Lac de Gras, N.W.T. — Ten years after Charles Fipke’s milestone diamond discovery in the Northwest Territories, the only major Canadian player left in the wake of recent acquisitions and consolidation is
Aber and London-based
Rio Tinto, on the other hand, is taking a more conservative approach with its numbers. During on-site discussions with The Northern Miner, personnel of Rio’s wholly owned subsidiary, Diavik Diamond Mines, would only confirm that the mine is expected to average 5.5-6 million carats per year over the project’s life, based on a yearly throughput of 1.5 million tonnes of kimberlite. However, the kimberlite processing plant is being built at a design rate of 5,000 tonnes per day, which means it will have the capacity to treat more than 1.8 million tonnes of ore annually.
The Diavik project is 100 km north of the tree line in the Lac de Gras region, 300 km northeast of Yellowknife and 30 km southeast of the 3-year-old Ekati diamond mine of
Diavik Diamond Mines is the operator and 60%-owner of the joint-venture project. Aber has elected to fund its share of capital expenditures, thereby retaining the right to market its 40% share of diamond production. The Diavik property is subject to aggregate royalties of 2% split between diamond expert Christopher Jennings and
Four high-grade kimberlite pipes — A-154 South, A-154 North, A-418 and A-21 — are the focus of mine development plans. The pipes lie immediately offshore of the 20-sq.-km East Island in Lac de Gras, a 100-km-long lake. Together the four pipes contain measured, indicated and inferred resources totalling 37.6 million tonnes grading 3.7 carats per tonne, equivalent to 138.1 million carats, to a depth of 420 metres.
Three of the diamondiferous kimberlite pipes, A-21, A-154 South and A-154 North, were discovered in 1994 by Aber geologists Eira Thomas and Robin Hopkins under the direction of then-president Grenville Thomas. The fourth pipe, A-418, was discovered in 1995, shortly after Rio Tinto earned its 60% stake in Aber’s Diavik property interests and became operator.
Aber was one of the first companies to recognize the significance of a November 1991 announcement by Dia Met Minerals and BHP that they had recovered 65 microdiamonds and 16 macros from 59 kg of core sampled from a new kimberlite discovery at Point Lake in the Lac de Gras area. (A macro is here defined as exceeding 0.5 mm in at least one direction.)
Having cut its teeth on years of Arctic exploration, Aber quickly mobilized a staking crew and, under the guidance of Chris Jennings, acquired varying interests in eight blocks of mineral claims covering an initial 4,850 sq. km in the Lac de Gras area.
In June 1992, Rio Tinto’s exploration arm, Kennecott Canada, struck a deal to earn 60% of Aber’s interest in the Diavik area properties by paying $300,000 and spending $9.7 million on exploration. Aber acquired an interest in two adjacent property blocks from Kennecott in 1993, and further increased its interest in several blocks by amalgamating with Commonwealth Gold in 1994.
At Jan. 31, 2001, Aber held varying interests of 10% to 44.4% in 10 separate property blocks totalling 3,000 sq. km in the region. In the past 10 years, 56 kimberlite bodies were discovered on the Diavik area properties. Of this total, 28 are diamondiferous. The Aber-Rio Tinto joint venture continued to explore for additional resources in 2001, working with a $2.8-million exploration budget.
Other than De Beers Consolidated Mines, Rio Tinto was the only major to pay attention to Canada’s celebrated diamond exploration play. Rio’s show of faith in the potential of the area was no doubt a direct result of its familiarity with diamonds through a controlling stake in the Argyle diamond mine in Western Australia. Rio consolidated its interest in the Argyle mine just this past year by outbidding De Beers for the shares of minority partner Ashton Mining.
Work program
By the time it had discovered A-21 and A-154 South (two of the four pipes scheduled for production) in the spring of 1994, Aber had already found 19 kimberlite bodies on the Diavik landholdings, though they had proved either low-grade or barren. The first work program in 1992 consisted of a 20,000-km airborne geophysical survey and the collection of more than 1,200 till and esker samples. The 1992 program culminated with eight targets being tested by 1,400 metres of drilling and the intersection of seven kimberlite pipes, with three of those yielding small quantities of micros.
During the initial drill phase, several canary-yellow-coloured stones were recovered from two 8-kg samples of one of the kimberlites found on the Tenby claims, a joint venture with
Aber returned to the field in 1993 to conduct ground geophysics and further till sampling. Twelve additional kimberlites were discovered that year, including C-13, which returned 40 micros and 15 macros from 269 kg of core.
The A-21 target, in the shallow waters of Lac de Gras, was a geochemical target initially and became further delineated as Aber’s exploration team started zeroing in on more subtle airborne geophysical anomalies. The April 1994 discovery hole at A-21 returned 38 macros and 116 micros from 154.6 kg of core.
With the success of A-21, Aber turned its attention to the A-154 area, a further 4 km to the northeast, and pulled 197 metres of kimberlite from the A-154 South anomaly. Two diamonds, with calculated weights of 1.76 and 0.28 carats, were visually identified in the core. A 750.8-kg sample from the A-154 South discovery hole yielded 894 micros and 402 macros, including 112 stones greater than 1 mm in one dimension.
Further drilling soon confirmed that a second kimberlite pipe was close to A-154 South. This body, dubbed A-154 North, returned 376 micros and 170 macros from a 373.2-kg core sample. The A-418 kimberlite pipe was discovered in May 1995, 700 metres southwest of A-154 South and close to the shore of Lac de Gras. Like the others, it was a high-risk subtle airborne anomaly further defined by follow-up ground electromagnetics. Caustic fusion analysis of 397.8 kg of material from the first hole yielded 487 micros and 235 macros, with 54 of the diamonds exceeding 1 mm in at least one dimension.
Pre-feasibility
Two years of prefeasibility work, completed in 1998 at a cost of $88 million, included resource definition drilling, bulk sampling and socio-economic studies, along with engineering and environmental work. The four pipes were delineated by drilling to a depth of at least 400 metres, and all underwent mini-bulk sampling involving the collection of large-diameter core samples.
Eight holes drilled into A-154 South yielded 56.5 tonnes of kimberlite material, from which 255.6 carats of diamonds were recovered, giving a preliminary grade of 4.52 carats per tonne. The A-154 North pipe returned 156.8 carats from 71.7 tonnes of processed kimberlite recovered from 10 holes, for an implied grade of 2.19 carats per tonne. A 61.8-tonne sample from nine holes drilled at A-418 returned 248.4 carats, representing 4.02 carats per tonne, and six large-diameter holes sunk at A-21 yielded 90 carats of diamonds from 30.5 tonnes of sample, for a preliminary grade of 2.9 carats per tonne.
In 1995 and 1996, the joint venture went underground to conduct bulk sampling on its two best pipes, A-154 South and A-418, via a 2-km network of tunnels. An interconnecting decline was driven from the shore of East Island to a depth 155 metres below the lake level on A-154 South, while A-418 was intersected at a depth of 145 metres under the lake. A 2,900-tonne sample of A-154 South yielded 12,800 carats of diamonds. A 5,658-carat portion of the diamonds was originally evaluated in early 1997 by six independent diamantaires in Antwerp, Belgium. The A-154 South diamonds were deemed to be worth an average of US$67 per carat, which, when applied to the entire bulk sample, translated into a value of US$63 per carat.
Bulk sample
A 3,000-tonne bulk sample from pipe A-418 returned an 8,275-carat parcel of diamonds valued initially at US$56 per carat by a group of eight Antwerp-based experts.
In August 1999, after months of delay, Aber reported the results of Rio Tinto’s final feasibility study. Much to the market’s dismay, predicted capital costs had swelled to $1.3 billion, some $408 million higher than prefeasibility estimates. The major capital-cost increases were attributed to scope changes to the dykes and the extension of the construction period by one year. The study was prepared by Nishi-Khon/SNC Lavalin. The mine development plan calls for the construction of a series of water retention dykes to permit open-pit mining of the four pipes in three separate pits. Mining will eventually shift underground on the A-154 South and A-418 pipes in the latter part of the project’s life.
The feasibility study was based on minable reserves of 25.6 million tonnes averaging 4 carats per tonne, equal to 101.5 million carats. The open-pit portion contains 81.8 million carats in 20.4 million tonnes grading 4 carats per tonne, whereas the underground reserve stands at 5.2 million tonnes grading 3.8 carats per tonne, or 19.7 million carats.
The stones from the four pipes were originally estimated to be worth US$53 per carat, but Diavik Diamond Mines is now using an overall carat value of US$63 based on valuations done in 2000.
The study assumed an open-pit production rate of 1.5 million tonnes of ore per year, which would produce between 6.3 and 7 million carats per year. Production is expected to fall off during the underground phase. Operating costs are pegged at $89 per tonne of processed kimberlite for the first 10 years of operation and $101 per tonne over the life of mine.
While the initial capital-cost estimate includes an extra $134 million for design allowances and contingencies, it does not include the additional costs of $260 million for constructing the A-418 and A-21 dykes, and $48 million for underground development.
Aber found Rio’s feasibility study unsuitable for its financing requirements, as it did not include an independent reserve assessment or financial model. Consequently, Aber engaged SNC-Lavalin Engineers & Constructors to complete the feasibility study in a bankable format. The study was completed in May 2000 and confirmed the mine plan, including capital and operating costs as outlined in Rio’s feasibility study.
Robust economics
Aber’s bankable study showed the Diavik project to be robust, with a projected after-tax internal rate of return of 22.6%. Aber expects to recover its 40% share of capital costs within 2.7 years of commercial production. During the first 10 years, the mine is anticipated to contribute $150 million in annual profits to Aber.
The study incorporates a reserve estimate, prepared independently by Agra-Simons MRDI, which, in turn, uses a January 2000 valuation obtained by WWW Diamond Consultants in the Antwerp market. Proven and probable reserves were estimated at 25.7 million tonnes grading 4.2 carats per tonne, equivalent to 106.7 million carats valued at US$65 per carat.
More than half the minable reserve is in the A-154 South pipe, pegged at 11.7 million tonnes grading 5.2 carats per tonne at US$79 per carat, which equates to US$419 per tonne of kimberlite. The A-154 South pipe will have an operating margin of US$359 per tonne.
Production for the first 10 years will come from the A-154 pit, which is incorporating both the A-154 South and A-154 North pipes (1.3 million tonnes of minable reserves grading 3.5 carats per tonne at US$33 per carat). The A-418 pipe (8.7 million tonnes of minable reserves grading 3.4 carats per tonne at US$56 per carat) is scheduled to be mined between 2010 and 2022, followed by A-21 (4 million tonnes of minable reserves grading 3 carats per tonne at US$28 per carat) from 2013 to 2019. Underground production from A-154 and A-418 is slated for 2015-2019.
With all permitting issues resolved and necessary approvals in place, the Diavik joint venture announced in December 2000 that construction would begin.
Footprint
All facilities, including a kimberlite processing plant, accommodation complex, maintenance shop, jet airstrip and diesel fuel tank farm, are being built on East Island within an 11-sq.-km footprint. The project cost remains unchanged at $1.3 billion. Fuel, construction materials and equipment were trucked from Yellowknife along a winter ice road during a 3-month window at the beginning of the year. By mid-April, when the seasonal ice road had closed, 4,089 truckloads had been hauled to the project site. Diavik and its contractors are preparing to ship up to another 3,000 truckloads to the site when the seasonal road reopens in January.
The most critical item affecting the startup schedule is the completion of the A-154 dyke construction program in 2001, followed by dewatering of the A-154 pool in August 2002 and clearing of the overburden till in preparation for open-pit mining. The 4-km-long dyke embankment was completed during the third week of October, just days before a site visit by The Miner and more than 50 analysts and bankers.
About 6 million tonnes of crushed rock were placed along the dyke’s path, which extends from the shores of Lac de Gras and encloses the A-154 South and North pipes (only 100 metres apart). The dyke is a technical and engineering feat, and consititutes about a third of the project’s capital cost.
“In essence, we were building a road out into the lake,” explained Thomas Hoefer, manager of public affairs for Diavik Diamond Mines.
Before any rock was laid down, a barge-mounted dredge removed lake bottom sediments so that the dyke could be built on the more stable underlying glacial till. The sediments were pumped to containment ponds on the island. The dredge also removed 280,000 cubic metres of sediment overlying the centre of the pit, representing 100% of prestripping requirements.
Drainage
The next step was to bring in another rig that placed a blanket of fine-crushed rock on the bottom, which serves as a drainage network. The 27-metre-wide dyke was then built using three different sizes of crushed rock. A fine crush is put down the middle of the dyke and compacted in preparation for installing a 1-metre-thick impervious plastic concrete wall through the dyke’s centre. The concrete wall will create a waterproof barrier extending to bedrock along the dyke’s entire length, preventing lake waters from seeping into the A-154 pit. Jet grouting is used to seal the base of the wall to the bedrock surface. Angled holes are then drilled in a grid pattern into about 1.5 metres of the underlying bedrock to fill any fractures with pressure grout, thereby preventing any water from leaking through the dyke.
The installation of the cutoff wall is expected to continue through to mid-December, before colder winter weather brings the dyke work to a halt. Pouring of the watertight wall will resume in spring 2002.
The dyke is designed so that there is a 100-metre space between the pit’s edge and the base of the dyke.
Two temporary construction camps handle short-term housing peaks of up to 1,150 personnel. Construction of mine infrastructure is continuing despite the daytime -20 C temperatures. Exterior siding has been installed on the boiler house and process plant, which will allow interior work to proceed during the winter.
Structural steel has been placed on the power plant, and steel erection is well under way on the maintenance building and the permanent accommodation complex. Internal concrete work continues in the process plant, diesel powerhouse and boiler house, and mechanical, electrical, plumbing and instrumentation work progressed during the third quarter. The permanent sewage treatment facility is operational, and the water treatment plant is nearing completion.
On schedule
The Diavik joint venture has spent $655 million to the end of the third quarter. Construction remains on schedule for completion at the end of 2002, followed by startup, with diamond production slated to begin in April 2003.
Aber has yet to close what is expected to be a US$150-million conventional debt financing package, which would allow it to fund the remainder of its share of capital costs, as well as initial working capital requirements. Caroline Glasbey, director of investor relations, says a formal commitment from six banking groups is “imminent.”
At the end of September, Aber had $105 million in cash, enough to last into spring 2002. Aber has 54.5 million shares outstanding, or 57.1 million on a fully diluted basis.
Aber is positioning itself to become a leader in the delivery of Canadian diamonds into the U.S. market, which accounts for nearly half of all retail diamond jewelry purchases worldwide. In July 1999, Aber entered into an arrangement with upscale jeweller
Aber is also developing a marketing strategy with Antwerp-based Overseas Diamonds under the name CanaDiam. Overseas is a leading diamantaire and De Beers sightholder, as well as a regular buyer of Canadian and Australian production.
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