Rio Tinto To Idle Diavik, QIT-Fer

Autumn’s global collapse in diamond demand continued to ripple through Canada’s diamond mines during the thirteenth trading week of the year, as the lively Canadian diamond scene grapples with its first downturn since its birth in the early 1990s.

• Rio Tinto and Harry Winston Diamond, 60-40 partners at the spectacular Diavik diamond mine in the Northwest Territories, will institute two 6-week shutdowns at Diavik later this year, and further delay the start of underground production. The operation will also pare its workforce.

“For people in the diamond business, or indeed most other commodity businesses, the present challenge is survival rather than near-term earnings power,” said Harry Winston chairman and CEO Bob Gannicott during a conference call with analysts in early April. “I’m prepared for a prolongation of current conditions rather than an expectation of a near-term recovery.”

CEOs are often chastised for taking short-term views, but that’s apparently not the case with Kinross Gold’s Tye Burt, who is using the diamond downturn to invest $150 million in Harry Winston and Diavik — a sorely needed cash infusion that will allow Harry Winston to ride out these difficult times.

Canada’s diamond mining capital, Yellowknife, has already been hit by substantial layoffs at De Beers’ Snap Lake diamond mine, and is bracing for any coming production cutbacks by BHP Billiton at its Ekati diamond mine.

• On the plus side, about 50 new diamond-related jobs will soon be created in eastern Canada, with the announcement that Ontario’s first diamond cutting and polishing facility will be located in the Sudbury area.

A company named Crossworks Manufacturing, part of the HRASunDiamond Group, has qualified for a supply contract with De Beers’ Diamond Trading Company, and will cut and polish an estimated $25-million worth of rough stones per year at a new northern facility, to be completed in late 2009.

That dollar figure represents 10% of the diamond production from De Beers’ new Victor mine in Ontario’s James Bay Lowlands, which has the capacity to produce 600,000 carats per year. De Beers’ pegged the average value of Victor production at US$419 per carat, but that figure dates from July 2006, when the future looked much rosier for diamond prices.

• De Beers’ diamonds also showed up in Ontario’s parliament in Toronto, with two Victor diamonds — one polished, one rough — being installed into the Legislative Mace during a small ceremony in late March. The setting was designed by resident Canadian and De Beers jewelry award winner, Reena Ahluwalia. A third donated Victor diamond will be displayed later this year in the building’s east gallery.

• At presstime, substantial iron and titanium production cutbacks had been announced at Rio Tinto’s wholly owned subsidiary QIT-Fer et Titane, which operates the Sorel-Tracy metallurgical complex and Havre-Saint-Pierre mine on Quebec’s North Shore.

QIT-Fer et Titane will temporarily suspend total operations of plants and services from July 12 to Sept. 8. Summer activities at the Havre-Saint-Pierre mine will cease during this time and resume on Aug. 31. The summer shutdown will affect 1,800 employees, representing almost all personnel in Sorel-Tracy and Havre-Saint-Pierre.

• The base metals sector is showing some signs of life, however, with several junior base metals developers and miners able to raise significant capital in recent weeks: Consolidated Thompson Iron Mines is getting a US$240-million investment in it and its iron ore project in Quebec from one of China’s largest steelmakers, Wuhan Iron and Steel (Group) Corp.; First Quantum Minerals has closed a $345-million financing at C$37 per share; Lundin Mining is proposing a $164-million private placement of at least 80 million shares; Breakwater Resources is lining up a $20-million offering of shares and warrants; and there are proposed multimillion-dollar financings from juniors as varied as Augusta Resource, UEX and Taseko Mines.

In the gold sector, the big money just kept rolling in during the past two weeks: Barrick Gold closed a $925-million financing; Iamgold closed a $732-million placement; Gold Wheaton Gold is proposing a $100-million financing; Anatolia Mineral Developments raised $79 million; Century Mining closed an $81.5-million financing; and Petaquilla Minerals raised $50 million.

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