Investing in mining exploration stocks can be one of the most exciting and nerve-wracking activities an investor can engage in. By nature, it is a very volatile, high risk (and potentially) very rewarding business. If one is successful, it can deliver incredibly high returns. Conversely, it can also lead to massive casualties and is therefore not for the faint of heart.
Canadian stock markets rose in large part due to the natural resources sector, which is a major component of the Canadian economy. Over time, Canada has earned the distinction of being the world’s premier mining financial center and as such is also home to many of the world’s most distinguished geologists, geophysicists and other mining professionals. Therefore, investment sentiment in Canadian equity markets tends to reflect the state of the global mining sector at any given time.
The ‘Rush’ and its play area
Most of the time, markets move slowly as traders buy or sell, with activity often centered on a handful of names that have caught the attention of investors for whatever reason. However, there are rare moments in history when an extraordinary event triggers a massive public reaction.
The California Gold Rush of the 1840s caused people all over the world to seek their fortunes in search of gold. In 1896, gold was discovered in the Yukon Territory, and it sparked one of the greatest staking rushes of all time, as once again people from all over the world traveled in difficult territory to try their luck. Other examples of this type of staking mania occurred after the 1993 nickel discovery at Voisey’s Bay in Labrador, the Hemlo gold discovery in 1981-82, the Eskay Creek gold/silver discovery in 1988 in British Columbia – and what followed the infamous Busang gold discovery in 1995 at the heart of the Bre-X Minerals scandal.
A feature of these major discoveries was the frenetic activity of junior exploration companies staking as many claims as they could in the area surrounding the finds, often hundreds of kilometers from the claims of the location of the discovery. This frantic activity can spin out of control and take on a life of its own, despite common sense or objective reality.
These discoveries have caused many junior exploration companies to stake as many claims as possible on the lands surrounding these discoveries. This activity is also commonly referred to as “zone games”. Exploration companies carry out work on these properties to determine if their results show signs of mineralization resembling the discovery deposits.
While the main attention of investors is usually focused on the original discovery company, the shares of nearby companies are also attracting investor interest – and often see wild swings in their stock prices in anticipation of similar discoveries. , or at least the potential for a discovery. This is one of the reasons why exploration stocks are becoming popular – i.e. the “blue sky” opportunity!
The Lac de Gras Diamond Staking Rush
Perhaps the biggest rush since the discovery of gold in the Yukon was the Lac de Gras diamond staking rush in the Northwest Territories. It started in early 1991, when geologists Dr Charles Fipke and Dr Stewart Blusson, who had been prospecting for diamonds throughout the 1980s trying to find the source of previously identified diamond indicator minerals, found 81 small diamonds. After initial market skepticism, a ruckus ensued – shares of Dia Met Minerals Ltd. increased quite significantly.
It’s important to note that at the time of the new discovery, there were no diamonds in Canada, and searching for them near the Arctic Circle seemed almost absurd. However, Fipke and Blusson, who had spent almost a decade prospecting, had caught the eye of Australian mining giant BHP Billiton. BHP helped fund Dia Met’s exploration activities, adding much-needed credibility to their efforts. The two geologists staked 80,000 square miles of mining claims in the area during their research.
With the initial discovery of the Lac de Gras kimberlite field and the subsequent recovery of 81 small gem-quality diamonds, the rush was on. Investors have been captivated by the possibility of an exciting new mining camp. At the height of the mania, more than 200 companies had joined the staking rush.
Dia Met Minerals
There were two big winners at Lac de Gras. One of them was Dia Met Minerals, whose shares had long languished around the $0.10 to $0.15 range, and traded from a low of 21 cents in 1991 to a high of 18 cents. $.50 in 1992 – and after moving from the Vancouver Stock Exchange to the TSE, Class B shares eventually went from $0.60 to $55.
Dia Met was acquired by BHP for $21 per share in 2001 and their property became the highly profitable Ekati diamond mine. Many of the approximately 200 junior companies that have staked claims in the Northwest Territories have abandoned their projects, disappeared, or moved elsewhere to try their luck in other exploration efforts.
The other Lac de Gras winner was Aber Resources Ltd., which has partnered with mining conglomerate Rio Tinto to advance its Diavik project. Diavik has since become Canada’s largest diamond mine. Its shares, which traded below $0.10 in 1991, reached $140 by the end of 2003, before settling around the $100 mark. The Company and the Diavik mine were subsequently restructured in 2008.
Today, Canada is the world’s third largest diamond producer. Over the past 30 years the industry has grown and downstream activities such as polishing and cutting are increasingly localized.
Arctic Star, a potential new winner?
Many believed that Ekati and Diavik having staked much of the Lac de Gras region for themselves, therefore controlled most of the kimberlites in the area. However, in 2021, a young diamond explorer, Arctic Star Exploration Corp. (TSXV: ADD), made a significant kimberlite discovery in the Lac de Gras area, causing some investors to rethink their stance on the region.
arctic star, who is developing his Diagras Diamond project in the Lac de Gras region, discovered what he now calls the Sequoia Kimberlite Complex. Surface geophysical mapping to date suggests it may be the largest diamondiferous formation in the Lac de Gras district, and potentially eclipses the original discovery in the 1990s. A subsequent small ground sampling program found two commercial-grade diamonds, with subsequent chemical analysis of the diamonds indicating the potential for large diamonds over 52 carats.
The Canadian diamond industry has matured over the past 30 years. The investment finance community now understands the industry and its inherent risks and rewards, has a level of trust in industry participants, and knows how to finance it. Investors also have a much better understanding of diamond exploration and mining and are much better equipped to react to opportunities when they arise.
Exploration methods and technologies have evolved since the heady days of the 1990s, reducing the risks of the exploration process and making the economics of exploration more feasible. Should Arctic Star now recover a significant number of gem-quality diamonds during its ongoing exploration activity, it may well have the potential to kick-start a new staking rush in the region.
FULL DISCLOSURE: Arctic Star Exploration is a customer of Canacom Group, the parent company of The Deep Dive. The author was paid to cover Arctic Star Exploration on The Deep Dive, with The Deep Dive having full editorial control. Not a buy or sell recommendation. Always do additional research and consult a professional before purchasing a title.