Index Member Comment - July 20, 2012: KDI hits pipe-like kimberlite within
Kelvin-Faraday-Hobbes corridor

Kennady Diamonds Inc announced on July 19, 2012 that it had intersected 122
metres of kimberlite with a 45 degree angled hole that was stopped in
kimberlite to allow the hole to be surveyed. Drilling with two rigs on the
100% owned Kennady North property in the Northwest Territories began when
KDI listed for trading on the TSXV on July 10, 2012 after being spun out
from Mountain Province on a 1 KDI for 5 MPV basis. The stock has been a
skimpy trader since listing; apparently many MPV shareholders have not yet
received the KDI shares in their accounts. So far KDI has drilled a hole on
the Faraday kimberlite at the northern end of a kimberlite corridor last
explored in 2002 by De Beers. The first hole twinned a De Beers hole that
yielded a micro diamond curve suggestive of a macro grade comparable to the
Gahcho Kue pipes. The second hole was drilled on what Patrick Evans
described as an ordinary geophysical target halfway between the Faraday and
Kelvin kimberlites because it happened to be convenient to do so while
moving the rig to the Kelvin kimberlite to twin its historic De Beers hole.
If we assume a near vertical pipe-like body, the 122 m interval at 45
degrees implies a minimum diameter of 86 metres, a pretty impressive start
for a program supposedly delineating a dyke system. No information about the
size of the geophysical anomaly was available. The second drill is testing
targets to the west of the corridor; hitting a pipe-like kimberlite with the
second rig would be an important development because De Beers intersected
only very narrow kimberlite intervals in this area. KDI's web site is not
yet operational and little has been published beyond the generic material in
the technical report, so it is difficult to evaluate the potential of this
exploration play. For background see my Spec Value Hunter Comment - May 11,
2012. Spec Value Hunters who own KDI as a result of the Mountain Province
spinout should not be in a hurry to sell.

With only 16,143,112 shares fully diluted, the implied project value at
$1.30 for a 100% interest is only $21 million. KDI, which has $3 million
working capital, is in no hurry to finance until it has a better sense for
the rate at which it can convert geophysical targets into kimberlites. If
Kennady North evolves into a discovery play with a tonnage footprint
comparable to the Gahcho Kue cluster, with similar micro-diamond results,
the stock could rapidly appreciate to double-digit price levels. I would
love to recommend KDI as a Spec Value Hunter buy, but there is no point in
doing so until liquidity conditions improve.



Should Kennady North turn out to be a Big Anomaly turned into a Big Diamond
Discovery we will likely see a revival of interest in the surrounding area.
Some speculative staking has already been done to the north of the Kennady
North claims which De Beers discarded a decade ago and which Mountain
Province declined to stake on behalf of KDI, suggesting that this area to
the north is unprospective. Diamond speculators frustrated with the
volatility and lack of liquidity in KDI should take a look at GGL Resources
Corp which owns 40% of a strip of land immediately to the south of Kennady
Lake where drilling within the similar sized Blob Lake yielded no
kimberlite. De Beers owns the other 60% which may or may not be part of the
51:49 Gahcho Kue JV with Mountain Province. The geophysical survey flown
over Gahcho Kue and Kennady North did not include the area to the south,
presumably because De Beers is as unhopeful about this land as it was about
the Kennady North claims. The speculative play is that if KDI demonstrates
that De Beers overlooked substantial diamond rich kimberlite on the Kennady
North claims, and then next winter De Beers discovers it had overlooked
signifiiant pipes within Kennady Lake itself, then one will have to wonder
if the work done on Blob Lake immediately to the southwest of Kennady Lake
by De Beers and GGL did not perhaps overlook something big there too.

GGL does own other claims in the area 100%, including the diamondiferous but
low grade Doyle Lake sill to the south. While there is no promise to the
north of KDI's Kennday North, the presence of the Doyle Lake sill suggests
that this area to the south of Gahocho Kue could have potential that a new
pair of eyes might discern. GGL is not in a position to do any meaningful
work due to its bloated capital structure and poor financial condition.
However, somebody is ponying up $150,000 through a private placement of 3
million units at
.05, though the hard dollar nature of this financing
suggests that it is intended for administrative overhead. This follows a
partly flow-through private placement in September 2011 consisting of 1.6
million units at
.05 of which insiders took down 1 million units,
including 600,000 by Nick Demare. Most interesting is that the CEO Ray Hrkac
bought 50,000 shares at
.03 in the open market on July 4, 2012, the first
time he has bought stock in the market since 2005 not counting a 4,000 share
purchase at
.025 last February. These are puny amounts of money, but GGL's
fruitless multi-decade quest for diamonds did not make Ray a rich man, and
thus this financially tiny purchase may be the first flicker of a new
diamond cycle for GGL.