Despite reasonably robust levels of activity in Canadian diamond exploration, the market has “completely lost interest” in the sector, says independent analyst and editor and publisher of the well-respected Kaiser Bottom-Fishing Online, John Kaiser.

According to statistics from Natural Resources Canada, total spending on diamond exploration and development reached about C$308-million in 2007, more than double what it was ten years ago.

However, investors have of late been left cold by the long and expensive waits between discovery and production, as well as by the absence of a “blockbuster discovery” over the last ten years, Kaiser told Mining Weekly Online.

“A lot of good work has been done, but at a cost of heavy stock dilution and a diminishment of upside price potential for early investors.”

Kaiser also points out that the three established miners which do have producing assets in Canada - BHP Billiton, De Beers and Rio Tinto - have largely scaled back their Canadian diamond exploration, “and have exposure only in the form of back-in rights for certain projects handed off to the juniors, who must make a major new discovery during the next couple years to prevent diamond exploration from disappearing entirely".

The search for diamonds in Canada is largely confined to the country's vast and icy north, which adds to the cost and timeframes for exploration and development.

Canada's first diamond mine, BHP Billiton's Ekati mine, opened in the Northwest Territories in 1998, followed by the Diavik operation, owned by Rio Tinto and Aber Diamonds (now Harry Winston), in 2003.

A third mine, Jericho, started production in the Nunavut territory in 2006, but was placed on care and maintenance this year after its owner, Tahera Diamonds, ran into funding trouble.

Most recently, diamond giant De Beers opened its first mines outside Africa - the Snap Lake mine, located 220 km north-east of Yellowknife, in Canada's Northwest Territories and the Victor mine, in Ontario.

As far as new discoveries are concerned, Kaiser says areas of interest include Peregrine Diamonds' “decent-sized pipe” on South Baffin Island, Nunavut, Diamonds North's Amaruk asset, also in Nunavut, and the MacKenzie craton, in the Northwest Territories, where Santana Diamonds is making encouraging progress .

Finally, there may be some “surprises” out of northern Ontario, around the Kyle and Victor pipes, where companies are looking not only for diamonds but also base metals.

“Because the targets are in the Archean basement rocks covered by up to 200 m of 200-million year old limestones, drilling might generate some kimberlite surprises,” comments Kaiser.

CANADA'S NEXT DIAMOND MINE?

According to Kaiser, the most likely source of new diamond production – discounting additional mines at the Ekati or Diavik operations – is the Gahcho Kue project, co-owned by De Beers and Toronto-based Mountain Province Diamonds.

Gahcho Kue, in the Northwest Territories, was discovered more than a decade ago, but development has been delayed by lengthy permitting processes, as well as a decision a year ago to include the Tuzo kimberlite in the initial mine plan, rather than waiting to develop it in ten years or so, when the other two primary pipes were mined out.

Gahcho Kue has a resource of some 50-million carats, giving it a gross value of some $5-billion to $8-billion at current diamond prices, Kaiser estimates.

The project, which is scheduled to start production in 2012, made headlines last month, when Mountain Province, which owns 49% of the project, announced that a 25,13-ct gem quality diamond had been recovered from a bulk sample taken from Tuzo.

The second most likely diamond project to come on-stream in the medium term is the Renard cluster, in central Quebec, owned by Stornoway Diamond Corporation and the Quebec government's Soquem.

However, “a prefeasibility study is now overdue by several months, and the concern is that the project is marginal,” Kaiser said.

“The hoped-for outcome is a 20-million carat resource with a gross value of $2-billion,” but Renard could require additional exploration to grow the resource and bring more clarity to the complex pipes.

That said, Kaiser points out that the fact that government-owned Soquem is a 50% shareholder could mean pressure to put the project into production even as a breakeven operation.

Finally, although Saskatoon-based Shore Gold's Star prospect, in Fort a la Corne, has received a lot of limelight in the last few years, Kaiser said that the company's recently published resource estimate would not support a standalone mine.

Shore also has a joint venture at Fort a la Corne with gold major Newmont Mining, and he expects that Newmont will likely look at buying Shore, so that it could consolidate the field.

However, as any proposed mine would still require the necessary studies, consultations and approvals, production is not likely before 2015, if the project is even found to be viable.