The diamond market has seen increased M&A activity in recent months, and James Kwantes, editor and publisher of Resource Opportunities, believes further developments could be in store.
He noted that Eira Thomas recently took over as CEO of Lucara Diamond (TSX:LUC), commenting, “I think she’s going to build something at Lucara.”
Kwantes added, “Lucara has kind of an interesting problem. Their asset, their mine is so rich that almost anything they buy will kind of dilute what they have. But I think they realize that as a single-asset company they have to grow. I’m sure Eira has plans to do that.”
“I like graphite because it’s a battery metal — lithium gets a lot of buzz, cobalt has gotten a lot of buzz … but graphite is still important for batteries, yet you don’t hear much about it,” he explained.
Watch the video above for more insight from Kwantes. You can also read the transcript below or click here to view our full PDAC playlist.
INN: We’re here at PDAC, and it’s the last day of the conference. How did you find it? What was the mood like?
JK: Lots of energy. There’s always lots of people, but a lot of energy this year and it seems like things are on the upswing.
INN: Does that seem justified to you?
JK: I think so. Gold‘s trading fairly choppy, but the base metals have done well and there’s still supply/demand issues. [We’ve] got lots of demand and depleting supply, especially in some of the metals like zinc, for example. I think we’re on an upswing. And there’s also some energy around the battery metals, right? I cover graphite and a graphene company as well.
INN: It’s our first time talking, at least on camera. Can you tell me a little bit about your background for those who might not know?
JK: My background is in journalism, I was in newspapers for 20 years. The last 10 at the Vancouver Sun. I was primarily an editor there, but I was a part-time mining writer as well. It was actually great practise for what I’m doing now. They gave me one day a week to write about mining in Vancouver — lots going on there. So I had to be very selective about who I interviewed and what stories I told. It’s been great. It was great preparation for the investment newsletter that I write now.
INN: And with your newsletter, what are your goals there? What do you bring to people?
JK: My goal is to just try to find under-the-radar stories. Ones that people aren’t talking about, that haven’t been discovered yet by the broader investing community — or by other newsletter writers for that matter. The idea is get in before the herd does and benefit, pretty much.
INN: We were talking previously about diamonds. Tell me your thoughts on the diamond market right now. What’s going on?
JK: The diamond market has over the last few years — it’s had its ups and downs like the other [markets]. But I think — there’s an expert out of New York, Paul Zimnisky, who’s a diamond analyst. He says there’s a bit of an upswing both in prices and [it’s] positive on the producer side as well. I cover specialty diamonds, so the companies that I cover are less affected by rough diamond prices because the diamonds that they recover are in a different price category.
INN: We had some interesting diamond space news last week surrounding Lucara. Can you talk a bit about that and what that could mean for the company?
JK: Lucara is a Vancouver-based producer of very large diamonds like Lesedi La Rona, 1,109 carats.
INN: Which you held.
JK: Yes, yes. Maybe I’ll backtrack. Part of my work is doing site visits to different countries, and so I was fortunate to visit Lucara’s Karowe mine in Botswana about a year ago, which is a — it’s a great asset. The company makes a lot of money, they pay a dividend. And I held Lesedi La Rona, the 1,100-carat diamond, in my hand, it happened to be there. That was before they sold it for US$53 million.
I initiated coverage on Lucara shortly after they recovered [two very large stones], and after they hiked the dividend. And interestingly the … stock price now is almost exactly where it was at that time.
Lucara announced that Eira Thomas is taking over as CEO about a week ago. She’s a co-founder of the company and she was previously a director. Eira’s well known in the mining world, and particularly in the diamond world. She’s co-founded two diamond companies, [and] Kaminak Gold sold to Goldcorp (TSX:G,NYSE:GG) for $500 million. And so I think she’s going to build something at Lucara.
Lucara has kind of an interesting problem. Their asset, their mine is so rich that almost anything they buy will kind of dilute what they have. But I think they realize that as a single-asset company they have to grow. I’m sure Eira has plans to do that.
INN: Yes, and we’ve seen already this year a little bit of M&A in the diamond space. So maybe more of that potentially.
JK: Yeah, there’s actually been a fair bit. Dominion Diamond, the owner of Ekati and Diavik, was sold to a private company. Kennedy Diamonds (TSXV:KDI), an explorer, was purchased, sort of repurchased, by Mountain Province Diamonds (NASDAQ:MDM).
I also follow a small junior called North Arrow Minerals (TSXV:NAR). Eira’s father, Gren, is actually the chairman of North Arrow. I think, Eira taking over — there’s a lot of connections between North Arrow and Lucara already. Lukas Lundin is North Arrow’s largest shareholder. And so this is just one more connection. It’s kind of a connect-the-dots story, and I think it’s bullish for North Arrow as well.
INN: We’ll see what happens. Other than diamonds, what types of opportunities are you looking at and introducing to your audience?
JK: Two of the latest companies I’ve initiated coverage on, one’s a platinum-group metals exploration company with an asset in Montana, very near the Stillwater deposit, that one’s done well. I also cover a graphite and a graphene play. I like graphite because it’s a battery metal — lithium gets a lot of buzz, cobalt has gotten a lot of buzz, especially with the supply issues. But graphite is still important for batteries, yet you don’t hear much about it, and there’s not that many high-quality companies.
Graphite’s interesting because the value actually comes from engineering graphite for the finished customer. So it’s not in mining it, it’s in engineering it for the specifications of battery manufacturers. It’s a difficult business to succeed in. The companies that can succeed will do very well, I think. Graphene is sort of a new metal that’s very interesting — lightweight, stronger than steel and very conductive. I think that’s going to — we’ll be hearing a lot about graphene in the next, in the coming years as well.
INN: Do you think we’ll see more hype or excitement building in graphite to catch it up to lithium and cobalt? Or is it going to stay little quieter?
JK: I always pay attention at the shows to where the crowds are and aren’t. Last year, for example, there was a diamond panel of five companies, including Lucara and North Arrow, and some other high-caliber companies. There was hardly anybody there. There were maybe 20 people there, but Lukas Lundin was there, Eira Thomas was there. Chuck Fipke, who discovered Canada’s first diamond mine, was in the audience, and hardly anybody else. I found that interesting, and there’s more buzz this year.
I was at a Vancouver investment show, and there was a graphite panel. Typically at that show there’s three companies with a moderator. But there were only two graphite companies. I found that quite interesting given that it’s a battery metal, what’s happening with electric vehicles — and yet there were only two companies at this show. That was a bit of indicator to me that if you can identify a very good company you’ll probably do it very well. I think the buzz around graphite will grow, but particularly graphene. It’s one to keep an eye on.
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Securities Disclosure: I, Charlotte McLeod, hold no direct investment interest in any company mentioned in this article.
James Kwantes owns shares of North Arrow Minerals and Lucara Diamond. North Arrow Minerals is a sponsor of his newsletter.
Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.