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What to Look for in a Diamond Junior
Sunday February 1, 2015, 7:40pm PST
By Charlotte McLeod+ - Exclusive to Diamond Investing News

What to Look for in a Diamond Junior
At the 2015 AME BC Mineral Exploration Roundup, held last week in Vancouver, Anthony George, former senior vice president at Lucara Diamond (TSX:LUC) and current vice president, project development at Lundin Gold (TSX:LUG), gave a presentation on Lucara’s Karowe mine and how it achieved success.
As George explained, Karowe, originally called AK6, was discovered by De Beers back when it was searching for diamond discoveries in the 1960s and 1970s; however, it was put on the backburner until the late 1990s/early 2000s, when Botswana changed its code regarding moving projects forward. De Beers took the opportunity to re-evaluate its assets, eventually deciding to move forward with a feasibility study for Karowe and apply for a mining license.
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Despite that positivity, De Beers’ “massive investments” in other mines, including Venetia, ultimately led to the newly formed Lucara buying the company’s 70-percent stake in Karowe and rapidly taking the mine into production. Karowe is now generating revenues of $250 million a year.
George’s goal was to reveal to audience members how Lucara was able to achieve that success, and to do so he highlighted a number of points that he feels helped Lucara get to where it is today. Without further ado, here are a selection of them:
A well-defined resource: “Everything else hangs off that,” said George. “If you don’t have a good resource, something that’s robust and well understood, then you’re not going to be able to get an operation running in the future.”
Funding: Cash is obviously a key requirement, especially for juniors. But according to George, there’s more to gaining funding than having a good project. “It’s important that you have the solid technical solution, the solid resource and the ability to go out and talk to people convincingly,” he said. “You have to understand the fundamentals of what the investment people are looking for.” He also pointed out that it’s important for companies not to underestimate the working capital they need, noting that costs don’t end after a mine is built.
A strong EPCM partner: “I really want to emphasize partnership, it is extremely important,” said George of finding a good engineering, procurement, and construction management (EPCM) partner. “It’s not and us and them, I’ve seen it on so many projects where blame is put on the EPCM partner. At the end of the day it’s your mine, you’re the owner, you cannot abdicate your responsibility. Choose your EPCM partner well.”
The right team: On a similar note, recruiting the right people is key to gaining an understanding of a project’s ore, the characteristics of its process plant and more, said George. “Your metallurgical model can be based on some assumptions when it comes to the resource stage,” he noted, “but it’s really important to have a feedback loop on the mine site.” Ongoing communication between the right team can result in ”a much better prediction of where your revenue’s coming from and also how you can change [the] mine plan” to generate a better return.
Social license to operate: “You have to ensure that what you’re doing fits into the local communities and that you are accepted as part of the local community, the regional community, the country as a whole,” George noted. He also pointed to environmental compliance as key.
Knowledge of ore: George stated that there are a number of factors to look at in terms of a project’s ore — for instance, information on ore crushability is a necessary precursor to undertaking process plant design. An understanding of waste crushability is also important as inevitably some waste material will also make its way into the plant. Furthermore, diamonds have different characteristics, and “all of that’s got to be fully understood so that it gets built into the diamond process plant.”
Sales organization: According to George, this point is particularly important for diamond miners. As an example, he said that when Lucara first started putting its diamonds on the market, the values it received for them weren’t as expected “because the diamantaires didn’t know how [the] diamonds would cut.” However, once a couple of sales had taken place, allowing the industry to get used to the product, the company “saw [its] dollar per carat rise to the predicted levels, and then beyond that as well.”
While some of George’s points are common considerations for investors looking to determine whether a company has what it takes to succeed, a number are a little more offbeat. Nevertheless, they may be useful criteria for investors to look at when evaluating diamond juniors, particularly in today’s rough markets.

Securities Disclosure: I, Charlotte McLeod, hold no direct investment interest in any company mentioned in this article.
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