Rubies are Red, Analysts will be Blue:

Jonathan Toop
Jan 30, 2007

Attending the Vancouver Cambridge House Investment Conference this January as a retired private investor, I was quite surprised to see that the biggest investment news in the days leading up to the conference seemed to receive absolutely no recognition. Most analysts who I talked to, and there were several, refused to look at, acknowledge, or in some cases even believe this incredible news. But the results were staring them in the face, backed up by individuals with professional credentials, specialized knowledge, and enthusiastic understanding that others would do well to heed. The analysts did not comprehend it, they ignored it, they ridiculed... it will you believe the news?

The news that I am talking about is 1937 grams a tonne, or 9685 carats a tonne, of gem grade ruby and pink sapphire taken from a 30 tonne sample representative of a 140m portion of what appears to be a multi-kilometer mineralized trend in Greenland. An initial 0.24% of this gem grade material was cut and appraised at up to US $3220 a cut carat, adding an initial $770 a tonne of value to final results that obviously will be much higher. The company that found these rubies is True North Gems, TGX on the TSX Venture Exchange.

To appreciate why 9685 carats a tonne of gem grade ruby is worth getting excited about, a few things need to be understood:

1. Rubies are extremely rare. High quality rubies are 50 times rarer than high quality diamonds [1]
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2. Rubies are very valuable. According to the American Gem Trade Association (AGTA), "Throughout most of recorded history, ruby has been the most valuable of gems", and this is readily apparent when one looks at such things as a recent auction in which an 8.6 carat ruby sold for $3.6 million.
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3. Rubies are almost always treated before sale. Given the great rarity of attractive natural stones, which command exceptionally high prices, varying degrees of enhancement are applied to more common and flawed rubies to make them attractive, saleable, and affordable to consumers. [2]
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4. Ruby is extremely durable. Being a gem grade variety of the mineral corundum, ruby is second only to diamond in hardness, and so durable that its non-gem form, emery, has long been used as an abrasive in sandpaper. Similar to diamond, the durability of ruby is an important factor in is high value as a gemstone.
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5. Ruby is mineable from hard rock. Although rubies typically come from alluvial deposits, True North Gems has successfully tested extraction flowcharts similar to hard rock diamond processing; the proof of this is in the piles of rubies liberated for grading and display.
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6. The ruby market is chaotic and this spells opportunity. The vast majority of the world's ruby comes from some of its most inaccessible regions, the foremost being pariah state Myanmar (AKA Burma), and the business is plagued with smuggling and conflict. Extreme and undocumented treatments often occur as the stones change hands many times - making the retail world yearn for a predictable and trustworthy supply of good quality, reputably certified goods!
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7. Rubies are red. Red is the most cherished colour of the Chinese, being associated with happiness and prosperity. With its rapidly growing upper class obsessed with ostentatious display of wealth, rubies may answer the oft-asked question, "How can one profit from China's emerging prosperity?" This is just one of many marketing possibilities for a company with a potentially large supply of rubies to sell.

Perhaps as a function of the myopia of some resource analysts, True North's share price is vastly discounted when compared to its closest cousins, diamond stocks. Note that the investment allure of diamond mining has largely derived from a few vast kimberlite pipes whose massive tonnage made up for typically miniscule diamond grades measured in carats per hundred tonnes. In spite of this, the most talked about diamond companies in Canada these days have pretty much given up on finding large, diamondiferous pipes, and are instead focused on dykes whose dimensions of a few meters width compare directly with True North's Aappalutoq ruby mineralization. These companies now face recovering massive tonnage at great cost in order to statistically predict mining economics in the low-grade world of diamonds that rarely surpass a carat a tonne or $100 a carat yields. And yet, they are the favorites of many analysts, generating much press. True North Gems, 9620 carats a tonne and all, stands virtually alone and seemingly ignored.

I would challenge anyone to compare the higher market caps of such stocks as Hudson Resources and Shear Minerals with True North Gems and consider that their flagship properties have so far produced stones measured in milligrams as indications of their promise, whereas True North has produced 58 kilograms of valuable gem grade material from sampling of similar width mineralization extending from the surface. Rubies seem to induce a lower comfort level for investors and analysts than diamonds because they are a less known entity, but there is information on rubies waiting to reward those who are diligent enough to do their own research. True North Gems remains a low-hanging, unpicked fruit for investors, and the success that awaits owners of a 9620 carat a tonne ruby deposit may well make analysts who have made such statements as "I have absolutely no interest in looking at rubies" feeling blue in the years to come.

REFERENCES

(1) "Dealer Jack Abraham estimates rubies are 50 times rarer than diamonds but cost only a few times more for similar size and quality. In today's market, rubies appear to be a comparative bargain". Fred Ward. "Rubies and Sapphires", 2003 Gem Book Publishers. Bethesda, USA page 61

(2) On page 16 of the Jan/Feb 2007 edition of "The Guide - the Guide to Wholesale Gem Pricing"", published by Gemworld International's award-winning editor Richard Drucker, ruby availability and pricing is compared based on treatment. For stones of similar appearance and 2 carats weight, those filled with glass are said to be one million times more common than untreated stones, and command a theoretical value of $50 compared to $30,000. In between these extremes are stones that have undergone varying degrees of thermal enhancement (from 10 to 1650 times more common than similar looking untreated stones and valued from $3000 to $13000) and those with surface or lattice diffused colour (100,000 times more common than untreated stones, commanding values from $100-$500). True North has so far displayed rubies that are natural and unenhanced - the best having potential for very high prices, and others having potential to be attractive and saleable at lower prices after treatment.

Jonathan Toop
email: jontoop@msn.com

Disclaimer: Jonathan Toop is a retired Canadian private investor and a shareholder in True North Gems. He has not been paid by True North Gems to write this article, nor has True North in any way invited or encouraged this piece, which is an expression of opinion and not a recommendation to buy. Bob Moriarty, on the other hand, has walked on rubies in Greenland and has welcomed this opinion piece :-). Readers are recommended to do their own research, including reading my previous article on Greenland rubies, and any feedback, positive or negative, is highly welcome at jontoop@msn.com.

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