Outlook glitters for Naujaat diamonds

With diamond prices climbing while global production is expected to remain flat through 2027, the outlook for diamond explorer North Arrow Minerals Inc. is shining bright. The company Feb. 22 reported progress at its projects across Canada, including work undertaken in 2021 at its advanced diamond project in Nunavut.

North Arrow said processing of a 2,000-metric ton bulk sample extracted in 2021 from its Naujaat diamond project located on the Melville Peninsula is about halfway complete.

The $5.6M bulk sample program is being funded by Australian diamond miner and marketer Burgundy Diamond Mines under an option agreement in which Burgundy may earn a 40% interest in the Naujaat project by funding the current bulk sample program.

A number of factors point to a brighter outlook for diamond sales, according to North Arrow. These include:

• Higher than ever rough diamond prices, which have increased 34.2% in the past year.

• Strong demand for polished diamonds and diamond jewelry, especially in the United States and China. U.S. jewelry sales, for example, jumped 51.8% in 2021.

• Global rough diamond production has decreased since 2017 and is expected to remain flat through 2027.

• Very few new diamond projects are being developed worldwide.

• Exploration activity for new diamond deposits has declined to lowest level in 30 years.

"We're seeing rough prices up about 20% this year," North Arrow Minerals President and CEO Ken Armstrong said during a November interview with Stephen Gunnion at Proactive Investors. "Prices are robust and that should start trickling down to the junior explorer side."

Glittery prospects at Naujaat

Viewed as a world-class diamond project, Naujaat is located nine kilometers (5.6 miles) northeast of the hamlet of Naujaat (formerly Repulse Bay) on the Melville Peninsula of Nunavut. The property covers 10,742 hectares (26,54 acres) of contiguous mineral leases and claims held by North Arrow.

Fifteen kimberlites and eight kimberlite pipes have been identified on the property as well as a number of associated kimberlite dykes. The Q1-4 kimberlite is the largest and most diamondiferous of these bodies.

Though North Arrow has drilled to a depth of 400 meters in the Q1-4 kimberlite, the current resource estimate for the project totals 48 million metric tons of material down to 205 meters, containing more than 26 million carats of diamonds.

Naujaat is the largest undeveloped diamond property in Canada not controlled by a major mining company. First discovered by BHP Billiton plc in the early 2000s, the discovery was later divested as part of BHP's corporate refocus on iron ore, coal, and petroleum operations later that decade.

North Arrow acquired the project in 2013, and subsequent exploration and evaluation has focused on the potential value of uniquely colored fancy vivid orangey-yellow diamonds found on the property.

A specific and rare color, Naujaat's yellow diamonds have been certified by the Gemological Institute of America and are expected to sell at high premiums to white diamond prices, upon which the historical project's economics were mostly based.

"Fancy Colour" diamonds

It is Naujaat's yellow and orangey-yellow diamonds that brought Burgundy Diamond Mines to North Arrow's door.

Burgundy evolved from a strategy developed over several years by founder Peter Ravenscroft and assisted in later stages by vice presidents Sean Whiteford and George Read. Mining entrepreneur Michael O'Keeffe, who had identified diamonds as a counter-cyclical and contrarian investment opportunity also supported the new organization.

The strategy centered on a perceived need for change in the diamond sector. Severe underfunding of junior public diamond explorers over the past decade has left a significant hole in the sector's longer-term project development pipeline. As a result, supply shortfalls during the next 10 years will not be filled by the limited exploration spending being made by the majors.

Recognizing and supporting Ravenscroft's vision, O'Keeffe joined the effort that resulted in the organization of Burgundy Diamond Mines Ltd. over the course of 2020. At the same time, the company grew from an initial market capitalization of some A$3 million (US$2.2 million) to some A$45 million (US$32.5 million) at the end of 2020.

The company's organizers chose the name Burgundy in honor of Mary of Burgundy, who has historically been recorded as receiving the world's first diamond engagement ring at the age of 20 from her prospective husband, the Holy Roman Emperor Maximilian I of Austria, in 1477. The power couple went on to change the face of Europe's politics for centuries.

Burgundy Diamonds' strategy, meanwhile, evolved into a focus on generating cash flow, particularly from a niche sector – "Fancy Colour" diamonds, which are rarer than white diamonds.

Well-funded bulk sampling

Burgundy entered an option agreement in 2020 that gives the company the right to earn a 40% undivided interest in the Naujaat project on completion of a 1,500 – 2,000 dry metric-ton bulk sample on the Q1-4 kimberlite pipe and spending C$5.6 million (US$4.1 million). The agreement was conditional on the company being able to provide required funding by April 2021.

After a successful A$10.6 million (US$7.7 million) capital raising in the summer of 2020, Burgundy provided an unconditional commitment to funding a phase 1 bulk sample program.

Burgundy also provisionally committed to funding a second phase bulk sample to earn an additional 20% ownership interest in the Naujaat project

In late September, North Arrow reported completion of a 2,000-metric-ton bulk sample and the imminent shipment of 2,500 bags of material to an independent lab in Saskatchewan for processing.

In mid-December, Armstrong said processing of the 2021 Naujaat bulk sample using new XRT sorting technology would require additional auditing of results, but the technique more easily identifies diamonds in a sample, particularly larger size diamonds.

Initial diamond recoveries were expected in early 2022.

The DMS circuit also was still being optimized for the overall diamond recovery process, and the junior was evaluating options to increase sample throughput.

"We will be able to report to the market in batches the results of processing the bulk sample over the next four to five months," Armstrong told a reporter in mid-December.

The recovered diamond parcel from the 2021 bulk sample is intended to confirm that the unique and potentially high-value population of fancy yellow and orangey-yellow diamonds at Najat extends into coarser diamond sizes.

Armstrong said the bulk sample is a key milestone in Naujaat's development, but the project's important risk hurdles have already been cleared.

"This bulk sample is NOT about kimberlite discovery, NOT about size of deposit, NOT about mineral chemistry, NOT about microdiamonds, and NOT about whether there are commercial-sized diamonds," Armstrong told investors in a recent presentation. "This is about whether there are bigger diamonds and what their quality is like."

Armstrong also noted that very few diamond projects get to this stage.

The junior is also exploring seven other properties in Canada, in discovery and target development stages, including six diamond projects – three in Nunavut, including the Mel, Luxx, and grassroots CSI projects; two in neighboring Northwest Territories, including a 21 percent interest in the LDG joint venture project; and one in Saskatchewan.

At the Loki project in the Lac de Gras region of Northwest Territories, North Arrow plans to pursue the South Coppermine train source, along with geomorphology and drilling this summer or fall.

At the Pikoo project in Saskatchewan, plans also are underway to drill well-established targets for new kimberlites in 2022.

North Arrow also owns the Hope Bay Oro gold project located about three kilometers (1.9 miles) north of Agnico Eagle Mines Ltd.'s producing Doris Gold Mine at Hope Bay. It is currently in discussions with a potential partner for further exploration of the gold project this summer.