Arctic Canadian boosts gem income as it tests novel submarine miner

Arctic Canadian Diamond, operator of the Ekati mine in the Northwest Territories, is on track to expand revenue by more than half as it aims to be the only miner using a remote underwater vehicle with a cutting drum.  

The Calgary-based unlisted company will likely record 2022 income of about $500 million, an increase of more than 60% from the previous year’s 11 months of operations, because of higher output and market prices plus a month more of business, chief executive officer Rory Moore said in a December interview with The Northern Miner.  

“For the first time in a long time we’re making money,” Moore said by phone from Vancouver, although the miner says it has been in the black since it formed in early 2021 from the ashes of former owner Dominion Diamonds.  

The first part of an underwater remote mining system to process 600 tonnes an hour and slash ore volume by up to 20% is due to arrive next month at Ekati, about 300 km northeast of Yellowknife. Built by Rotterdam-based IHC Mining, it will be the first underwater system to burrow into the walls of flooded open pits to mine kimberlite, not just suck gemstone-bearing sediment off the ocean floor like the operations off Namibia’s coast held by the Namdeb joint venture between De Beers and Namibia. 

The potential for strong 2022 financial results and the prospect of underwater technology to cut costs mark a turning point for Ekati after the demise of former owner Dominion almost two years ago. As a private operator, disclosures are very limited, but Arctic Canadian appears to be performing well even though Covid-19 reduced labour, raised costs and hindered production. Almost 25 years after Ekati started as Canada’s first diamond mine, Moore wants to exploit deposits with lower margins and extend its life by a decade or more. 

Even though one of Ekati’s main deposits, Sable, wasn’t mined for a third of the year, the mine’s output may miss its 2022 target of 5 million carats by just 14%, Moore said. Waste rock had built up in the mine during Dominion’s ownership when it only targeted the gem-bearing kimberlite for removal, the CEO said.  

“This last year there’s been a lot of focus on stripping waste at Sable, which meant that for four months we didn’t mine ore at Sable,” he said. “We just took the pain.” 

Debt payments 

Now, Arctic is using its success to pay down its debt. The first lien debt to banks of about $85 million has been paid off, the highest priority debt that came out of the creditor restructuring process after Dominion failed, Moore said. The next debt to be repaid is capital invested by new owners DDJ Capital, Brigade Capital, and Western Asset Management. Arctic is also starting to collateralize an environmental surety of several hundred million dollars with cash, he said. 

Still, diamond markets are notoriously volatile and some of the latest curve balls include sanctions against Russia – the world’s largest producer – as well as decades-high inflation and forecasts of widespread recession this year. And then there’s what happens after the war with Ukraine ends and gems may flood the market. 

“The hardship that’s going on in the world at the moment is not conducive to luxury goods,” Moore said. “Everyone’s got their safety belts on and it’s unpredictable at the moment because of the Ukraine-Russia conflict.” 

Diamond prices fell a moderate 4% last year, buoyed in part by trading restrictions on Russian gems, after prices rose by 30% in 2021 to a record high in January 2022, according to veteran New York-based diamond analyst Paul Zimnisky.  

“Global natural diamond supply is forecast to remain around multi-decade lows for at least the next five years, which should be somewhat supportive of prices,” Zimnisky said by email.  

Arctic is focusing on mining out Sable, developing the Point Lake open-pit project, testing the underwater remote mining system and extending the life at Ekati’s Misery underground mine, Moore said.  

A 71.26-carat yellow stone from Misery, the site’s highest-revenue ore source, was sold at auction on Dec. 15 in Antwerp for an undisclosed amount that exceeded expectations, Arctic said. Industry experts said it’s probably the largest fancy vivid yellow gemstone discovered in Canada. 

Underwater mining

The deposits of Sable Deep, Fox Deep and Point Lake Deep are the company’s three targets for underwater remote mining. The Point Lake project, about 33 km south of Ekati’s processing plant, has all its permits. Although a water draining operation hit an environmental limit in September, the project won’t be delayed, Moore said.  

“We’ll start work on Point Lake this summer which doesn’t affect the overall timeline for the project because we’re a little bit behind at Sable, which will go a little bit longer,” he said. “Point Lake and Sable will share equipment, so the delay at Sable actually works great for Point Lake.” 

The Jay deposit has all its permits for open pit mining, but is being shelved for now because it may cost US$600 million to develop conventionally by constructing dykes to hold back the water and access the orebody, Moore said. Underwater mining would lower costs significantly, he said. 

Arctic plans to test the system at the depleted Lynx deposit in 2024. In February, the surface platform is expected to arrive at Ekati. It will launch and recover a bulldozer-sized crawler with teeth on a drum that cuts about a foot of kimberlite on each pass into fist-sized chunks and pumps them to the surface. The ore slurry is then sent to a dewatering plant.

Of course, the industry routinely uses remote mining machines on land. Arctic even used one at its Fox deposit for two years. The new IHC Mining technology uses environmentally safe hydraulic fluids, but there are other challenges, such as managing a water recirculation process to keep the slurry out of local pristine lakes, and just working a submersible by remote-control.  

“You’re working remotely under water, which is a whole lot different to driving on the surface where you can see exactly what you’re doing,” Moore said. “The critical point is that the sediment-charged water needs to be kept out of the natural environment.”  

Arctic is discussing safeguards with the territorial government, environmental watch dogs, Indigenous partners and local communities. The CEO said this year’s focus is getting permits for the Lynx testing, which will inform how the proposed commercial underwater mining is regulated.   

‘Game-changing’ efficiences

Moore sees “game-changing” efficiencies on several fronts that could extend Ekati’s life by more than a decade. There could be 15-20% less ore transported by truck to the processing plant, which is about 30 km north of the Misery and Point Lake deposits and 18 km south of Sable.  

Also, the crawler will produce smaller chunks of ore than normal open-pit blasting and mining, easing processing and improving reclamation ratios. Usual open pit mining has a ratio of waste to ore of seven to one, he says.  

“We pay for seven loads before we get paid for one,” Moore said. “With underwater remote mining, everything we mine is ore. That’s where the big breakthrough is in cost and revenue.” 

And the 180,000-tonne production sample from Lynx should supply enough revenue from its diamonds to pay the capital cost of the system, he said. If the tests go well, the company plans to buy two of the all-electric units, which are powered by diesel generators. The company is studying renewable energy such as solar panels, wind turbines and power storage but the cost could be prohibitive, Moore said.  

“The remote underwater mining strategy at Ekati is interesting,” analyst Zimnisky said. “I see it as one of the directions the diamond mining industry could go as new technology is implemented, especially as conventional mining becomes less economic at some of these older legacy mines.”