Canadian diamond drilling and exploration entails a lot of risk—but the payoffs can be huge

In September 1991, explorers discovered, during a diamond drilling program, the first economic diamond-bearing kimberlite deposit in Canada, located in the Lac De Gras area in the Northwest Territories, after over a decade of searching.

Kimberlites are cone-shaped pipes comprised of a mixture of magma (molten rock) and rock that is carried by volcanic activity to the surface of the earth from depths greater than 150 kilometres. Diamonds form at those depths, under a mix of extreme pressure and high temperatures. Kimberlites may also pick up diamonds along the way—sometimes in quantities large enough to justify a mine.

To review, diamonds are the transparent form of pure carbon, and their dense crystal structure makes them the hardest substance known.

Aside from jewellery, they’re widely used for machining plastic, glass and metal. Diamonds’ resistance to wear makes them essential for automated processes that produce many copies of the same product, while their hardness makes them useful as an abrasive and grinding material. They’re also used in knives, scalpels for precise surgery and dental drills.

Charles Fipke led the way for Canadian diamond drilling

Kimberlites are small—generally with a surface area of less than 12 hectares—which makes them difficult to find. However, along with diamonds, the molten rock of the kimberlite also picks up other minerals, which diamond explorers call kimberlitic indicator minerals, as it rises to the surface. The team that found the first kimberlites in Canada, led by Charles Fipke, knew it would be next to impossible to directly locate a small kimberlite pipe. However, they reasoned that they could find the pipes by tracking trails of kimberlitic indicator minerals (which are more plentiful than diamonds in kimberlite) leading away from the pipes.

Over the last 1.5 million years or so, a series of glacial ice sheets has eroded the surface of Canada. As part of that erosion, the glaciers scraped the surface of the kimberlite pipes and dispersed the indicator minerals from the pipes over hundreds or even thousands of kilometres in what have proven to be traceable patterns. The indicator minerals can survive long-distance transportation and are resistant to weathering.

Other exploration methods can aid in the discovery of kimberlite. For example, the pipes can present a different magnetic signature than the surrounding rock, and that magnetic signature often has a distinctive circular pattern.

Hard to find … but hugely profitable

Still, the diamond drilling and discovery process is far from perfect. While the minerals’ presence indicates the existence of kimberlite, the ancient ebb and flow of glaciers makes it hard to trace which glacial advance transported the indicator minerals. As well, not all kimberlites contain diamonds, and only a few of the ones that do will hold commercial quantities.

Once a kimberlite is found, tons of rock are collected from the top of the pipe and processed. Extracting kimberlite material to check for diamonds from the ground is difficult because kimberlite wears down faster than most surrounding rock; over time, this creates depressions over the kimberlite pipes. These then fill up with water or glacial debris, making it difficult to reach the kimberlite.

If kimberlites are found, further diamond drilling and analysis is necessary to give more details about the extent of the deposit and information about its diamond content.

So far, five diamond mines have opened in Canada: the Ekati mine in the Northwest Territories, which developed from Charles Fipke’s discovery; the Diavik mine in the Northwest Territories; the Jericho mine in Nunavut; the Snap Lake mine in the Northwest Territories (owned by DeBeers Canada and now closed December, 2015); and the Victor mine in northern Ontario (also owned by DeBeers).

Investing in Canadian diamond drilling stocks is risky. It’s a long way between the exploration phase and commercial production, when they begin to produce diamonds for sale and start making money. As well, there’s often a long time lag between news of progress toward a mine, and share prices can drift down in the meantime.

However, finding diamonds in mineable quantities can be hugely profitable. For example, the $700-million Ekati mine started up in 1998 and is generating over $500 million a year in revenue; it has an expected life of more than 20 years.

Have you invested in diamond drilling/diamond mining stocks? Have they been profitable for you? Share your experience with us in the comment section.