De Beers gets frostbite in Canada’s Arctic

The week ended Feb. 9, the sixth trading week of 2007, was punctuated by another setback for Canada’s emerging diamond mining industry, with De Beers taking a severe haircut at its new Snap Lake mine, in the Northwest Territories.

• While De Beers’ annual results showed that the diamond powerhouse had repeated for a second year its record output of 51 million carats and decent profits, the company took a US$965- million writedown on its Canadian assets — another way of saying it dramatically underestimated the cost of building and operating Snap Lake.

The move is another blow to Canada’s diamond sector — still in a funk over Tahera Diamond’s slow death at the Jericho mine in Nunavut — and yet another lesson that mineral deposits in the Far North need to be of exceptionally high quality and size, such as Ekati or Diavik, for miners to be bothered developing them.

But De Beers is taking the writedown in stride and pushing forward with one of the largest-ever expansion periods in its history: Snap Lake started production in late 2007 and is now ramping up to commercial rates of 1.6 million carats of annual production; the Victor mine in Ontario should begin production mid-year, yielding about 600,000 high-value carats annually; its mining vessel Peace in Africa began operating off the South African Atlantic coastline in mid-2007, and is now producing about 200,000 carats annually; and the Voorspoed mine in South Africa’s Free State is slated to open by year’s end, producing some 700,000 carats annually.

• The risk of working in the Democratic Republic of the Congo was underlined once again on Feb. 6, as the country’s Minister of Mining and Energy, Victor Kasanga, reiterated at the Mining Indaba conference in Cape Town that all mining contracts in the country would be reviewed so that the government would get a bigger share of profits.

In April, the DRC government first announced it was concerned that mining contracts signed during, and soon after, the country’s civil war were inconsistent and sometimes illegal.

However, the DRC is now badly handling its regulatory reform by being vague on the details of the new review process and its timelines.

• Cameco’s gold subsidiary, Centerra Gold, spent the week fighting off false rumours that a criminal tax evasion investigation was under way against it in Kyrgyzstan. Centerra says the Kyrgyz Republic State Tax Inspectorate has completed audits on the company’s Kyrgyz subsidiary for 2003 and 2004 and “no material disagreement regarding payable taxes by KGC were identified.”

• In the takeover arena, Rio Tinto flatly rejected BHP Billiton’s sweetened US$147-billion offer, officially launched Feb. 6, stating that the bid significantly undervalues it and provides no basis for further negotiations. The offer is subject to a minimum 50% acceptance of Rio Tinto’s shares and, if successful, would create a mining behemoth with a market capitalization of US$350 billion.

At presstime, Rio Tinto was readying to table unusually high profits for its most recent quarter — a move designed to buttress its argument that it is being undervalued by BHP.

• On the ground in Australia, BHP Billiton gave the go-ahead to spend another US$1.1 billion to speed up development of its WAIO iron ore business in Australia’s Pilbara camp, boosting installed capacity there by roughly a third to more than 200 million tonnes of iron ore per year by 2011. Most of the funds will be used to lay down a second, parallel railway track between the Yandi mine and Port Hedland, and to expand the inner harbour at Port Hedland. Longer-term plans are to expand WAIO’s production capacity to 350 million tonnes per year of iron ore.

• The power crisis in South Africa has affected the prices of many mined commodities, including, now, the vanadium market. With Xstrata Alloy’s South African vanadium mines declaring force majeure, Platts is reporting that ferrovanadium prices have soared above the US$30-per-lb. mark, with some truckloads being sold as high as US$38 per lb.

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