Those in the daredevil business of Canadian diamond exploration love to recount
the tale of Chuck Fipke. This stocky, bearded geologist trekked the barren
tundra of the Northwest Territories for 10 years until finally, in 1991, he
found one of the tiny, rare, tube-shaped volcanic rocks known as kimberlite pipe
at Lac de Gras, nearly 200 miles northeast of Yellowknife in the Northwest
Territories. It indicated that he had found his quarry: a lode that would become
Ekati, Canada’s first diamond mine.
 | | (Photograph by Aber Diamond Corporation.) |
While luck and sheer tenacity benefited
“One More Sample Bag Chuck” (a moniker his colleagues thought up to reflect his
dogged determination), he would not have found his fortune if he had not first
raised capital for exploration. Fipke and his partner, geologist Stuart Blusson,
formed an exploration company called DiaMet in 1984, and floated it as a penny
stock on the Vancouver Exchange. Fipke peddled shares to friends; his barber
reportedly bought in at 17 Canadian cents a share, as did the owner of a Greek
restaurant in his hometown of Kelowna, B.C.
Canada now has hundreds of
diamond exploration companies like DiaMet. Known as juniors, they seek capital
through public listings on the Vancouver or Toronto exchanges. Nerveless
investors may buy in early in a junior’s life for, literally, pennies. Most of
these companies fail in their quests to find the next Lac de Gras, and end up
like most penny stocks—worthless.
TOP VIEW
Hundreds of intrepid geologists are trolling beneath Canada’s
glacial crust for signs of diamonds. Optimists claim the eventual haul will rival lodes in Botswana or Russia. Small, public diamond exploration companies
offer a way for investors willing to bear large risks to test that theory. |
However, the lure of riches in this new
mining frontier continues to attract investors, many of whom buy in at the
ground floor—the juniors’ exploration stage. If the company subsequently obtains
an optimistic feasibility study on a site, it can either partner with or be
acquired by a large, capital-rich mining company. At this point, the original
investors will have reaped a significant return.
The Ekati diamond cache was
hidden under one of the thousands of unnamed small lakes that dot Canada’s far
north. To finance production, Fipke formed a joint venture with Australia-based
BHP Billiton, which provided funding to drain the lake and, in 1998, start
mining. Two years later, BHP bought DiaMet for nearly $580 million. Fipke and
Blusson have each retained 10 percent stakes in the project, which now supplies
some 6 percent of the world’s diamonds.
Observers believe that the
high capital costs of mining diamonds will eventually cause the Canadian
production industry to fall into the hands of the mining behemoths, especially De
Beers, BHP and U.K.-based Rio Tinto. Along the way, however, juniors and their
investors are occasionally making tidy profits.
Dan Bergman, of Kelowna,
retired when he was 40, after amassing a fortune in the real estate business. On
the lookout for new investment opportunities, he heard about DiaMet from a
geologist friend who had worked for Fipke. Bergman read up on the arcana of
diamond exploration and took a hard look at the company’s claims. He decided to
buy DiaMet stock when it was trading at 75 Canadian cents. He sold it at $39
when the mine went into production. “I did quite well on that,” he says. In
2003, he put $40,000 into another junior, Shore Gold. Today his stake is worth
nearly $300,000.
|
