THE DIAMOND PAGE — BHP enters talks with De Beers over Lac de Gras mine

BHP Minerals says it has had discussions at senior levels with De Beers Consolidated Mines about marketing gemstone production from its diamond project near Lac de Gras in the Northwest Territiories.

The project, which is scheduled to come on-stream in late 1998, is 51% held by BHP, with 29% owned by Dia Met Minerals (DMM.A/B-T) and the remainder held by private individuals.

William Zimmerman, manager of diamond marketing for BHP in San Francisco, recently attended the Paydirt Diamond Conference in Perth, Western Australia, where he commented on his company’s involvement in these discussions. He stressed that BHP is proceeding cautiously, as the company has substantial assets in the U.S., where cartels such as De Beers are prohibited from operating.

He added, however, that “there are some practical options open to us for marketing.” One of these would be to sell BHP’s gemstone production outside the Central Selling Organization (CSO), the marketing arm of De Beers. He said BHP’s production from the Northwest Territories will include a high measure of stones similar to those produced in Russia.

Several speakers at the conference remarked that the international diamond market, long known for its equilibrium, is now on shaky ground. Certain recent events have fueled their speculation.

RTZ-CRA has opted to sell independently its production from the Argyle diamond mine in Australia, after the CSO reduced prices for the mine’s smaller-sized, near-gem production (which is largely cut in India).

Argyle, which produces more diamonds than any other mine in the world, is generating revenues equivalent to those projected for the BHP-Dia Met project, but Zimmerman noted that production at Argyle is 10 times the level anticipated for the Canadian project. But unlike Lac de Gras, Argyle is an aging operation nearing the end of its mine life.

RTZ owns Kennecott Canada, which has a 60% interest in the Diavik project, also in the Northwest Territories. Aber Resources (ABZ-T) holds the remainder of the project, which is expected to come on-stream in the next century. Its projected high-quality output and substantial production volumes will doubtless push RTZ even further into the ranks of major producers.

Whether RTZ is up to going head-to-head with De Beers in the market is another matter. According to one industry observor, an alliance between RTZ and BHP would certainly attract De Beers’ attention and render the two Canadian-based producers a potent force in the market.

Zimmerman said BHP had discovered 77 kimberlites on its claims in the Territories and that 20 of these had been sampled, with five chosen for production. He was coy when asked whether BHP was considering altering its mining plan to bring on production from other, possibly higher-grade pipes, stating that the company was proceeding under its current plan.

He said BHP intends to fill two-thirds of the jobs at the mine with northerners, half of whom will be aboriginals. The company does not intend to develop a diamond-cutting centre in the region, though it would not discourage independent groups from doing so, Zimmerman said.