Kennady's shares are more than triple what they were a year ago, thanks to strong exploratory drilling results at its Kennady North project in Canada's Northwest Territories. Meanwhile, some other explorers are down more than 90 percent.

Kennady has not yet filed a resource estimate, the first major milestone for mineral projects. It would need to clear economic feasibility studies as well as permitting and raise much more money to become a mine. And like all early-stage projects, it may never get there.

Evans, who believes his company has found some of the highest grades ever recorded in diamond exploration, seems more worried than encouraged by the investor interest.

"What we want to try and avoid is sort of irrational buying of the stock," he said on the sidelines of the Prospectors and Developers Association of Canada convention in Toronto, the biggest annual mining industry gathering.

"I'd rather see a steady appreciation of the share price as we deliver solid results, rather than have speculators drive it up and then face the inevitable."

Successful small explorers, or juniors, tend to rise sharply during early exploration, and perform worse once they are completing feasibility studies and the full cost of building a mine becomes clear.

For more than two years, investors have shunned most juniors. Many complain that the market is no longer giving them credit for discoveries: shares rise on drill results, only to be hammered down the next day. Kennady proves some high quality results can still capture and hold investors' interest.

Parts of Kennady North were discovered about a decade ago, but thought to be small. Mountain Province Diamonds Inc , where Evans is also chief executive, spun out Kennady in 2012. Mountain Province owns 49 percent of the joint venture building the nearby Gahcho Kué diamond mine, where Anglo American's (>> Anglo American plc) De Beers is the majority owner and operator.

On August 6, 2013, Kennady said it had processed a 1.1 ton sample with a grade of 8.44 carats per ton, and shares rose more than 40 percent to C$2.85. More results and a surge in investor interest pushed the stock above C$6 and then, in the autumn, through C$8. But it is volatile, and now well off its highs, at C$4.73 on Thursday.

In October, when many juniors were running short on cash, Kennady closed a C$9 million ($8 million) non-brokered private placement and a C$5 million bought deal private placement.

"We're very particular about who we place the shares with. There were a couple of hedge funds who wanted to grab the stock," said Evans. He wanted investors more likely to hold shares for the long term, so they were not part of the deal.

Evans expects to complete a resource estimate around the end of 2014. Over the long term, he said, regulatory issues will be the project's greatest challenge. He believes the Northwest Territories has Canada's most onerous regulatory regime.

He sold other companies he ran in the past, such as Norsemont Mining, which HudBay Minerals Inc (>> HudBay Minerals Inc.) bought in 2011 to take control of the Constancia project, but he does not expect to sell Kennady, or Mountain Province.

One way to develop Kennady's project might be for Mountain Province to re-acquire the company once a resource estimate is complete. It might be possible to integrate its operations with Gahcho Kué, he said.

Some majors have soured on diamonds - BHP Billiton (>> BHP Billiton plc) sold its stake in the Northwest Territories' Ekati mine last year, and Rio Tinto (>> Rio Tinto plc) tried to sell its own diamond unit, but failed to clinch a deal. Evans believes they were driven out in part by a drought in major discoveries.

"Because it's so difficult to find these, and because they are so profitable (once they are built) we don't plan to sell them," he said. "Our major shareholders, of both companies, are not interested in selling."

($1 = $1.11 Canadian)

(Editing by Andrew Hay)

By Allison Martell