. However, diamond mines can last up to twenty years or more, and a productive mine can hugely profitable.

In September 1991, explorers discovered the first economic diamond-bearing kimberlite deposit in Canada, located in the Lac De Gras area in the Northwest Territories, after over a decade of searching.

10 Stocks to Buy and Hold Forever

If you have six or seven of these stocks in your portfolio, good for you. These are stocks with staying power. They’ll hold their value through market setbacks—they all pay dividends, for one thing—and they’re first to move up when the market recovers.

Download this free report  >>

Kimberlites are cone-shaped pipes comprised of a mixture of magma (molten rock) and rock that is carried by volcanic activity to the surface of the earth from depths greater than 150 kilometers. Diamonds form at those depths, under a mix of extreme pressure and high temperatures. Kimberlites may also pick up diamonds along the way—sometimes in quantities large enough to justify a mine.
Charles Fipke led the way to Canadian diamond mines
Kimberlites are small—generally with a surface area of less than 12 hectares—which makes them difficult to find. However, along with diamonds, the molten rock of the kimberlite also picks up other minerals, which diamond explorers call kimberlitic indicator minerals, as it rises to the surface. The team that found the first kimberlites in Canada, led by Charles Fipke, knew it would be next to impossible to directly locate a small kimberlite pipe. However, they reasoned that they could find the pipes by tracking trails of kimberlitic indicator minerals (which are more plentiful than diamonds in kimberlite) leading away from the pipes.
Over the last 1.5 million years or so, a series of glacial ice sheets has eroded the surface of Canada. As part of that erosion, the glaciers scraped the surface of the kimberlite pipes and dispersed the indicator minerals from the pipes over hundreds or even thousands of kilometres in what have proven to be traceable patterns. The indicator minerals can survive long-distance transportation and are resistant to weathering.
Other exploration methods can aid in the discovery of kimberlite. For example, the pipes can present a different magnetic signature than the surrounding rock, and that magnetic signature often has a distinctive circular pattern.
Canadian diamond mines are hard to find and develop… but hugely profitable
Still, the discovery process is far from perfect. While the minerals’ presence indicates the existence of kimberlite, the ancient ebb and flow of glaciers makes it hard to trace which glacial advance transported the indicator minerals. As well, not all kimberlites contain diamonds, and only a few of the ones that do will hold commercial quantities.
Once a kimberlite is found, tons of rock are collected from the top of the pipe and processed. Extracting kimberlite material to check for diamonds from the ground is difficult because kimberlite wears down faster than most surrounding rock; over time, this creates depressions over the kimberlite pipes. These then fill up with water or glacial debris, making it difficult to reach the kimberlite.
If diamonds are found, further drilling and analysis is necessary to give more details about the extent of the deposit and information about its diamond content.
So far, five Canadian diamond mines have opened: 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 DeBeers Canada); and the Victor mine in northern Ontario (also owned by DeBeers).
Investing in diamond-exploration 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.

Have you invested in any of these Canadian diamond mines? Please share your experience in the 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.