Indicator Minerals scours Arctic for diamonds

When Bruce Counts, president and CEO of Indicator Minerals (IME-V, IMEEF-O), studied geology in university, his professors glossed over diamond exploration.

“I think we spent a half-hour in one lecture discussing kimberlites,” he says.

Counts says that the academic community didn’t know much about diamonds because they weren’t known to occur much in Canada.

“Diamonds were something you found in Africa,” Counts says.

That was before 1991, when Dia Met Minerals discovered kimberlite in the Northwest Territories, leading to Canada’s first diamond mine — Ekati — now 80%-owned by BHP Billiton (bhp-n, blt-l) and 10%-owned by Chuck Fipke and Stewart Blusson, who were both with Dia Met.

Kimberlite is a volcanic rock that works as an elevator of sorts to transport diamonds to the earth’s surface, often in clusters. But only about one in 25 are diamond-bearing and only one in 250 are economic.

Canada is now the third-largest producer of rough diamonds in the world by value and Indicator Minerals is one of many junior companies searching for diamond-bearing kimberlite in Canada’s North.

Indicator recently reported that it had intersected kimberlite in drilling at its Darby project, in Nunavut, about 120 km southwest of the community of Kugaaruk.

Starting at 91 metres depth, the hole intersected a matrix-supported macrocryst kimberlite. Samples are being evaluated at a lab for diamond recovery. The company will also test for indicator minerals and do a petrologic description.

Counts, who got involved in diamond exploration in 1992, says that because diamonds are relatively new to Canada, many investors don’t understand the exploration process.

In the fall of 2006, the company’s stock price plummeted from above 70 apiece to the mid-30 range after positive results from its Darby project were released.

Indicator had found 24 diamonds, including three macrodiamonds, in a 462-kg sample of kimberlite.

“It was pretty demoralizing,” Counts says.

While a ratio of one diamond per kilogram would get Counts excited, he says at that stage, the company was merely trying to establish that it had found a kimberlite field.

“We weren’t looking for ‘the one’ yet,” he says.

Diamond exploration is costly and time consuming but the payoff can be huge, Counts says.

The drop in market capitalization didn’t mean anything for Indicator from an exploration perspective.

Teck Cominco (TCK.B-T, TCK-N), the operator of the project, can earn a 51% interest by spending $14 million before June 20, 2010. Hunter Exploration Group, a private explorer, has a 20% interest. If Teck forms a joint venture with Indicator, Indicator will have the right to have its 29% interest carried to production on a project loan basis.

Teck is spending $8.5 million on exploration this year.

Counts says results should be out by mid-September for the Darby project.

Indicator will receive lab results for its Barrow project, located 15 km south of Kugaaruck, by mid-October.

The company has a total of 17,000 sq. km of land in the Canadian Arctic, which includes several earlier-stage exploration properties.

Indicator shares have recently traded at around 47 in a 52-week range of 30-90.