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—IN CANADA—

renard, gahcho kué, cross the finish line

nOVEMBER | 2016

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BoB gannicott’s lasting legacy

DecoDing the

diamond market

complimentary Pm no. 40069240

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ntent

Contents 10

November 2016

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Editorial —IN CANADA—

RENARD, GAHCHO KUÉ, CROSS THE FINISH LINE

+

NOVEMBER | 2016

BOB GANNICOTT’S LASTING LEGACY

DECODING THE

DIAMOND MARKET

Complimentary PM no. 40069240

on the cover: stornoway diamond’s renard mine, in Quebec, will be in commercial production by the end of 2016. credit: stornoway diamond

the millennial mindest . . . . . . . . . . . . . . . . . . . . . . . 4

lucara’s cash position builds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

two nEw rEasons to cElEbratE canadian diamonds

pErEgrinE EyEs first production by 2021

gahcho kué and renard come online By Alisha Hiyate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

By Lesley Stokes and Matthew Keevil . . . . . . . . . . . 18

dEcoding thE diamond markEt

kEnnady’s kElvin Earns high gradEs . . . . . . . . . . . . . . . . . . . . . . . 20

a Q&a with rBc mining analyst des kilalea . . . . . . 10

bob gannicott’s lasting lEgacy

diamond association targEts millEnnials . . . . . . . . . . . . 21

remembering one of canada’s diamond pioneers By Alisha Hiyate . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

digital copy available to subscribers at www.northernminer.com

80 Valleybrook Drive, Toronto, ON M3B 2S9 Phone: (416) 510-6768 Fax: (416) 510-5138 E-mail: ahiyate@northernminer.com

Publisher: Anthony Vaccaro

editor: Alisha Hiyate

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Production MAnAger: Jessica Jubb contributing Writers: Lesley Stokes & Matthew Keevil

Printed in canada. All rights reserved. The contents of this publication may only be reproduced with the written consent of The Northern Miner. Issue price: $6.00

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The ‘Real is Rare’ campaign, seeks to associate diamonds in the minds of millennials with the cohort’s desire for authenticity.

The millennial mindest

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orn between 1981 and 2000, the millennial generation will reach their highest earning potential in another 10 years. That makes them an important age group in terms of current and future diamond demand, and one that the diamond sector is actively courting. De Beers’ 2016 Insight Report includes detailed research on millennials in the world’s largest diamond markets. Conducted over three years, the research includes insights generated from interviews with more than 75,000 women in the United States, China, India and Japan about their attitudes towards diamonds. De Beers’ research indicates that contrary to popular perceptions, millennials are just as interested in diamonds as previous generations. In fact, the market share among 18-34 year olds in terms of diamond purchases has remained relatively stable since the late 1990s. But it also acknowledges that millennials don’t consume luxury products the same way as previous generations and that they struggle with more financial challenges than previous generations did at the same age. And while millennials place diamonds high on their gift wish lists, overseas holidays, weekend getaways and personal electronics are all more coveted than diamond jewelry. To get diamonds higher up on the millennial wish list, the Diamond Producers’ Association (DPA) has launched a new marketing campaign. The “Real is Rare” campaign, seeks to associate diamonds in the minds of millennials with the cohort’s desire for authenticity in relationships and the value

they place on individuality (See Page 21). If it can speak to and connect with millennials, maybe one day the campaign will have the same ring as De Beers’ famous line: “A diamond is forever.” Canada’s newest diamond producers, the Gahcho Kué and Renard mines, in the Northwest Territories and Quebec, respectively, are coming online at a time when analysts see rough diamond prices likely to remain stagnant for several years (see Page 10). But thanks to the high-margin nature of most diamond mines, the conservative assumptions used in the feasibility studies of both Gahcho Kué (owned by De Beers and Mountain Province Diamonds) and Renard (owned by Stornoway Diamond), and the quality of stones they are expected to produce, both mines are resilient to any weakening of rough prices. Stornoway president and CEO Matt Manson explains that in its updated mine plan in March 2016, the company dropped modelled diamond prices by 19% from its last valuation in March 2014. “We still had a 58% operating margin after tax, after stream, based upon those reduced prices,” Manson says. “If you look at the cost curve for the diamond mining business, it’s a higher margin business than most metals sectors — there are very few truly marginal diamond mines.” Read more about Canada’s two newest diamond mines on Page 5.

As ever, we welcome your feedback at ahiyate@northernminer.com.

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Renard & Gahcho Kué:

The Renard mine site in north-central Quebec. The mine is the first diamond mine in Canada with all-weather road access. Credit: Stornoway Diamond

Two new reasons To celebraTe canadian diamonds By AlishA hiyAte

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The Gahcho Kué mine opening in September. Credit: Mountain Province

t’s been nearly a decade since Canada, the world’s third-largest diamond producer, has added any significant new production. But this fall has seen two new mines come online within just weeks of each other. In the Northwest Territories, De Beers and Mountain Province Diamond’s (TSX: MPV; NYSE: MDM) 51%-49%-owned Gahcho Kué mine officially opened in September, while Quebec’s first diamond mine, Stornoway Diamond’s (TSX: SWY) Renard, was slated to celebrate its opening just after presstime in mid-October. The path from discovery through development to production hasn’t been easy for either project. “It’s been a very long journey for Mountain Province,” said company president and CEO Patrick Evans in an interview in October, reflecting on the official mine opening. “We discovered Gahcho Kué in 1995,” he noted, adding that he’s been involved with project for 11 of the 21 years that have passed since then. “The feeling I think on the part of just about everyone was enormous satisfaction that we’ve finally been able to bring this asset to account.”

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Open-pit mining at Renard, Quebec’s first diamond mine. Credit: Stornoway Diamond

De Beers Group CEO Bruce Cleaver noted in a press release that Gahcho Kué is the diamond giant’s largest ever mine outside of South Africa. “Allied to our major investments in production capacity expansion in the southern African region, the opening of Gahcho Kué positions De Beers and its partners strongly to capitalize on the industry’s positive demand outlook,” Cleaver said. De Beers is the operator of the mine. For Renard, which was discovered by Ashton Mining and Quebec provincial agency SOQUEM in 2001, the path has been a little shorter, but no less harrowing for Stornoway Diamond, which bought Ashton in 2007 and gained 100% of Renard in 2011. “This company has had a couple of near-death experiences over the last 15 years,” president and CEO Matt Manson told investors at the Denver Gold Forum in September, happily contrasting those experiences with the company’s current position.

Ramping up Gahcho Kué, which De Beers notes is the world’s largest new diamond mine since 2003, will add 4.5 million carats per year to global diamond production. The $1-billion mine has a 12-year mine life based on probable reserves of 35.4 million tonnes grading 1.57 carats per tonne for 55.5 million carats. Stornoway’s Renard will produce 1.8 million carats per year for its first 10 years of operation. The first mine in Canada that can be accessed by an all-weather road, Renard has a mine life of 14 years based on probable reserves of 22.3 million carats in 33.4 million tonnes grading 67 carats per hundred tonnes.

Construction and ramp-up of both mines has been relatively smooth, with commercial production expected to be achieved up to six months early at both mines. De Beers is now targeting January 2017 (originally the third quarter of 2017) and

The job’s not done until we’ve demonstrated the potential of the project as an operating mine...

— Matt Manson, Stornoway Diamond president and CEO

Stornoway is targeting year-end at Renard, up from mid-2017 previously. Despite the positive news, the owners of both mines are cautious about appearing too upbeat too soon. Manson is mindful that achieving production isn’t the last hurdle the company has to face. “Everyone’s very conscious that we’ve had a very good build, we had a successful financing, we’ve had a very good construction — ahead of schedule, below budget — but the job’s not done until we’ve demonstrated the potential of the project as an operating mine and that’s a ramp-up process,” he says. “There’s a reason why you don’t just switch on a mine and you’re processing ore at 100% from Day 1.

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Now, it has to reconcile its reserves with actual production — something that is much more complicated for a diamond mine than a metals mine.” Rampup, which started in mid-July — a full 10 weeks ahead of schedule — is a nine-month process. “To reconcile against our expected dollar revenue, we’ve gotta reconcile, grade, size distribution and quality of diamonds. And then we’re selling these diamonds in a market that goes up and down on a monthly basis — which is a fifth variable on what dollars we get. “So we’re really at the very beginning stage of understanding what this mine is going to produce.” At full production, the Renard plant will process 6,000 tonnes a day, with an expansion to 7,000 tonnes per day planned for 2018. Mining at both operations has been straightforward, but getting the Gahcho Kué diamond plant up to speed has presented run-of-the-mill teething problems. For example, Evans says, there were some electronic issues with the high-pressure grinding roll in the plant — a problem that necessitated bringing in an engineer from Switzerland.

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However, all the technical issues have now either been resolved or are in the process of being resolved, Evans says. At full production, the plant will handle 8,000 tonnes per day. At Renard, the main ramp-up issue has been figuring out how to dewater processed kimberlite to create dry-stack tailings. “The creation of the cake, getting the balance of that right, the quality of the water that’s then extracted, the amount of fine material that’s still in there, what we do with that water — those have been the issues that have caused the principal teething issues that we’ve had to work through,” Manson says. “That’s a work in progress and we’ll get there.” Actual mining has gone very well with the company mining more kimberlite than expected because of greater volumes of high-grade hypabyssal kimberlite in the country-rock breccia material it’s currently mining and stockpiling. “It turns out the hypabyssal kimberlite is in there in big 5- to 10-metre wide blocks that we can actually mine selectively. So rather than send that material to a low-grade stockpile, it’s been going to the high-grade stockpile.” Production for Renard’s third quarter was 111,556 carats attributable to Stornoway. The company will see its first cash flow

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Gahcho Kué open pit. Credit: Mountain Province Diamonds

in mid-November when it has its first diamond sale. While it will first mine the Renard 2 and Renard 3 kimberlites by open pit until 2018, Stornoway’s mine plan calls for underground mining exclusively at Renard 2 between 2018 and 2027. Development of the ramp at Renard 2 fell behind in late 2015, when the company hit a fault that sent a lot of water into the workings. Development stopped while the company trucked in a few hundred tonnes of grout to plug the leak. “It hurt us on time but it didn’t hurt us on budget because we have the road,” Manson said, noting that an Arctic mine experiencing the same issue at a time when the ice roads were out of service would have to fly the grout in at a much higher cost. Development of the ramp fell behind to 72% of plan early this year, but it’s expected to be back on schedule by the end of 2016.

Economic resilience Gahcho Kué and Renard are starting production in an uncertain time for diamond prices. Last year, rough prices fell by at least 15% and while prices have recovered somewhat in 2016, RBC Capital Markets mining analyst Des Kilalea doesn’t see any upside to prices for the next few years because of sluggish demand outside the U.S. combined with new production coming online by mid-2017 that will total 10 million carats a year. However, the economics of diamond mines are generally quite resilient to any slide in rough diamond prices, Manson notes. “If you look at the cost curve for the diamond mining business, it’s a higher margin business than most metals sectors — there’s very few truly marginal diamond mines,” he says. “When

The number and quality of special stones (being recovered at Gahcho Kué) is very encouraging.

— Patrick Evans, president and CEO of Mountain Province Diamonds

the diamond price fell 25% during 2015, you didn’t see diamond miners shutting down during that period.” De Beers’ Snap Lake, which has always been a marginal mine, was the exception, Manson notes. “There are a lot of good projects up in the top two quartiles, and Renard is one of those. I think other sectors in the mining business are less high margin, more exposed to volatility in their commodity price.” In March 2016, Macquarie Research projected that Gahcho Kué would have an 80% operating margin and Renard a 65% operating margin. Stornoway pegs its cash operating margin at 59% or $120 per carat. Helping to insulate both mines from any potential further slide in diamond prices are the special stones — gem-quality diamonds larger than 10.8 carats — that they contain. At Renard, 21 special stones were recovered in its first quarter continued on pg.22

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Q&A

Rough stones from Petra Diamonds’ Finsch mine, in South Africa. Credit: Petra Diamonds

Decoding the diamond market With a dismal 2015 in the rear-view mirror, the first half of 2016 saw surprisingly strong demand for rough diamonds. However, with new production coming online from several mines in the next year, investors likely won’t be able to rely on buoyant rough diamond prices to fuel diamond miners’ share prices, says Des Kilalea, a mining analyst with RBC Capital Markets. In an interview with Diamonds in Canada in late September, Kilalea explained recent trends in the market, and what they’re likely to mean for rough diamond and equity prices in 2017 and beyond. Diamonds in Canada: Can you summarize the current state of the diamond market and what’s happened over the last couple of years in terms of rough prices? Des Kilalea: Last year was pretty bad. Rough prices were down at least 15% and in some cases, prices — particularly in some of the smaller goods — were down way more than that. The first half of this year saw a modest recovery, so we’re probably up a few per cent this year in rough, but there was a very big sales season where the miners, particularly De Beers and Alrosa (RTS: ALRS) sold lots and lots of diamonds in the first six months — more than they produced; they sold plenty from inventory. So there’s quite sizeable rough and polished in the market right now and it remains to be seen how the market clears over the busy year-end jewelry sales period. It’s fairly balanced at the moment — a good jewelry sales period at the end of the year and then we’ll probably see reasonable diamond prices — not up, but reasonable diamond prices next year.

DK: The demand was a result of rough diamond buyers being very quiet in late 2015 because of tight liquidity and excess polished inventory. As they sold the polished, they needed to replace inventory and this led to increased demand for rough. For the demand to continue, there will need to be a sound jewelry sales season at year end — from Diwali to Christmas, Chinese New Year and Valentine’s Day. DiC: When do you see the potential for rough prices to start to pick up? DK: Not for some time because we’ve got Gahcho Kué and Renard coming onstream this year, as well as (Firestone Diamonds’ [LSE: FDI]) Liquobong in Lesotho, extra production

An Alrosa mine in Yakutia, Russia. Credit: Alrosa

DiC: Where was that unexpected demand coming from in the first half of the year, and is it sustainable through the second half and into next year?

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from Petra Diamonds (LSE: PDL) and other small production. I think the scope for rough price increases over the next three to four years is limited unless retail demand picks up strongly. DiC: In this environment with all this new production coming online, which producers are likely to fare the best? DK: Well, the new producers are in reasonably good shape because they’re fully funded. Stornoway Diamond (TSX: SW Y), Mountain Province Diamonds (TSX: MPV) and Firestone have projects coming on — it’s not the best time to bring on projects given that there’s a lot of rough around, but there’s no financial pressure on them. They’ve got some debt to pay back, but no great financial pressure and their margins still look pretty good. Anybody starting out on projects right now — that’s much more difficult. Dominion Diamond’s (TSX: DDC; NYSE: DDC) starting on projects — it’s got a good balance sheet, but it’s got a lot of money still to spend at a time when diamond prices won’t help as much as they might have a few years back. Most of them are in a reasonably OK position provided De Beers and the Russians are restrained in their sales, which they have been. And that’s probably important — De Beers and the Russians have been very accommodating to the market, and so they should because they’re the ones who’ll lose the most if prices are very weak. So it’s a positive that the big guys have shown an inclination to be careful about how they supply the market. DiC: You mentioned in a recent research note that most of the new supply coming on is coming from price-takers: unlike De Beers and Alrosa, they’re not going to hold back supply if the demand isn’t there. Stornoway has made it clear that his company’s focus is going to be on the mining side — controlling mining costs and things like that rather than marketing. Is that a good call for the smaller guys? DK: The new miners don’t intend to hold goods back from the market; they will sell production. They are in quite a comfortable position because individually they aren’t going to move the market. Renard

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will be producing +1.5 million carats a year and Gahcho Kué rather more, but even so, that’s compared to global production of 130 million carats. They’re not in a position that if they withheld production it would really change the market. So they’re right, they’ve got to sell everything they can. They’ll be price takers and they’ve accepted that and they’ll make sure that their costs are in such a state that they will be able to make money throughout.

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DiC: You’ve got an outperform rating on Stornoway Diamond, which is bringing its Renard mine in Quebec online. Can you tell me what the value proposition is there? DK: It’s a new project, it probably has a large-diamond distribution, which we’ll need to see. It is relatively attractive in relation to its underlying value, and it’s well managed. So that’s why we like it and similarly for Petra, which we also have an outperform rating on. We also like the project of Mountain Province very much — we think Gahcho Kué is a great mine and will see life beyond what is being projected at the moment. DiC: When I spoke with Matt Manson, the CEO of Stornoway recently, he mentioned that the margins on diamond projects are quite high compared to metals projects generally. DK: Correct. In general, many of the most profitable mines in the world are diamond mines such as Jwaneng, Karowe, Orapa and the new Canadian mines. I’m more negative on diamond prices than most people in the near term because of the new production coming onstream and demand being slightly less robust than we would have thought a few years ago because China’s not growing as much

Stornoway Diamond’s Renard mine in Quebec. Credit: Stornoway Diamond

as expected. But post-2020, there’s very little new production coming onstream and there’s a list of mines which are likely to close down (Argyle, Ekati ex Jay, Victor, etc). There will be Jay, but Jay’s only replacement production for Ekati, it’s not new. So the outlook post-2020 looks pretty good. DiC: Lucara Diamond (TSX: LUC) has produced some exceptional diamonds but their most impressive diamond, the 1,109-carat Lesedi La Rona failed to sell this year. They are now putting in a Mega-diamond recovery circuit at their Karowe mine to recover more stones bigger than 1,000 carats. How big is the market for such large stones and do they risk oversupplying it? DK: The 1,109-carat diamond did not “fail to sell.” Lucara decided not to accept the effective $68-million bid because it believes it will get more for the stone. While the bid was $61 million, Lucara would also have received the 12% buyer’s commission, I believe. The market for these mega stones is not large and that is why Lucara looked into a different selling method. Lucara can afford to be selective in the way it sells such diamonds because its run-of-mine production is so profitable and cash generating. Lucara has just announced a second exceptional stone tender; the one in April fetched $51 million, and it appears demand for these stones has been resilient. DiC: You noted recently that there’s an ongoing issue with liquidity in the mid-stream (which is basically everyone in the middle of the diamond pipeline in between the miners and the retailers). Is there another potential source of liquidity that could relieve this pressure on the mid-stream? DK: Not in any quantity. The key is that the mid-stream has got to slim down. There’s just been too much in the mid-stream — too much debt, too much inventory and it was unhealthy. In a way, it created some of the issues we’re seeing now. There was too much polished for a reason and that’s because the guys in the mid-stream had debt. It’s better that the mid-stream becomes more rational: We need less working capital in the mid-stream, not more. DiC: This sounds like it’s going to be a long process.

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create awareness of diamonds as a product and compete with products like man-made diamonds and other luxuries, then I suspect the budget’s not big enough. And then it’s going to be the question about how you get the big producers in particular to put their hands in their pockets to increase the budget. I think the budget will end up being too small. But it’s essential that they do something. DiC: Demand for diamonds in the U.S. is still pretty strong, but what about in China and India? DK: Yes, but a healthy one. We’ll see businesses leave the industry, leave the mid-stream, businesses that don’t have the economics to survive. If we have this discussion in three years or so, we’ll probably say an awful lot of companies have left the mid-stream and now the mid-stream’s in much better shape. DiC: What are your thoughts on the Diamonds Producers Association? They’ve just got it started officially this year. DK: It’s early days, but it’s essential; it’s way overdue. The real question is does it have a big enough budget. If it wants to

DK: India’s biggest problem is currency. The trouble is when the rupee goes down and the dollar goes up, that’s not good for diamond sales. China’s alright — it’s going very sluggishly. A lot of big stores have cut back their expansion programs over recent years. It’s not so much the corruption issues because that doesn’t really affect everyday diamond jewelry, but it does affect consumer confidence. So that’s the problem really is getting consumers more confident and also persuading them that they need diamonds. Now I think China’s going to be an easier market than India for the DPA to succeed in. The U.S. (market) has got a life of its own really, but India is a challenge.

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lastinG leGacy Bob Gannicott, at home in Yellowknife in 2013. Credit: Angela Gzowski

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obert Gannicott, the man who built Canada’s largest diamond mining company, Dominion Diamond (TSX: DDC; NYSE: DDC) and a pioneer of Canada’s diamond scene for 25 years, has died. Gannicott passed away on Aug. 3, at age 69, after a two-year battle with leukemia. One of the first and most successful entrants into the Lac de Gras diamond rush in the Northwest Territories in the early 1990s, Gannicott is being remembered as a visionary and innovator, as well as for his vast contributions to Canada’s North. With Grenville Thomas, he played an integral role at Aber Diamond in finding the Diavik mine. Gannicott then led the company through a series of transactions to become Dominion Diamond — the world’s third largest diamond miner after De Beers and Alrosa. A transplant from England, Gannicott travelled to Canada when he was 19. Heading up to Yellowknife, he soon found work at the Giant mine as a raise-miner’s assistant. “He got in with the exploration crowd here,” says another longtime Yellowknife exploration stalwart Lou Covello, a founder of Aurora Geosciences. A big man with an equally big personality, the friendly and down-to-earth Gannicott fit right in with the vibrant exploration community in the city. The burgeoning scene attracted many

other ex-pats, including Grenville Thomas, who had immigrated to Canada from Wales. The two met socially in the late ’60s, Thomas recalls, although it would be another 15 years before they would actually work together. “He was young and enthusiastic,” says Thomas, who’s now chairman of diamond explorer North Arrow Minerals (TSXV: NAR). “We became good friends. I have pictures of him at my wedding in ’68.” Gannicott left Yellowknife in the early ‘70s to study geology at Carleton University in Ottawa and then spent about a decade working for Cominco in Europe, Greenland and North Africa. The lure of the north — strengthened by his experiences in Canada’s North and Greenland — held on to Gannicott as he started his own exploration ventures. In the 1980s, he started an exploration company called West Viking with Lee Barker to look for gold in Iceland and one called Platinova that was involved in Greenland. Thomas, who was running two of his own companies, Highwood Resources and its subsidiary Aber Resources, was involved with both. Both men, who had reconnected in the early eighties during a chance meeting on the street in Toronto, served as directors of each others’ companies. As an explorer, Gannicott was a risk taker and often employed unusual methods to get things done. To carry out a drill program at one Platinova project on the northern coast of Greenland located at 85° north, Thomas says Gannicott convinced a northern airline to land 727 planes right on the sea ice. “I don’t know how many people have flown jets onto sea ice,

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Thomas says. “I was an exploration guy and I’m still doing exploration. This was the stage where it needed someone who could take it into production and really get into it.” Before long, Gannicott became very knowledgeable about diamonds, Thomas recalls. “He fell in love with diamonds — he took a keen interest in diamonds right from the beginning.” As head of Aber, Gannicott plotted an unconventional growth strategy for the diamond producer. The usual path to growth — through acquiring other projects and potentially becoming a mine operator — was not an ideal option in the early 2000s, as the exploration space was extremely competitive. “Everything out there was expensive and very high risk,” Gannicott told Diamonds in Canada in May 2013. Looking for insight into the diamond market and how to get the best price for Aber’s share of production from Diavik, Gannicott purchased the luxury jewelry brand Harry Winston Diamond in two transactions in 2004 and 2006. With the second purchase, Aber changed its name to Harry Winston Diamond, fully embracing the retail side of the business.

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CSE : TAI Shares outstanding: 61,998,801 Contact: Raymond Davies Phone: 416 491 6771 -130° -120° -125° Email: rayal.davies@sympatico.ca CSE : TAIwww.talmoradiamond.com Shares outstanding: 61, 998,801 67,398,801 Website: Contact: Raymond Davies Phone: 416 491 6771 Email: rayal.davies@sympatico.ca Website: www.talmoradiamond.com

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In November 1991, news broke about Dia Met Minerals and BHP Billiton’s (LSE: BLT) discovery of microdiamonds in Lac de Gras. “Between us, we decided that we should get involved in the diamond thing,” says Thomas, who conceded that they, like almost everyone else in Canada, knew very little about the topic. With the guidance of diamond expert Chris Jennings, West Viking and Aber staked adjoining land packages in the Lac de Gras area soon after the Dia Met discovery. By springtime, the two companies had merged to combine their land package, with Aber, a public company with easier access to financing, taking over West Viking. And after a few months of fundraising and talking to potential partners, Aber made a deal with Rio Tinto subsidiary Kennecott that would see it fund the first $10 million in exploration and carry Aber for 40%. Jenning’s advice turned out to be invaluable: the Diavik discovery was made in 1994. The extremely rich mine, which has both very high grades and high-quality diamonds, began production in 2003. But Gannicott’s interest in diamonds only grew with the discovery. In 1999, as Diavik moved into the development stage, Gannicott took over from Thomas as Aber’s CEO, while Thomas remained a director until 2006. “Bob was a very intelligent, smart, inventive character,”

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but that’s what we did — and that was Bob again,” he said. Even in his early days before he struck out on his own, Gannicott seemed ahead of his time, says Gary Vivian, president of Aurora Geosciences. “He was always knowledgeable and he always had a vision. Even when he was with Cominco, he was an outside the box thinker, he was probably 15 or 20 years ahead of most of his contemporaries,” Vivian says. Gannicott’s inventive nature came in handy at work, but also in his offtime. On a rafting trip with Gannicott and some friends in the early 1990s down the Nahanni River in the Northwest Territories, Thomas recalls that one of the rafts had a slow leak and had to be pumped up with air every day. All was fine until someone left the pump behind. “There was no way we were going to go back to get it, so Bob made a pump out of plastic stuff we had — cans, plastic bottles, duct tape and that sort of thing,” Thomas says. “It worked! It’s in the museum in Fort Simpson.”

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ion’s presence in Yellowknife,” says Lou Covello. However, Gannicott also felt strongly that the North should see a greater share of the wealth created through its mines. “I think that went a long way to hiring more local people — not only from Yellowknife, but from all of the surrounding communities, and even communities in Nunavut and up on the Arctic coast,” Covello explains.

‘a true northerner’ The Ekati mine, in the Northwest Territories. Credit: Dominion Diamond

The controversial move was typical “outside the box” thinking for Gannicott, says Aurora’s Gary Vivian. “I can’t say whether it was a positive or a negative thing to become a marketer of diamonds with the Harry Winston transaction, but I know Bob was always looking at ways to make the business better,” Vivian says. “Even though he was a diamond producer, he was looking at a way to grow the business through the marketing side.” Aber paid US$266 million in total and invested another US$36 million into the retail business. In January 2013, the company sold sold the retail unit to Swatch Group for US$750 million plus the assumption of US$250 million in related debt. “The idea of acquiring Harry Winston of course wouldn’t have occurred to someone like me,” says Thomas. “A lot of people didn’t like the idea, but he got the support of the board and he did it. A lot of people criticized it and continued to criticize it until eventually they sold it for twice what they paid for it.” The sale paid for a second transformational transaction for the company. In November 2012, Harry Winston bought BHP’s interest in Ekati for US$500 million. (BHP declared its stake in Ekati for sale in November 2011.) With the move back to mining, the company changed identity again — this time to Dominion Diamond. For the first time an operator of a diamond mine, Dominion has forged ahead with the development of the Jay project at Ekati. (The Jay pipe is in the property’s Buffer zone, in which Dominion holds 65.3% interest. Dominion owns a 88.9% interest in the main Core zone at Ekati.) Development of the large and high-grade pipe, where mining is slated to begin in late 2022, has extended Ekati’s mine life by 10 years with closure now slated for 2033. With the change in business, Gannicott moved Dominion’s headquarters from Toronto to Yellowknife — where Aber’s office was originally located. “He had several reasons for doing it. I think mainly, to increase the efficiency of the operations and to show Domin-

Gannicott was well respected in the mining industry for being a “straight shooter,” says Gary Vivian. “Bob was always about business — he worked hard, he probably worked 12, 15 hours a day for almost every day of his life,” Vivian said. “He had a passion for trying to find new things.” Gannicott earned respect and goodwill in government circles as well as in the mining sector. “I think he was a true northerner and a visionary northerner who went out and helped develop the North through diamonds,” said Bob McLeod, Premier of the Northwest Territories, in a telephone interview. Gannicott’s passion for Canada’s North grew out of his many experiences there, including the fact that Yellowknife was the first place he settled in Canada, McCleod notes. “Bob lived in Yellowknife for many years before he moved the headquarters to Yellowknife,” he says. “He always thought that if you worked in the North, you should live in the North. He was always looking for ways to increase the benefits and the value added to the North.” Gannicott took medical leave from Dominion in November 2014, returning in July 2015. At that point, he stepped down as CEO, but retained his position as chairman. In January 2016, Gannicott stepped down as chairman. However, the imprint he left on both Dominion and Canada’s diamond sector is a lasting one. Brendan Bell, who succeeded Gannicott as CEO of Dominion said Gannicott was a pillar of the Canadian diamond industry who built Canada’s largest independent diamond producer from the ground up. “Bob was an astute executive and exceptional leader, as well as a good personal friend and mentor,” Bell said in a statement to Diamonds in Canada. “He had a love of and was fascinated by diamonds and the diamond industry. He delighted in explaining the intricacies of diamonds, from exploration to mining to polished stones. He loved the North, and his legacy will always be intertwined with that of the Northwest Territories and Dominion Diamond.” Adds Covello: “The Northwest Territories and Nunavut and Yellowknife and the rest of the communities in western Nunavut and all of the NWT owe him a huge thanks and debt for his foresight and bringing Dominion Diamonds to the north.” Gannicott left instructions for a foundation to be set up in his name that will support the indigenous people of the Northwest Territories.

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Lucara’s cash position builds

Lucara Diamond’s Karowe mine in Botswana. Credit: Lucara Diamond

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In August, the company announced it would be installing lthough it pulled its 1,109-carat Lesedi La Rona XRT diamond recovery units to target smaller-size diamonds Type II gem from sale in June, after it fetched a at Karowe — from 4 to 8 mm. The addition, which is expected high bid of US$61 million at a Sotheby’s auction, to cost up to US$30 million, should be completed by the end Lucara Diamond (TSX: LUC) did just fine in its of 2017. second quarter. “The extension of XRT technology to recover the majority The company, whose sole producing asset is the rich Karowe of our diamonds at Karowe maximizes our overall processing mine in Botswana, reported earnings of US$46.1 million on efficiency and will contribute to continued strong operating revenues of US$140.8 million (US$1,824 per carat) compared margins across the entire value range for our high-quality South with earnings of US$8.6 million on revenues of US$38.1 lobe diamonds,” Lamb noted in a release. million in the year-earlier quarter. Lucara ended the second quarter with US$210.8 million in cash, up from US$134.8 million at the end of 2015. Considering that the company’s 813-carat Constellation diamond sold for US$63.1 milTSXV:NAR lion in May, Lucara’s management believes they can get a lot more for the Lesedi La Rona. The stone is the second-largest rough diamond recovered in history and Lucara is currently holding the gem in inventory as it considers further options for sale. Lucara recovered 340 special stones (over 10.8 carats) during the first half of 2016, including 12 diamonds that were 100 carats or larger. As a result of the success of its special stone tenders, In July, the company announced a special dividend of C45¢ per share (for a total of C$172 million), in addition to a regular quarterly dividend of C1.5¢ per share to be paid in September. “We remain focused on advancing our growth opportunities while continuing our dividend policy for our shareholders to share Exploring Diamond Opportunities in the continued value recreation of the company,” said Lucara president and CEO in Canada William Lamb in a release. @narminerals Lucara is forecasting 2016 production at info@northarrowminerals.com northarrowminerals Karowe at 350,000 carats recovered from 2.2 Suite 960, 789 West Pender Street northarrowminerals.com Vancouver, BC V6C 1H2 604.668.8355 to 2.4 million tonnes of processed ore.

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Peregrine eyes first production by 2021

A large-diameter drill rig at Chidliak in winter 2015. Credit: Peregrine Diamonds

By LesLey stokes, Matthew keeviL

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eregrine Diamonds (TSX: PGD) hopes to have its Chidliak project producing diamonds by 2021, as outlined in a preliminary economic assessment (PEA) released in July. Chidliak sits 120 km northeast of Iqaluit, the capital of Nunavut, on Canada’s Baffin Island. The study, which pegged capital costs at $435 million, projects Chidliak’s net present value at a pleasant $471-million, with an internal rate of return of 29.8% (after taxes and at a 7.5% discount rate). The operation would produce 1.2 million carats annually, with production peaking at 1.8 million carats per year. According to the study, Chidliak could generate a 72% operating margin, with pre-tax average annual free cash flows of $131 million. The company’s five-year time line to production assumes feasibility-level scoping work next year, while permitting would conclude in time for development in mid-2019. The construction schedule would see the mine enter commissioning, and then production, in 2021. Peregoodoff says that the project’s time line sets “realistic, but optimistic” goals. “How the project develops this season will be very important, and if things go well you can certainly expect to see some major developments,” he adds.

“The PEA has the attention of the industry, so we’re now looking at all of our options, whether to raise the equity ourselves or potentially partner with other companies. There’s a lot going on in the Canadian diamonds scene right now, with Gahcho Kué opening last week and Renard potentially opening in October. There’s a lot of people out there that view Chidliak as a significant growth opportunity.” Peregrine has uncovered 74 kimberlites on the property since 2008, but its startup operation would focus on what it calls the Southern Priority Area, due to better tonnage potential and coarse diamond distributions. “It’s not very often you see such a high-margin, diamonddevelopment project in Canada,” president and CEO Tom Peregoodoff tells Diamonds Magazine during a phone interview. “The economics are there to support an initial phase of mining, which gives us enough time and the cash flow to define and plan for the phase-two resource.” Peregrine’s first phase of development would involve a decade-long open-pit diamond mine focused on resources from its CH-6 kimberlite before transitioning over to CH-7.

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Diamonds from CH-6 kimberlite at chidliak, including a 8.87-carat stone.

Northern lights over the Chidliak camp in summer 2015.

Credit: Peregrine Diamonds

Credit: Peregrine Diamonds

Drilling at CH-7 in winter 2015. Credit: Peregrine Diamonds

“The PEA has the attention of the industry, so we’re now looking at all of our options, whether to raise the equity ourselves or potentially partner with other companies.” — President and CEO, Thomas Peregoodoff, Peregrine Diamonds CH-7 hosts 5 million inferred tonnes of 0.85 carat per tonne for 4.23 million contained carats, while CH-6 hosts 4.6 million inferred tonnes grading 2.45 carats per tonne for 11.39 million contained carats. Both resources extend to 250 metres depth, but Peregoodoff says there’s potential for underground development once the open-pit is exhausted. “If the grade and stone value continues to depth, I think there is every possibility that you will see that deeper material come into the mine plan,” he says. “And we’re also looking at a number of pipes elsewhere on the property that we could move into a resource category.” CH-1 in particular is an interesting pipe, Peregoodoff notes. “The diamond colour profile there is fantastic and it has a good chance to contain high-quality stones. CH-31 and CH-33 are bigger pipes, which means they could have big tonnage potential, and our current information suggests they might have coarse, big diamonds,” he continues. The development scenario outlined in the PEA comes with $435 million in development costs, which includes $95 million for a 160-km-long, all-weather road to Iqaluit. The alternative would be a seasonal road which could be open for six weeks

or less during late winter, but Peregoodoff says that’s not enough time. “We don’t have the same amount of water they have in the Lac de Gras region to utilize in the construction of an ice road. So for us, we’d be forced to fly in any supplies that you can’t bring in by the winter road. And that would put the operation in a big financial risk,” he says. “When we looked at all the risks and benefits of each scenario, we found that the all-weather road was the way to go. The cost wasn’t that much different and the impact on the economics wasn’t that material.” Other diamond mines in Canada’s North, such as the Ekati and Diavik, are supported by winter roads, which operate eight to 10 weeks out of the year. He adds that Peregrine may qualify for infrastructure funding from the federal government, or there could be some cost-sharing with other parties that may benefit from the road. Over the next year, the company intends to advance the project’s resources from inferred into indicated with additional bulk samples and drilling, and continue with environmentalbaseline work. “Since 2009, we’ve completed 12 helicopter-supported surveys and one ground survey, and we’ve only seen 13 caribou,” he says. “So we’re not dealing with a caribou resource like a number of the larger herds you see elsewhere in Nunavut.” The company’s shares have traded in a 52-week range of 9¢ to 31¢ per share, and closed at 23¢ at press time. Peregrine has 339 million shares outstanding for a $76.4-million market capitalization, and reported $5.7 million in working capital at press time. Robert and Eric Friedland hold 46% of Peregrine’s outstanding shares. — Lesley Stokes is a staff writer with The Northern Miner in Vancouver; Matthew Keevil is The Northern Miner’s western editor. With files from The Northern Miner. November 2016 v

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Kelvin kimberlite earns high grades Kennady advances project toward maiden resource

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he results of a second bulk sample at Kennady Diamonds’ (TSXV: KDI) Kennady North diamond project in the Northwest Territories confirm the high grade potential of the Kelvin kimberlite. The 612-tonne sample, focused on Kelvin’s north limb, returned 1,278 carats of commercial-sized diamonds for a sample grade of 2.09 carats per tonne. In a release in September, the company noted that the results were very similar to those from a 2015 bulk sample from Kelvin’s south limb. “One of the key observations to emerge from our Kelvin bulk-sampling programs is the remarkable consistency in overall diamond grade across the full extent of the body, despite the geological complexity within the body,” said Kennady president and CEO Rory Moore in a release. “This is a positive attribute from both an evaluation and a mining perspective.” Work by SRK Consulting has identified three zones (A, B, and C) of variable grade at Kelvin, with Zone B consisting of two sub-units. “Diamond grades vary quite substantially between geological domains, with grades exceeding 3 carats per tonne recorded for

Scenes from Kennady Diamonds’ Kennady North diamond project in the Northwest Territories, including a 2.84-carat stone recovered from the Kelvin kimberlite (centre). Credit: Kennady Diamonds

individual horizons within Zone A,” Moore said. “The fact that these higher grade zones occur at the top of the body will have a positive impact on the economics of a potential mining scenario.” The north limb sample, taken via large-diameter reverse-circulation drilling, contained 40 diamonds weighing one carat or more. The largest stones include a 3.43-carat white/colourless transparent octahedral twin with no inclusions, a 3.23-carat grey, translucent irregular with inclusions; a 2.84-carat white/ colourless, transparent octahedron with no inclusions; a 2.57-carat white/colourless, transparent broken irregular shape with no inclusions; and a 2.14-carat off-white, transparent tetrahexahedron with no inclusions. A valuation of the Kelvin stones by WWW International Diamond Consultants is under way should be completed by late October. Once Kennady has that information, it will be used to prepare a resource statement for Kelvin. The company is aiming to identify a resource of 13 to 16 million tonnes grading between 2 and 2.5 carats per tonne within the Kelvin-Faraday kimberlite corridor at Kennady North. The project is adjacent to De Beers and Mountain Province Diamonds’ (TSX: MPV; NYSE: MDM) Gahcho Kué mine.

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he Diamond Producers’ Association (DPA) is aiming its first marketing campaign squarely at millennials. The campaign, launched in October, consists of two tag lines: “Real is Rare” and “Real is a Diamond.” The DPA launched in May 2015, with members pledging to support a minimum initial annual budget of US$6 million. The association has already doubled that budget for 2016. At the moment, the campaign is limited to the United States — the world’s largest diamond market accounting for 45% of demand and the market about which the DPA has the most research. The marketing effort focuses on authenticity and connection in relationships rather than marriage or even engagement. “What is better than a rare and precious billion-year old diamond that is as old as life on Earth to represent the uniqueness and sincerity of a genuine relationship? ’Real is Rare. Real is a Diamond,’ beautifully captures what makes diamonds meaningful in today’s world and why they will always be timeless,” said DPA CEO Jean-Marc Lieberherr in a release. The campaign was born out of research the DPA commissioned on the millennial cohort in the U.S., which represents about 80 million people and the “cornerstone” of current and future diamond demand. Two main insights came out of that research — first, that real relationships are becoming more important the more digital the millennials’ world becomes, and second, that the cohort is resistant to conventional

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Petra Diamonds’ Cullinan mine in South Africa. Credit: Petra Diamonds

rituals and seek instead to demonstrate commitment in a more individualistic and personal ways. Des Kilalea, a mining analyst with RBC Capital Markets that covers the diamond sector says a generic marketing campaign for diamonds is “essential” and way overdue. “De Beers says that the millennials are buying diamonds, but the millennials will queue around the block to get a new iPhone — they won’t queue around the block to buy a diamond,” says Kilalea referring to research contained in De Beers’ 2016 Diamond Insight Report. “So we need to see an awful lot more work done on getting diamonds more front of mind. At the moment they’re just not.” Kilalea adds: “A lot of people don’t get diamond engagement rings anymore. . . You need to persuade more and more brides to get engagement rings, and more and more self-purchase by females and males in the diamond space.” In June, the DPA announced it would be collaborating with the Gem & Jewellery Export Promotion Council of India (GJEPC) to boost demand for diamonds and to enhance the diamond industry’s image. Separately, in October, De Beers and the GJEPC unveiled a marketing campaign promoting generic diamonds and diamond jewelry in India, where demand has stuttered due partially to a weak rupee and global economic slowdown. The campaign targets women from 25 to 35 and will initially run for three months.

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Stornoway Diamond’s Renard mine, in Quebec. Credit: Stornoway Diamond

...continued from pg.8

of rampup production, while at Gahcho Kué, two special stones were recovered in August at the start of rampup, Evans notes. “We’ve seen that continue over the last two production months — our first two production months and into October. The number and quality of special stones is very encouraging, so for example today we received notification from the operator that a 36-carat gem-quality octahedral has been recovered.” Evans adds: “If we continue to recover these high-value special stones, we can expect to see revenue well above the model price that was assumed in the feasibility study, in that way providing protection even in a softer diamond market.” Both mines have also benefited from the decline in the Canadian dollar, which helped insulate them from last year’s decline in diamond prices. “Of course we’re mining in Canadian dollars and selling in U.S. dollars so almost all of that US dollar diamond price drop has been mitigated for us economically by the exchange rate going the other way,” Manson says.

Sales process As smaller producers, neither Mountain Province nor Stornoway intend to manage the volatility of rough diamond prices by holding back production. Both will be selling their production at open tender in Antwerp through independent broker Bonas-Couzyn. “We will sell all of our production at the highest price on the day, so we won’t do as some of the other producers have done, which is have reserve prices and hold back in anticipation that the diamond market will improve at some point in the future,” Evans says. “We’ve seen other producers who do that having to take writedowns on inventory, which is obviously not desirable.” Similarly, Manson says Stornoway will be price takers in the market. As mine operators and the 100% owner of Renard, the company will focus on making the mine as efficient as possible. “The whole ethos of Stornoway is that we’re a mining

company, so we don’t want to get overly focused or invested as a management group in the diamond market,” he explains. “We want to set up a sales process that professionally achieves the highest price on a regular basis, but thereafter, I want the management team of this company and its board to be focused on the mine.” Manson adds that the company can have the greatest impact by focusing on cost or throughput in the plant or resource expansion rather than squeezing out an extra 1% or 2% from the value of the diamonds. Kilalea has an outperform rating on Stornoway with a 12-month target of $1.50, while for Mountain Province, he has a sector perform rating and a 12-month target of $8. At presstime Stornoway traded at $1.15 per share with 837 million shares outstanding and Mountain Province traded at $6.80 with 160 million shares outstanding.

ADVERTISERS INDEX DRA Global ..................................................................... 9 Foraco Diamonds.......................................................... 11 Kennady Diamonds ......................................................... 7 Mountain Province Diamonds Inc. ................................. 13 North Arrow Minerals Inc. ............................................. 17 Peregrine Diamonds Ltd................................................ 12 Saskatchewan Research Council ................................. IFC Stornoway Diamond Corp. ......................................... OBC Talmora Diamond Inc. ................................................... 15

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Diamonds in Canada November 2016  

Diamonds in Canada is your best resource for information on the Canadian diamond producing industry. Published bi-annually, Diamonds in Cana...

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