A final feasibility study indicates that the development of Canada’s second diamond mine will cost $405 million more than expected and require an additional year to complete.
In anticipation of a decision by the federal minister of the environment,
The project is on East Island at Lac de Gras, 300 km northeast of Yellowknife and 30 km southeast of the producing Ekati diamond mine. Aber holds a 40% interest in the project, whereas Diavik Diamond Mines (DDMI), a subsidiary of London-based
Details of the study, prepared
by the engineering firm Nishi Khon/SNC-Lavalin and DDMI, had not been expected until after the minister’s decision. A positive decision is required before the project can advance to the permitting stage. Aber says government approval is expected by September and final permits, by this fall.
The 1-year delay is due to the longer-than-expected permitting and construction period required for the water retention dykes. Construction is still expected to begin in 2000, provided all necessary permits and approvals are received this fall.
According to the project implementation plan, construction of the dykes would begin in 2001; de-watering and overburden removal, in late 2002; and production, in 2003.
Based on a production rate of 1.5 million tonnes per year, the capital cost is now projected to be $1.28 billion. (By comparison, the prefeasibility study called for production of 2 million tonnes per year at capital cost of $875 million.)
The final estimate includes $163 million for inflation, design allowances and contingencies. Capital expenditures include construction costs of the mine, the main processing plant, a diamond sorting plant and dykes.
The study calls for an additional $263 million to be spent on construction of the A-418 and A-21 dykes in 2006, plus $45 million for underground development, bringing the total price tag to $1.6 billion. The higher costs have extended the original 1-year payback period by a year and a half.
The market responded to the news by hammering Aber’s stock. On the first day of trading after the announcement, the issue dipped as low as $10.85 and closed at $11.85, down $4.40 from the previous day.
On a brighter note, grades in the upper part of the A-154S kimberlite pipe have improved, indicating that it and the A-154N pipe could be mined (by open-pit methods) as early as 2003. The A-418 and A-21 pipes would be mined in 2010 and 2013, respectively, whereas underground mining of the A-154S and A-148 pipes would occur later.
After the inital 2-year ramp-up period, the mine is expected to produce 6.3-7 million carats per year at full open-pit production.
Operating costs over the first 10 years are pegged at $85 per tonne of ore processed, whereas the prefeasibility estimate was $72 per tonne.
There is no change in Diavik’s minable reserve estimate, which stands at 101.5 million carats contained within 25.6 million tonnes of material grading 3.96 carats per tonne. The estimate includes only measured and indicated resources to a depth of 420 metres. The inferred resources, which total 12.5 million tonnes grading 2.38 carats (or 29.8 million carats), are excluded from the feasibility study and mine plans.
Aber retains the right to market its 40% share of the diamond production and has agreed to sell a substantial portion to Tiffany’s of New York. Aber has $213 million in working capital and plans to raise the rest of its share of the capital cost without further equity financing.
The nearby Ekati diamond operation has a milling capacity of 3 million tonnes per year, or nearly twice the capacity of Diavik. Also, Ekati’s capital cost rang in at $700 million. The mine was built in 18 months and has an operating cost of about $51 per tonne. One costly difference between the two projects is that Diavik requires the construction of water retention dykes.
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