Mountain Province Diamonds finds largest gem-quality diamond in a Canadian drill program

Mountain Province Diamonds (MPV-T, MDM-X) and joint-venture partner De Beers Canada have found a 25.13-carat gem-quality diamond at their Gahcho Kue diamond project in Canada’s Northwest Territories.

The diamond was recovered from Gahcho Kue’s Tuzo kimberlite. Tuzo is one of three primary kimberlites at Gahcho Kue, the last major diamond discovery eleven years ago and today one of the largest diamond mines under development in the world.

“To the best of our knowledge, this is the largest gem-quality diamond ever recovered from a Canadian diamond exploration drill program,” Mountain Province president and chief executive Patrick Evans says.

The second-largest gem-quality diamond was a 23.8-carat diamond discovered at Tahera Diamond‘s (TAH-T, TAHEF-O) Jericho mine in Nunavut, Evans says.

Evans describes the diamond as a “perfect ‘ice crystal'” with excellent shape and clarity, and good colour. “In terms of the clarity it’s flawless,” he says.

The stone has been independently valued at about US$17,500 per carat, or a total of US$440,000, by Antwerp-based International Diamond Consultants.

Gahcho Kue is made up of a cluster of three primary kimberlites (Tuzo, 5034 and Hearne) with an indicated resource of about 14.4 million tonnes grading at 1.64 carats per tonne (roughly 23.6 million carats) and an inferred resource of about 17 million tonnes grading 1.35 carats per tonne (roughly 22.9 million carats).

Previous exploration has recovered a number of large diamonds of gem quality. These have included 9.9, 7, 6.6 and 5.9 carat diamonds from the 5034 kimberlite, and 8.7, 6.4 and 4.9 carat diamonds from the Hearne kimberlite.

Mountain Province owns 49% of the joint-venture while De Beers holds 51%. De Beers is the operator and can be called on to fund the project through to commercial production. Gahcho Kue is in the permitting and advanced exploration stage.

The large-diameter drill program on the Tuzo kimberlite was completed in March and concentration of the bulk samples at De Beers’ Grand Prairie facility was completed in May.

Diamond recovery from the bulk sample is taking place at De Beers’ GEMDL laboratory in South Africa, and recovered diamonds are being sent to De Beers’ Diamond Trading Company in London for cleaning and valuation. Results will be released during the third quarter.

The Tuzo bulk sampling program was designed to recover about 1,500 carats using two 24-inch large-diameter drill rigs.

Nine holes were drilled in total, with seven holes to depths between about 100 and 130 meters and two holes to roughly 300 meters. A total of about 1,390 meters were drilled.

Evans says the company has completed exploration and is in the process of permitting the mine through the Mackenzie Valley. He expects the permitting process to take another 18-24 months and that the mine will be in production towards the second half of 2012.

Evans predicts an increase in prices for rough diamonds of between 30% and 40% this year, following an increase last year of 25%. Prices are already up 20% over last year.

“De Beers announced last week that they’re going to increase the rough diamond price again this month,” Evans says. “For a long time analysts have been forecasting a 100% increase in diamond prices by 2012 and I think that’s going to happen a lot sooner.”

He attributes that to the diamond shortage and the fact that there has not been a major diamond discovery since the Gahcho Kue discovery eleven years ago.

There are only about 25 operating diamond mines in the world today, Evans adds, and most of them are coming to the end of their life.

“Nothing has been found since Gahcho Kue and if anyone found a new deposit now it would take at least ten to fifteen years before it was brought into productionthere’s an acute shortage of large gem-quality diamonds.”

In mid-day trading, Mountain Diamond was up 37 a share to $4.88 on a trading volume of 119,210. Over the last year it has traded in a range of $3.77-$5.56 per share.

In a research note to clients today, analyst Raymond Goldie of Salman Partners, who has a buy on the stock, has set a target price of $5.20 per share.

“Noting that most of the value in a diamond mine comes from only a few large and rare stones, we consider that the discovery of such a large diamond in a sampling program is a good harbinger of potential profitable production,” Goldie says.

Mountain Diamond has 59.9 million shares outstanding.