Investors interested in the diamond junior sector should set out with an awareness of three key facts: the process of taking a mine from exploration to production is long, expensive and has an extremely low success rate. But those who select the right companies at the right times can reap rewards that are worth the risks. Making such selections is best done with an understanding of exploration, a diamond junior's first step on the path to production.
The journey from prospecting to production can take six to 10 years, according to a diamond industry
from Bain & Company. For a greenfields exploration project, the probability of finding a commercially viable diamond deposit is about 1 to 3 percent, the report also states.
Few companies set out with the aim of making new discoveries. Those that do are the riskiest plays. It is more common to find diamond juniors pursuing projects in areas that have already been identified as likely to have diamonds. Some companies employ a strategy of exploring near-existing mines, but even that is not a fail-proof plan.
Diamond exploration process
Most diamonds are produced from kimberlites. The initial exploration process begins with a company trying to identify drill targets that will reveal an economic pipe. That is when geophysical work, such as soil sampling, till sampling, airborne electromagnetic surveys and gravity surveying, comes in.
Once a prospective target is found, there is always the risk that what lies below the surface is not a kimberlite. There is also the risk that the kimberlite may be barren. In either case, there is no hope of a reward and the company would need to pursue another target.