The high stakes business of hunting Canada’s geologically fertile but desolate and inhospitable tundra regions for buried sparkling treasures is not for the faint of heart. It is also technologically and logistically very challenging. That’s why so few companies are able to stay the course.

 

Yet, Diamonds North is finally making impressive headway after scouring about 300 million acres for new diamond districts, as well as emerging diamond fields. Each of which represents home to clusters of up to three or four dozen kimberlite pipes (which are the carrot-shaped host rock formations for potentially rich concentrations of diamonds).

 

Most notably, the Company has concentrated much of its energy over the last several years towards the development of three key projects – all of which have demonstrated the early-stage potential to host at least one mine that is on par with the Northwest Territories’ celebrated Ekati and Diavik diamond mines.

 

These three projects are:

a)     the Amaruk Property in Nunavut where five diamond-bearing pipes have already been discovered and which have yielded plenty enough diamonds to warrant two bulk samples

b)     the Hepburn Project in the Northwest Territories, which is in the proximity of both of the previously mentioned diamond mines, as well as two in-development diamond deposits

c)     Banks Island Property at the most northern extent of the Northwest Territories – one of the world’s final diamond hunting frontiers

 

All told, the Company has direct and indirect exposure to around 8 million acres (greater than the size of Ireland) of North America’s premier emerging diamond districts and equally prospective diamond hunting grounds. This provides the Company with ample opportunity to generate headline-grabbing news on at least half a dozen different fronts. Not the least of which is the flagship Amaruk Project, which we are about to discuss.

 

Sparkling Diamond Results and Geochemistry at Amaruk Compare Favourably to Diavik and Ekati Diamond Mines

Five out of five is an impressive statistic. This is certainly the case when it involves the discovery of five diamondiferous (diamond-bearing) kimberlites during the Company’s inaugural drill program at the Amaruk Property last year.

 

So good so far with no barren pipes to bemoan and a multitude or additional drill targets to keep the Company sufficiently motivated for the foreseeable future. Notably, the expansive wholly-owned two-million-acre Amaruk Property that offers so much promise is part of Canada’s newest diamond territory, the Pelly Bay Diamond District.  

 

Significantly, high diamond counts have been generated from two of these pipes, namely the Qavvik and Char kimberlites. The former yielded 515 diamonds from a 379 kilogram rock sample, while the latter returned 178 diamonds from 159.35 kilograms of kimberlite. These diamonds included an abundance of good quality stones by way of very encouraging colour, shape and clarity, according to the experts. 

 

Only a tiny handful of diamonds were recovered from the other three pipes that were drilled. However, though the diamond counts are low, it is significant that all of the drilled kimberlites to date have proven to be diamondiferous, indicating that an extensively fertile diamond mantle exists beneath the sprawling property.

 

The next benchmark development for this project involves collecting much larger samples from each of the Qavvik and Char kimberlites by way of a bulk sampling program (which is a key part of a work program that has a $6 million budget).

 

A total of 6-10 tonnes will be excavated from each pipe, beginning later this month.  The objective of the bulk sampling is to obtain a representative diamond grade and size distribution for these key discoveries to better assess their economic potential.

 

Of equal importance, these pipes exhibit diamond-indicating geochemistry that is comparable to the best pipes that make up the Diavik and Ekati mines. Indeed, the importance of the discovery of high diamond counts in the first two of what promises to be many similar discoveries at this project cannot be overstated.

 

This reality is not lost on Diamonds North President and CEO Mark Kolebaba, a seasoned diamond explorationist who has worked along side the best and brightest in the business. He has also been involved in the discovery of as many as 123 pipes in the Lac de Gras region of the Northwest Territories – the very best of which are now producers at the Ekati mine.

 

Kolebaba interprets the recovery of nearly 700 mostly tiny diamonds from Qavvik and Char as auspicious indicators that Diamonds North is finally zeroing-in on a major world-class diamond field.

 

"Five out of five kimberlites drilled on the property are diamondiferous. That in itself is a very good sign. But two of the five kimberlites, Char and Qavvik, are highly diamondiferous with greater than 1 diamond per kilogram. We think this is very significant, and is driving us to collect bulk samples from these kimberlites to verify the presence of larger diamonds," he says.

 

“Given that Char and Qavvik are 35 kilometres apart, Amaruk may be the first big diamondiferous kimberlite field discovered in Canada since Ekati and Diavik. In fact, Amark clearly demonstrates the potential for a major diamond deposit similar to the Ekati and Diavik diamond mines."

 

An Emerging New Diamond-Rich District Promises a Wealth of Opportunities

However, this represents just the tip of the iceberg. Over 500 airborne geophysical targets have been generated, any number of which may yet prove to be kimberlites. By ways of encouragement, kimberlite clusters often involve between 10 and as many as 50 pipes.

 

200 targets have been singled out for further detailed ground-based geophysics within an area measuring about 90 kilometres by 30 kilometres in the central portion of the property.

 

Though the task of eventually probing many dozens of targets may seem daunting, Diamonds North has found a way to expediently test drill those that offer the best potential. Starting this year with the first 60 high-priority targets, the Company will use small, lightweight, portable reverse circulation drills to bore into each target.

 

This has proved to be an effective strategy elsewhere in Canada, especially since the crowns of kimberlite pipes in this part of the world are usually located at or near surface and have a large diameter. In the case of Amaruk, some of the targets have geophysical features measuring up to 16 hectares in size.

 

Furthermore, indicator mineral trains (which are synonymous with diamondiferous pipes) suggest that potentially more than one kimberlite cluster exists over a span of 80 kilometres on the Amaruk project. By way of explanation, kimberlites are typically found in relatively tight groupings, like the pellets from a shotgun blast, which can be spread out over as many as several dozen kilometers.

 

In turn, Amaruk is such an immensely proportioned property, that it may indeed be home to more than one constellation of sparkling pipes.

 

In addition to drilling and bulk sampling, an extensive airborne survey will be flown over the northern part of Amaruk, where kimberlite indicator trains point to the existence of a second kimberlite field.

 

In essence, the advent of a busy drill season for Diamonds North, along with two bulk sample programs, offer particularly powerful value drivers for the Company this year. This is key as this determined up-and-comer seems to have unlocked the secret to locating diamond-rich pipes in a new diamond territory that offers untapped multi-billion dollar potential. 

 

The Hepburn Project: All the Right Ingredients for a World-Class Discovery

This wholly-owned 1.5-million-acre property is situated just north of Canada’s two well-established Ekati and Diavik diamond mines, as well as the in-development Snap Lake and Gahcho Kue diamond deposits.

 

In other words, Diamonds North benefits from much-coveted real estate in the Beverly Hills (figuratively speaking) of the world’s most prolific diamond districts. We’re talking about rich diamond fields that generate immense profits in a politically stable country. And they are also untainted by the stigma of “blood diamonds”.

 

The concentration of tens of billions of dollars of diamonds within this geologically fertile region of Canada’s Northwest Territories is no coincidence. It is due to the region’s location along the western margin of the Slave Province, where ancient cracks in the earth’s crust (caused by the shifting between tectonic plates i.e. continental building blocks) has created an ideal environment or pathway for the emplacement of multiple fields of diamond pipes.

 

As well as the ideal site, an overwhelming preponderance of telltale indicators (by way of compelling mineral chemistry) also attest to the region’s status as, by far, one of the best locations in the world to find even more economic diamond deposits.

 

Moving from Land Acquisition Stage to Discovery Stage at Hepburn

A total of 21 geophysical targets over a span of about 70 kilometres have already been drill-tested on the Hepburn property this exploration season. And although no kimberlites were intersected in these drill holes, numerous high priority targets remain to be tested.

The Company remains confident that more than a handful of kimberlite pipes exist at Hepburn based on the indicator minerals recovered from till samples. Additional drilling is currently being planned to locate the source of these indicator minerals.

 

All the known targets have been identified from a geophysical survey that only covers approximately 30% of the property. The remaining 70% of this relatively virgin property is currently being surveyed with the expectation of hundreds more targets being revealed. Also, extensive til sampling and prospecting will be conducted to follow the dispersion trains of indicator minerals towards their diamondiferous source.

The Hepburn project is approximately 200 kilometres northwest of the Ekati Diamond Mine and is located along the western margin of the Slave Craton. The Slave Craton is one of the most prolific diamond producing terrains in North and South America and has positioned Canada as the third largest producer of diamonds by value.

 

To date, the Company believes that two separate kimberlite fields may exist on its expansive property holdings. Accordingly, this busy 2007 exploration program is expected to cost about $3 million, with work earnestly underway.

Banks Island Project: From Grass-Roots Exploration to the Generation of Ekati and Diavik Style Drill Targets

The third leading project that Diamonds North aims to make a priority this year is the 100%-owned 1.2-million acre Banks Island Property, which is located in the most northern extent of the Northwest Territories.

 

Only about 10% of the property has thus far been surveyed with airborne geophysics, leading to the identification of approximately 65 anomalous targets, including several high-priority targets.

 

One of them measures between 12 to 14 hectares, which could represent up to 80 million tonnes of kimberlite, according to the Company. For reference, the Ekati Diamond Mine is comprised of eight kimberlites that form approximately 78 million tonnes of kimberlite ore. A detailed ground-based magnetic survey will be completed over this target to corroborate the previous airborne survey findings. 

 

The remote Banks Island outpost has been largely unexplored and has the potential for major discoveries on par with the producing Diavik or Ekati pipes, according to Diamonds North.

 

This compelling theory is based on the presence of high quality kimberlite indicator minerals, including a high proportion of Ekati/Diavik quality G10 garnets that have been recovered from samples. Again, only a fraction of the property has as yet seen any systematic exploration, which speaks to its considerable overall potential.

Hence, the plan to complete airborne geophysics on the remaining 90% of the project area this exploration season for further target generation. In addition, the company will be more thoroughly evaluating the known high-priority targets in preparation for an imminent drill program.

 

Victoria Island Blue Ice Project: Zeroing-In on the Best of 39 Pipe Discoveries

Last but not least among the Company’s leading projects is its wholly-owned 314,000-acre Victoria Island Property that straddles both Nunavut and the Northwest Territories. This is where the potential exists for the discovery of several Jericho-sized deposits.

 

Jericho is a small diamond deposit near the Hepburn Project area that has an in-situ value (its appraisal before mining costs) of more than $600 million, based on 5.5 million tonnes, grading 0.85 carats per tonne.

 

Thanks to the deep pockets of a former major mining partner, considerable exploration has already been conducted on this small property, leading to the discovery of 39 kimberlite pipes. More that 80% of these pipes have proved to be diamondiferous. But due to their small size, the Company’s joint venture partner decided to move on, returning its interest in the project to Diamonds North.

 

The legacy of this fortuitous development for Diamonds North is that it has acquired an outright interest in this diamond field in return for a fairly small outlay of exploration dollars. Among the highlights to date is the discovery of a 0.74 carat diamond at the King Eider pipe, which also yielded an impressive weighted average of 1.6 carats per tonne from a 680 kilogram sample.

 

Furthermore, several other pipes have also returned high diamond counts and favourable stone size distribution. This suggests that the presence of smaller high-valued diamond deposits may be in the offing.

 

Strength and Leveraged Opportunities through Diversification

Diamonds North adheres to a shrewd strategy of strength through diversification. By optioning out properties to five other joint venture partners, the Company is involved in a veritable pipeline of compelling secondary projects.

 

Indeed, the fact that the joint venture partners paid for the lion’s share of the exploration work provides Diamonds North shareholders relatively risk-free exposure to any number of other multi-billion dollar opportunities. It also guarantees a potent flow of news developments that are sure to add considerable intrinsic value to the Company’s share price. 

 

Time and space constraints prevent us from talking about all of Diamonds North’s other joint ventures. However, we have singled out two of them for special consideration.

 

The first is the Siku Project which is expected to be drilled later this year and thus may prove to be another important value driver for Diamonds North and its 50/50 joint venture partner, Arctic Star Diamond Corp. 

 

Situated in the Franklin diamond district several hundred kilometers to the southwest of the Amaruk Project, the Siku Property surrounds the Darby Project on three sides. The Darby Project is where mining heavyweight Teck Cominco Limited and its junior partner, Indicator Minerals Inc., discovered five kimberlites in 2006, including an 11-hectare pipe.

Drilling is anticipated on the Siku Property following the completion of the airborne geophysical survey. Based on indicator minerals, geophysics, and proximity to Darby, the Franklin kimberlite field is believed to extend onto the Siku claim blocks. This theory becomes all the more tantalizing considering that at least a dozen high-priority targets have already been identified at Siku.

 

A second important project that is scheduled for drilling later this year is the Ualliq Property. Diamonds North has signed an option agreement allowing International Samuel Exploration Corp. to earn up to a 30% interest in the project area.

 

The property is adjacent to the diamond-laced Amaruk project area as is only 20 kilometres away from the Qavvik pipe. Encouraging diamond indicator mineral findings and airborne geophysical survey data (covering only 10% of the property so far) suggest a new diamondiferous kimberlite field may exist on the Ualliq property.

 

Accordingly, a $1 million exploration budget will involve geophysical surveying over the main Ualliq indicator mineral train, detailed geophysics on up to 50 targets and the drill-testing of up to 12 of the highest priority targets.

 

For more information on the Company’s other option/joint venture agreements, please visit www.diamondsnorth.com.

 

Technical Overview

Diamonds North has approximately 53 million shares outstanding (about 61 million shares fully diluted) which represents a relatively tight share structure considering that the Company’s projects have seen approximately $45 million in exploration expenditures to date.

 

That said, Diamonds North has successfully leveraged its property assets through a number of present and past option/joint venture agreements. In fact, of the $45 million spent prior to mid 2006, about $30 million was funded by partners and the balance by the Company.

 

Again, this paid for the systematic exploration of dauntingly expansive tracts of land, while minimizing dilution of the Company's shares. Furthermore, the majority of the $15 million of Diamonds North’s own money that was spent was recovered through the formation of Uranium North which generated about the same dollar figure in value for Diamonds North shareholders.

 

The Company also has about $7.7 million in cash-on-hand and about $4.3 million in marketable securities by way of its holdings of sizeable share positions in several of its publicly traded joint venture partners. This means that Diamonds North can accelerate the pace of its diamond discovery and development programs without the need for further stock dilution any time soon.

 

Investment Summary

Diamonds North certainly benefits from the best land package of all of Canada’s exploration juniors and is the dominant land holder in two known diamond districts. One of which is home to two established diamond mines that together have an in situ value of about $20 billion. Additionally, two other proximal diamond deposits are likely to soon start generating big bucks. 

 

These two diamond fields are where the Company is generating particularly impressive results now that it has graduated from the land acquisition stage to the discovery stage. In short, these diamond hot spots are where there exist the best odds in favour of one or more world-class discoveries.

 

Indeed, such epic finds may yet present themselves as early as this year following hard on the heels of at least two aggressive drill programs. That said, Diamonds North has a meaningful stake in several other key diamond plays, any one of which could also come up trumps. 

 

Meanwhile, the Company’s share price is currently marking time ahead of the commencement of drilling on several fronts, as well as bulk sampling and other important exploration initiatives. Hence, the stock seems to be poised for a news-driven breakout that promises to rally past last year’s highs and well into uncharted upside territory.

All told, patient shareholders are blessed with multiple “blue sky” opportunities for meaningful ownership in Canada's next diamond mine. However, in the short term, SmallCapMedia believes that 2007 will prove to be a banner year that will set the Company’s stock on a sustained trajectory towards a glittering future.