Karelian Diamond Resources: the hunt for diamonds

Shares in Karelian (LON: KDR) — named for the craton it explores — have almost halved over the past five years to circa 1.6p per share, leaving the company with a £2 million market capitalisation. But to be fair to Karelian, it’s not the only junior resource stock to suffer from weak sentiment.

The company is possibly not on many radars — this is not going to be a core portfolio stock like Jubilee or Sovereign Metals. But as a speculative risk play, Karelian could deliver a solid return from this price point.

Let’s dive in.

Mining AIM: Karelian strategy

Karelian has a well-established diamond exploration program in Finland, and a separate exploration programme for nickel, copper and PGMs in Northern Ireland. The company’s core aim is to discover a world class diamond deposit in Finland, comparable to the world-class Lomonosov and Grib deposits, sharing similar geology across the border.

Karelian has already found a green diamond in the Kuhmo area of the country and has identified a series of potentially diamondiferous kimberlite targets. A follow-up excavation and drilling programme is now in progress.

Further, a mining permit to proceed with development of the company’s Lahtojoki diamond deposit, which has a significant percentage of pink diamonds, is being processed — this would be the first diamond mine in Europe excluding Russia.

Of course, diamond miners are in general struggling. The artificial scarcity created by major suppliers is being seriously challenged by synthetic diamond production — though older mines are now starting to be exhausted, and naturally occurring coloured diamonds remain highly valuable.

For context, pink diamonds potentially contained within the Lahtojoki diamond deposit can fetch 20 times more than colourless diamonds, with pink diamond revenue from Rio Tinto’s recently closed Argyle mine accounting for 50% of total revenue and just 5% of mine production.

Or to simplify this: Karelian is after coloured diamonds, which remain largely unaffected by the weakening economics of their colourless cousins. 

Finland remains an attractive mining hub — with skilled labour and logistics — including excellent infrastructure such as direct road access and power supply to Lahtojoki. 

Then on 25 January 2024, Karelian announced the extension of its exploration permits in the Riihivaara region of Eastern Finland, granted by the Finnish Safety and Chemicals Agency (Tukes) for an additional three years, which is the maximum period allowed per extension.

Permits Extended:

1. Riihivaara 26: Covers the company's kimberlite (olivine lamproite) discovery.

2. Riihivaara 24, 24a, and 24b: Covers adjacent areas.

3. Riihivaara Kimberlite Discovery: Located approximately 10 kilometres south of the green diamond discovery site. The kimberlite comes to the surface and extends for at least 350 meters — the dyke is open in both directions along strike, with widths up to two metres. Drilling has shown the dyke dips at about 50 degrees to the Northeast and intersects kimberlite at deeper levels.

Key facts to consider:

• Abundance of diamond indicator Group I eclogitic garnets.
• Presence of diamond-type chromites.
• Ilmenite analysis indicates a good diamond preservation index.
• Indications suggest more than one source may be present.
• Riihivaara permits are within an emerging kimberlite field with 20 regional anomalies identified.
• Proximity to the Seitaperä diamondiferous kimberlite, the largest known kimberlite in Finland, located approximately 8 kilometres northwest of Riihivaara.
• The extension of the Riihivaara exploration permits allows Karelian Diamond Resources to continue their exploration in an area with significant potential for diamondiferous kimberlites.

Half-year results — important details

29 February 2024 saw half-year results covering the six months to 30 November 2023 — here’s key updates:

• The period was one of continued progress in relation to the development of the Lahtojoki diamond deposit in the Kuopio-Kaavi region of Finland. The proceedings to establish the mining concession are now at an advanced stage. A mining concession application has already been approved by TUKES (the Finnish mining authority). Following the order of TUKES, the National Land Survey has carried out the process in relation to ground rental compensation for the local landowners and is now finalising the appeals by two landowners regarding the amount of compensation and the mine boundary.

• Land possession for the duration of the mine is a major step forward in the Company’s proposed development of the Lahtojoki deposit. The diamond mining project covers 71 hectares (176 acres) with the actual kimberlite pipe having a surface area of 16 hectares (40 acres). 

• The company’s exploration programme in the Kuhmo region of Finland continues to be highly encouraging up-ice of the Company’s discovery of a green diamond. Results from the Company’s basal till sampling suggest that two of the sample locations may be close to the source of the green diamond.

Following the court hearing on 21 May 2024, the Finnish Land Court has noted it will announce its judgment on 12 August 2024 — again, finalisation of land possession for the duration of the mine is a necessary step forward in relation to the Company’s proposed development of the Lahtojoki diamond deposit.

Electron microprobe analysis

In early April 2024, Karelian then announced the results of electron microprobe analysis of kimberlitic garnets from the till samples taken close to the location of the discovery of the green diamond.

Technical details:

• Results from Electron Microprobe Analysis by Renaud Geological Consulting confirmed the presence of a diamond stability field.
• Analysis identified 19 G10 (harzburgitic), 19 G9 (lherzolitic), 15 G5 (pyroxenitic), and 7 G4 (eclogitic) garnets.
• Presence of G10D (harzburgitic) garnets and other diamond-facies garnets (G4D and G5D) indicated diamond potential in the Kuhmo target area.
• CaO versus Cr2O3 contents plot further confirms material derived from Earth's mantle diamond stability field.
• Discovery of the green diamond down-ice, alongside G10D, G4D, and G5D garnets, suggests a deep-mantle kimberlite source.
• A5-23-01 and A5-23-03 sample locations are identified as potentially very close to the kimberlitic source of the green diamond.

Conroy noted that ‘These results are a further and very important step forward in bringing to a successful conclusion the search for the origin of the green diamond discovered by the Company in the Kuhmo region of Finland.’

Northern Ireland licences update

In the recent update on Northern Ireland, an independent geological assessment conducted by PGE, Nickel-Copper sulphide, and Chrome and Iron-Titanium-Vanadium Oxide mineralisation authority Dr Larry Hulbert has confirmed significant potential for Nickel, Copper, and Platinum Group Elements within Karelian Diamond’s licence areas.

Hulbert boasts over 40 years of expertise in Mafic-Ultramafic Rocks Metallogeny. His assessment, prompted by the discovery of indicator minerals back in October 2023 during stream sediment sampling, highlights the striking similarities to prolific mining regions such as the Mid-Continental Rift system in North America's Baraga Basin, which hosts the Eagle and Eagle East deposits. 

Additionally, parallels were drawn to other renowned mining districts like Norilsk in Russia (Triassic) and the Emeishan Large Igneous Province in China, both recognized for their world-class Ni-Cu-PGE deposits. 

He has recommended using these deposits as a blueprint for Karelian's exploration strategy, and has identified several specific exploration targets within Karelian's licences and proposed the establishment of a comprehensive database integrating geology, geochemistry, geophysics, remote sensing, and Geographic Information System (GIS) data, including TELLUS and gravity geophysical datasets.

Hulbert enthused that ‘what would have been considered as a low potential Ni-Cu-PGE exploration area in the past (pre-1995) have changed as a result of more recent discoveries and subsequent development of new exploration models. Recognition of similar geological and metallogenic environments, regardless of geological age, like that between the Proterozoic Baraga Basin Eagle mining camp setting and the KDR property is what will lead to new Ni-Cu-PGE discoveries. What was once not obvious is now obvious!’

Conroy enthused that the review was ‘extremely encouraging… We look forward to following up on the targets recommended by Dr Hulbert.’

Recent fundraising

Karelian has just raised £328,747 before expenses (including £54,747 from directors) at 1.5p per share — a discount of some 38.8%. Funds are to be used across all licences and for general working capital. Each placing share carries half a warrant at 3p per share for 12 months, creating almost 12 million warrants.

It’s worth noting that the loss after taxation for the half year ended 30 November 2023 was €136,351 — a cash burn of around £19,000 per month. This placing should last a very reasonable length of time.

The bottom line

Karelian Diamond Resources is now cashed up for the medium term and will have its minor legal spat adjudicated next month. Meanwhile, exploration at various assets continues apace and Lahtojoki remains in a decent position to be developed.

Diamond.