Canada’s diamond industry reaches 10-year milestone

A parcel of rough diamonds from the Ekati mine near Lac de Gras.A parcel of rough diamonds from the Ekati mine near Lac de Gras.

Diamonds were a respectable exploration target in Canada in the 1960s and 1970s when De Beers and several major companies launched highly secretive programs aimed at finding kimberlites similar to those found in northern Russia. The right geological ingredients were there — a vast expanse of Archeon craton, with areas pulled apart by extensional forces, creating structures favourable for kimberlite emplacement — and more sophisticated technologies to define prospective targets. Unfortunately, no major discoveries materialized and diamond exploration fell out of favour, becoming an arcane activity of little interest to the mining establishment.

In the early 1980s, diamond hopefuls Falconbridge Nickel and Superior Oil exited the diamond exploration business and sold their claims and database to geologists Charles Fipke and Stewart Blusson. Shortly after, Blusson took on an active role with Pioneer Metals, while Fipke formed Dia Met Minerals (DMM-T) and continued the search in the Northwest Territories on a shoestring budget.

By the late 1980s, after almost ten years of collecting samples across the Barren Lands, Fipke narrowed his search to the Lac de Gras region north of Yellowknife, and his first drill target, the Point Lake kimberlite. By this point, samples analyzed in his Kelowna lab left no doubt that a cluster of diamondiferous kimberlites existed in the region. Unfortunately, any mention of Canadian diamonds were met with yawns or rolled eyes.

Fipke turned to geologist Hugo Dummett, who had directed Superior Oil’s diamond programs in the early 1980s. Dummett convinced his employer, BHP Minerals, to fund ongoing work in return for an eventual 51% interest. It was not an easy sell, as times were tough for mining companies in the early 1990s. Base metals had been hit hard by the Asian downturn, and the gold sector was almost as dormant.

The then-moribund mining industry sprang to life in November of 1991, when Dia Met reported that it had pulled 16 macrodiamonds and 65 microdiamonds from 59 kg of core at Point Lake. Despite the early darkness of those cold November days, prospectors and junior companies rushed to the Lac de Gras region, triggering a staking rush that eventually covered most of the area between Yellownife and the Arctic coast.

Ten years after that milestone discovery, one diamond mine is operating, several others are being developed, and exploration is testing numerous other discoveries. Sorting, cutting and polishing businesses have set up shop in Yellowknife, which now labels itself “North America’s Diamond Centre.” The city is prosperous and booming, and the N.W.T.’s economy is far more diversified than the gold-and-government model that prevailed before the Lac de Gras discovery. Diamond exploration spread to other prospective parts of Canada, including the prairie provinces and much of eastern Canada.

The Lac de Gras exploration boom blew open the lid of secrecy over diamond knowledge, which, until the early 1990s, was of a proprietary nature and in the hands of a few South Africans and Russians. The most important tool was understanding the chemical composition of the indicator mineral assemblage, which allowed for the differentiation of barren and diamondiferous kimberlites without drilling. Sophisticated geophysical methods made it easier to pin-point potential kimberlite targets.

Dozens of hungry juniors scrambled to learn all they could about G-10 garnets and other favourable indicator minerals. The learning curve was steep, however, and several companies suffered setbacks that disappointed anxious investors. A group of juniors, in partnership with Kennecott Canada, launched a bulk-sampling program at the Tli Kwo Cho pipe near Dia Met’s ground, only to find that the diamonds were small and of poor quality. Another junior reported the discovery of “canary yellow” diamonds, which later proved to be from the drill bit, rather than from a kimberlite.

Dia Met and partner BHP Minerals were well ahead of the pack and, before long, numerous other diamondiferous kimberlites were found. A mine seemed to be a certainty, though not until more than 5,000 carats of diamonds had been recovered in bulk-sampling programs. By the fall of 1993, Dia Met was able to report diamond valuations of more than US$100 per carat.

By 1994, partner BHP was convinced it had enough rich pipes to warrant placing a mine into production. A feasibility study based on five pipes showed reserves totalling 65.9 million tonnes at an average grade of 1.09 carats per tonne. The average value of the diamonds was estimated at US$84 per carat, though one pipe, Panda, had stones valued at US$130 per carat on average.

Mine planning then began in earnest, though the partners soon learned that considerable work had to be done before construction could begin. Public scrutiny was high, and BHP spent $14 million preparing the most exhaustive environmental, economic and social review in the history of Canadian mining. For the first time, the traditional knowledge of aboriginal communities was included in the environmental review.

Permitting was neither easy nor fast, but the new Ekati mine was completed on time and on budget in the summer of 1998. Capital costs were about $1 billion. The mine was officially opened with great fanfare on Oct. 14, 1998, based on annual production of 3.5-4.5 million carats of rough and industrial and gem-quality diamonds; about 4% of current global production by weight, and about 6% by value.

BHP holds a 51% interest in Ekati, Dia Met had 29%, and Fipke and Blusson each held a 10% stake.

The race

In exploration, the race is not always to the swift, but to the persistent. The staking and exploration boom of the early 1990s had tapered off by the mid-1990s, when juniors fled the North to explore for nickel in Labrador, or gold in the jungles of Indonesia. A handful of juniors remained in the diamond game and, for a lucky few, persistence was rewarded with discoveries that showed potential to become mines.

Companies familiar with the N.W.T. had a strategic advantage over their competitors, which explains why Aber Resources, now Aber Diamond (ABZ-T), was able to secure some of the best ground near Dia Met’s discovery. The junior already had base metal properties north of Lac de Gras, and was able to move quickly to tie up its land position.

Within a few years, Aber’s Grenville Thomas and daughter Eira successfully made the transition to diamond experts with the help of 60%-partner Kennecott Canada. Before long, the partners had discovered four kimberlite pipes underneath Lac de Gras.

Today Aber holds a 40% interest in the Diavik project, which at last report had total reserves of 25.7 million tonnes, grading an average of 4.2 carats per tonne. A $1.3-billion mine is planned, capable of producing 7 million carats annually, for more than 20 years.

Randy Turner’s Winspear Resources, now part of the De Beers organization, also stayed in the diamond exploration game after other juniors abandoned the effort. The company’s persistence was rewarded with the Snap Lake discovery, a small but high-grade kimberlite dyke that is being readied for production (see story, page B1).

Less fortunate was the Yamba Lake project, then held by Tanqueray Resources (TQY-V) and Mill City International (MIY-V). De Beers optioned the project after the juniors reported highly encouraging results from exploration drilling, but dropped it after obtaining disappointing results from a bulk-sampling program.

Diamond exploration in the N.W.T. continues today, and is one of the bright spots in an otherwise depressed exploration sector. Several projects are nearing the threshold for mine development.

Ekati today

Ekati produced 3.6 million carats of diamonds in the 16-month period ended May 31 of this year. Some 3.5 million carats were sold at an average price of US$165 per carat, which is well ahead of the original valuations carried out at the feasibility stage.

Ekati’s production spans a range of sizes and qualities, but the major value is in size and colour ranges that are commercially attractive and in high demand. BHP officials say the mine’s real strength is with whites, which are described as being similar to Russian goods.

Dia Met’s share of diamond sales from Ekati for the 16 months rang in at $262.48 million, resulting in earnings of $160 million after deducting $78.9 million for cost of sales and $23.4 million for amortization and depreciation. The company’s outstanding net debt obligations for Ekati fell to $106.8 million from $204.7 million in late January of 2000.

Dia Met today is a different company than it was in the early 1980s, and may soon disappear altogether once partner BHP Billiton (BHP-N) swallows the remainder of its shares. Earlier this summer, BHP Billiton made offers to acquire all of Dia Met’s Class A subordinate voting shares, and the Class B multiple voting shares for $21 each. About 98.6% of the Class A shares and 88.7% of the Class B shares have been tendered to the offer.

The major is now in the process of exercising its statuatory right to acquire the remaining Class A shares, and plans to seek a meeting of shareholders where it will look to acquire all Class B shares not deposited under the offers.

BHP, meanwhile, has amended its mine plan to integrate the Sable, Pigeon and Beartooth pipes. The addition of these pipes will result in a total of eight pipes being mined at Ekati. Six of these are close to the central processing plant, while others are more distant.

A number of local aboriginal groups have signed economic-benefit agreements with BHP. The mine has met or exceeded its socio- economic targets of hiring northerners and aboriginals. Today, BHP Diamonds is the largest non- government employer in the Northwest Territories.

Ekati’s diamonds are in high demand because of these progressive policies, and because of a certification program, which gives consumers confidence that the diamonds are pristine and produced in a politically stable country.

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