De Beers uncovers Botswana’s riches

With deep pockets and unmatched experience in Botswana, De Beers is pushing ahead on its evaluation of the promising AK-6 kimberlite pipe, one of 31 known kimberlites covered by the Boteti project, a 51-49% joint venture with AIM-listed African Diamonds (AFCDF-O, AFD-L).

With a surface area of 9.5 hectares, AK-6 is reported to contain at least 58.9 million tonnes of kimberlite in three lobes or intrusive phases. A large-diameter, 13-hole drilling program designed to recover at least 500 carats was completed in 2005-2006. The drilling sampled the pipe’s three lobes on 70-metre centres to a depth up to 400 metres. In total, 726 carats of diamonds were recovered from 2,747 tonnes of bulk sample, giving an overall grade of 26.4 carats per 100 tonnes (or 0.26 carat per tonne).

De Beers has modelled a value of US$125 per carat for the South lobe, which contains the bulk of the resource — 47.7 million tonnes projected to a depth of 588 metres. Diamonds from the Central and North lobes, which together contain at least 11.2 million tonnes to a depth of 360 metres, are modelled at US$170 per carat.

A conceptual mine plan currently envisages a 400-metre-deep open pit, containing 48.5 million tonnes grading 0.24 carat per tonne, equal to 11.6 million carats based on a 1-mm cutoff.

A second phase of large-diameter drilling was completed in September 2006 for a total of 12 holes. The drilling was tightened to 50-metre centres, with two holes going down as deep as 700 metres in the South lobe. So far, 365.9 carats have been recovered from 1,590 tonnes of sample collected from seven of the holes, giving an overall grade of 0.23 carat per tonne. One of the largest diamonds recovered to date from AK-6 is a 13.4-carat stone from the north-central lobe.

In order to collect at least 3,000 carats for valuation, De Beers is collecting additional bulk samples from surface trenching across the pipe.

The AK-6 kimberlite pipe is 20 km west of the Lethlakane diamond mine and 22 km southeast of the Orapa diamond mine. AK-6 is part of the Orapa kimberlite cluster and was originally discovered by De Beers in 1969 through geophysical surveys. It was considered low interest because it was thought to be only 3.3 hectares in size and showed a preliminary grade of just 3 carats per 100 tonnes.

The Boteti joint venture was formed between African Diamonds and De Beers in 2004 to evaluate some 4,000 sq. km of ground in the Orapa region. African Diamonds held licences covering 21 known kimberlites, while De Beers added nine kimberlites of its own to the joint venture, including the AK-6 pipe. The joint venture has since discovered two new kimberlite bodies.

De Beers can boost its interest to 70% by carrying African Diamonds through to completion of a bankable feasibility study. Ownership of the AK-6 pipe has been amended to include an adjacent licence held by De Beers and Wati Ventures, a private Botswana company. The proposed open-pit model for AK-6 crosses onto the neighbouring ground. Under a three-way deal, De Beers will hold 70.27% of AK-6, African Diamonds will have 28.38% and Wati will have a 1.35% stake when the feasibility study is concluded.

Botswana diamonds

Formerly the British protectorate of Bechuanaland, Botswana adopted its new name after gaining independence in 1966. The discovery of diamonds in 1967 transformed the country from one of the poorest nations to the world’s leading diamond producer by value. The country has two of the biggest and richest diamond mines in the world — Orapa and Jwaneng.

Debswana Diamond Co.’s mining operations have been chiefly responsible for transforming Botswana from an agriculturally based economy in the 1960s to a country that has consistently displayed one of the highest economic growth rates in the world. Diamonds account for more than 70% of Botswana’s export earnings, 30% of gross domestic product and 50% of government revenue.

There are four diamond mines operating in Botswana — Orapa, Damtshaa and Letlhakane in the north-central part of the country, and Jwaneng in the southern Kalahari. They are all owned by Debswana, a 50-50 partnership between De Beers and the government of Botswana. A fifth mine, called Tswapong, closed in 1995.

Debswana is the leading mining company in the De Beers group, accounting for 65% of De Beers’ overall output in 2005. It produced a record 31.9 million carats from the four operations in 2005, a 2% increase over 2004.

“We finished within budget for both operating and capital expenditure, and our revenues were also exceptionally good, not only because of the record carat delivery but also because the diamond price rose,” said managing director Blackie Marole in a statement at the end of his first year at the helm of Debswana.

“These achievements are particularly remarkable when looked at against the background of the setbacks that we had at Orapa mine,” he said, referring to the collapse of an access road at the mine, and problems with equipment.

For the first six months of 2006, Debswana has produced 16.3 million carats, a 6% increase over the first half of 2005. Year-end results for 2006 won’t be announced until sometime in February.

Past exploration

The search for diamonds in Botswana began in 1955 in the Tuli block, where three small alluvial diamonds were found along the Motloutse River. In early 1967, De Beers geologists found “abundant” quantities of the kimberlite indicator minerals ilmenite and garnet between the village of Letlhakane and Mopipi Pan, which led to the discovery of the world-class Orapa pipe that same year. Two smaller but payable pipes were discovered in 1968 near Lethlakane, some 50 km southeast of Orapa.

De Beers geologists began prospecting in the southern Kalahari district of Botswana in 1969. The rock formations in the southern district are generally covered by a layer of sand 20 to 100 metres thick. The pipe that later became the Jwaneng mine was found in 1972 under 40 metres of sand and calcrete in the Naledi River valley, 120 km west of the capital city of Gaberone.

The Orapa deposit comprises two intrusive pipes that coalesce near surface, giving a bi-lobal appearance to the intrusion’s expression. The pipe in the northern half of the deposit was emplaced before the southern pipe. The kimberlite body is infilled with predominantly crater facies that have been sub-divided into 14 different geological facies, falling into four major groups. Each unit represents a different phase of crater infill. The kimberlitic material is highly altered and contains a high percentage of clay, which can cause handling problems, but also results in high levels of diamond liberation.

Orapa entered production in 1971 at a design rate of 2.5 million tonnes per year. The processing plant’s capacity was more than doubled in 1978 and by the time a second recovery plant was commissioned in 2000, Orapa had recovered 146 million carats of rough diamonds from the treatment of 199 million tonnes at an average grade of 73 carats per 100 tonnes (or 0.73 carat per tonne).

Reserves and resources at the end of 2000 totalled 653 million tonnes grading 49 carats per 100 tonnes, equivalent to 320 million carats, based on a financial mine model of US$47 per carat to a depth of 660 metres and a bottom stone cutoff of 1.65 mm. The Orapa resource base incorporates four other smaller kimberlites.

Since becoming a private company in 2001, De Beers is under no obligation to provide reserve or resource updates for any of its mines.

De Beers Socit Anonyme is owned by a consortium of three shareholders, including Anglo American (AAUK-Q), with a 45% chunk, Central Holdings Group, representing the Oppenheimer family at 40%, and the government of Botswana, which has the remaining 15%.

In 2005, rough diamond production at Orapa was down 7.3% from the previous year. Debswana recovered 14.9 million carats from the treatment of 16.5 million tonnes ore averaging 90.2 carats per 100 tonnes (0.9 carat per tonne). This compares to 16.1 m
illion carats produced in 2004 from the processing of 16.9 million tonnes grading 95.2 carats per 100 tonnes.

In the next few years, Debswana has a number of projects planned, aimed at sustaining production. This includes investing in a new kimberlite processing plant to replace the aging Orapa 1 plant, which has reached the end of its working life. The Orapa 1 plant currently produces about 6 million carats per year. The new plant, scheduled for 2010, will have the capacity to treat 8 to 9 million tonnes per year.

Lethlakane

The Lethlakane mine opened in 1976 and initially processed only the gravel deposits around the two pipes at an annual rate of 300,000 carats. Once operations began treating kimberlite mined from the pipes by open-pit methods, production rose to 400,000 carats in 1980 and to more than 1 million carats annually by 1994. In contrast to Orapa, the Lethlakane kimberlite is much harder rock and was originally masked by up to 50 metres of Kalahari sands.

In 2005, the mine recovered 1.1 million carats, a 5.8% increase over 2004, from 3.5 million tonnes of kimberlite grading 31.7 carats per 100 tonnes.

Lethlakane is comprised of the 12-hectare D/K1 pipe and the smaller, 3.6-hectare D/K2 satellite pipe, which sits a few hundred metres southeast. The D/K1 orebody is a multiphase tuffisitic kimberlite that has been evaluated by a combination of pitting, bulk sampling and large-diameter drilling to a depth of 470 metres. At the end of 2000, reserves and resources were estimated at 62.6 million tonnes grading 26 carats per tonne, for a contained 16.3 million carats worth US$191 per carat.

Lethlakane is nearing the end of its open-pit life. As the pit gets deeper, the mining rate will be reduced. Letlhakane is the deepest of Debswana’s mines and ensuring slope stability is an immediate challenge. To offset any production shortfalls, Debswana is contemplating the installation of a new processing plant to treat tailings. A feasibility study is planned and the plant should come into production in 2012 at around 6 million tonnes per year.

In 2000, Debswana approved the development of a new small mine, called Damtshaa, which is centred on four small kimberlite pipes (B/K1, B/K9, B/K12 and B/K15) discovered between 1967 and 1972 in an area 20 km east of the Orapa mine. Damtshaa was commissioned in the latter part of 2002 based on a plan to mine 5 million carats of rough stones from 39 million tonnes of ore over a projected 31-year life.

The mine treated 1.3 million tonnes of ore grading 23.5 carats per 100 tonnes to produce 303,000 carats in 2005, a 10% decline over the previous year. There are plans to double production in 2007 with the addition of a second dense media separation treatment plant.

Jwaneng

Jwaneng, the world’s richest diamond mine, opened in 1982 and, up to the year 2000, had recovered 171 million carats from 123 million tonnes of processed ore. At that time, remaining reserves and resources totalled 288 million tonnes of 144 carats per tonne (1.44 carats per tonne), the equivalent of 413 million carats at US$108 per carat.

In the coming years, annual production is expected to vary between 12.5 and 15 million carats depending on the mining plan. A new plant designed to treat 10 million tonnes of ore per year will replace the existing plant by 2011.

At 54 hectares, the Jwaneng kimberlite consists of three intrusive pipes that coalesce above 150 metres depth. The central pipe consists of crater facies kimberlitic infill. The infill is highly altered in the upper levels and contains swelling clays. The southern pipe is similar in composition, but the infilling is much more multi-phase. The northern pipe, on the other hand, consists of a central pyroclastic core that is surrounded by a well-developed peripheral infill, rich in quartzitic material.

Another smaller deposit, 8 km east of Jwaneng, has yet to be mined. The deposit consists of two pipes; one is a tuffisitic kimberlite breccia and the other, a hypabyssal kimberlite. The plan is to mine this deposit from 2010 onwards.

In 2005, Jwaneng treated 10 million tonnes of ore grading 1.56 carats per tonne to produce 15.6 million carats, a substantial 12.3% increase in carat production over 2004. Asset plant utilization rose to 82% in 2005 from a low of about 70% in the year 2003.

“I am particularly pleased with the way Jwaneng has turned around and contributed substantially to the company’s excellent results,” Marole said. “That, for me, is a highlight of 2005.”

Revitalization

Debswana has embarked on a new revitalization strategy, dubbed North Star, recognizing that the current focus on open-pit mining at its aging operations is not sustainable over the long-term. Debswana’s profitability is under pressure because waste mining costs will grow significantly at Jwaneng starting in 2010 and recovery grades will drop at Orapa as the mine goes deeper. The company has begun to gear up for major capital projects, acquiring mineral resource information for new treatment plants and to assess underground mine potential.

Debswana faces capital expenses of about 10 billion pula (US$1.6 billion) in the next five years to build new main treatment plants at Orapa and Jwaneng, and at least one dump treatment plant. In addition, early underground access via a shaft is proposed at Jwaneng in 2007. In 10 years time, Jwaneng is expected to shift mining operations to underground. This will be a new chapter at Jwaneng and extend the life of the operation by another 10-15 years.

“Our profit-to-revenue ratio remains high,” said Marole in Debswana’s 2005 annual review. “Maintaining it at that level is a big challenge as we mine deeper in our open pits and our plants age beyond the 20 years and 30 years at Jwaneng and Orapa, respectively. It will be a major challenge to bring these plants to production as they are each among the largest process plants in the world.”

Group revenue for the Debswana Diamond Co. during 2005 totalled 15.8 billion pula (US$2.55 billion), reflecting a 35% increase over 2004. The major contributing factor to this increase was diamond sales, which totalled US$3.1 billion and accounted for a 24% increase over 2004.

In May 2006, De Beers signed a defining deal with the government of Botswana covering the renewal of the Jwaneng mining lease, and the harmonization of the Orapa, Letlhakane and Damtshaa licences, for the next 25 years. An agreement was also reached on the sale of Debswana’s production to De Beers’ marketing arm, the Diamond Trading Company (DTC), for a further five years. As part of the negotiations, the DTC is establishing a joint marketing venture with the Botswana government.

The newly formed DTC Botswana will sort and value Debswana’s diamond production and support the development of a local diamond manufacturing industry in Botswana. De Beers also intends to aggregate diamonds from around the world in Botswana through the creation of another wholly owned DTC entity. Over 3,000 new jobs are expected to be created in downstream diamond-related activities alone.

Business emphasis in the London DTC office will shift from being a rough diamond processing centre to one that concentrates on serving the needs of sightholders and driving global demand for diamonds.

In 2005, De Beers spent US$113 million on exploration, 60% of that in Africa. In Botswana, the company holds some 46,000 sq. km under prospecting licences, either in its own rights or in joint-venture partnerships with African Diamonds, Firestone Diamonds (fdi-l) and Wati Ventures.