De Beers gaining strength in Canadian diamond sector

Although no new mines were built in Canada last year, plans on the drawing board suggest that four advanced diamond projects will soon become Canadian producers, including two in the Northwest Territories (N.W.T.), one in neighbouring Nunavut, and one in northern Ontario. But with the exception of the small Jericho project, owned by Tahera (TAH-T), the proposed mines are controlled and operated by the biggest name in diamonds, De Beers.

Almost half of this year’s global budget for diamond exploration will be spent in Canada, mostly by De Beers. The diamond giant intends to spend about half of its budget in Canada’s northern regions, where it has projects at advanced stages. In a reversal of roles, the company picked up considerable ground initially staked by juniors, but subsequently abandoned in lean times, and is now vending some of those properties back to juniors through joint ventures. If present trends continue, De Beers could become the biggest name in Canadian diamonds in future decades, by virtue of staying power if not by design.

Canada’s two producing diamond mines, Ekati and Diavik, are also controlled by major mining companies, with BHP Billiton (BHP-N) operating Ekati, and Rio Tinto (RTP-N) operating Diavik. However, in the early days of the diamond rush, juniors held most of the ground and made most of the initial discoveries. More than 10 years later, diamonds are mostly a big boy’s game, with De Beers undertaking most of the development and exploration work.

First on the company’s mine-building list is the wholly owned Snap Lake mine in the N.W.T., 220 km northeast of Yellowknife; next is the wholly owned Victor project, in the James Bay Lowlands of northern Ontario; and coming up the pipeline is Gahcho Ku, an advanced exploration project in the N.W.T., owned 60% by De Beers, 36% by Mountain Province Diamonds (MPV-T) and 4% by Camphor Ventures (CFV-V). The company is also active at the Fort la Corne joint venture in Saskatchewan, where a $25.6-million work program is under way.

But the next Canadian diamond mine, and the first in Nunavut, will be Tahera’s Jericho. More than half the financing for the $53-million project was provided by upscale jeweler Tiffany & Co. (TIF-N), which in return has the right to buy and market Jericho diamonds.

The road to production was not easy for Tahera, which secured ground in the early days of the diamond rush and continued exploration through some lean years. But early this year, with the help of patient shareholders, the company was granted the necessary permits, licences, and access rights to build the mine. Construction is under way and should be complete by year-end, with commercial production set for early 2006.

About 550 loads of equipment, materials and supplies were transported to the site over a seasonal road this past winter, and a 200-man modular camp will soon be ready for occupancy. The mobilization effort took eight weeks, and was completed without safety or environmental incidents.

Jericho is 25 km from the dormant Lupin mine, near Contwoyto Lake. It’s a small operation, with a mine life of about eight years, based on a defined reserve of 2.6 million tonnes averaging 1.2 carats. “Potential minable kimberlite” [including reserves and resources] stands at 5.5 million tonnes averaging 0.85 carat.

The project will employ about 150 people in the construction phase, 60-116 in the open pit, and 40 more in the plant during the operations phase. Underground mining is proposed for the last two years, and could be extended if more resources are found.

An agreement with De Beers gives Tahera the right to explore an adjacent property with four known kimberlites, including the large Muskox pipe.

The junior can earn a half-interest by spending $11 million on exploration by 2008. If a deposit is found valued at less than $750 million, Tahera will have the right to boost its stake to 75% through payments to De Beers. However, if a deposit valued at more than $750 million is found, De Beers will take over the project and increase its interest to 70% through payments to Tahera. The operator will market production in each case.

Snap Lake, meanwhile, will have the distinction of being the first underground diamond mine in Canada, as well as De Beers’ first mine outside Africa. The company assumed control of the project as a result of acquiring junior Winspear Resources, which made the initial discoveries in the 1990s. More than $166 million has been spent developing the project and advancing it to the feasibility and permitting stages.

Unlike the Ekati and Diavik mines, Snap Lake will employ underground techniques only. The surface footprint will be small, as the narrow kimberlite dyke dips sub-horizontally beneath a lake.

The company received its final permit to build the mine last year after a long and exhaustive regulatory process. The environmental assessment report filed with the Mackenzie Valley Environmental Review Board in 2001 was 5,000 pages; that was followed by a series of public and technical hearings, which in turn generated 1,000 requests for information.

At the time, De Beers Canada President Richard Molyneux noted that Snap Lake was the company’s first project in Canada to receive permits to proceed to production. “The successful conclusion of this process will send a reassuring message to the De Beers board, who have been watching the process in Canada closely,” he added, hinting that concerns were raised in the company’s inner sanctums about the complex and laborious permitting regime in the north.

Buoyed by the receipt of permits, the company negotiated Impact Benefit Agreements with four local native groups. The company also awarded contracts for the first-phase, $25-million component of the project to N.W.T. businesses. About 90% of the contracts went to companies that are owned by, or in partnerships with, local aboriginal groups.

The Snap Lake mine will cost $625 million to build, and roughly 450 people will be employed in the construction phase. During operations, the number of permanent jobs is estimated at 550.

Minable resources stand at 18.3 million tonnes grading 1.46 carats per tonne, valued at US$109 per carat. On a daily basis, an average of 3,000 tonnes will be produced, resulting in 1.5 million carats and revenue of $226 million per year.

Victor

While work continues to bring Snap Lake into production, De Beers is forging ahead with plans to build a mine at its Victor project in Ontario. Permits to build and operate the mine are expected this summer. The project is near the coastal community of Attawapiskat and accessible by air and winter road.

To date, more than $97 million has been spent developing the Victor kimberlite, which consists of two pipes, Victor Main and Victor Southwest, that coalesce at surface. The complex geology comprises pyroclastic crater facies and hypabyssal facies, which account for the highly variable diamond grade.

About 28.7 million tonnes will be mined over the estimated 12-year mine life, at an average grade of 22.3 carats per hundred tonnes, or 0.223 carat per tonne.

The open-pit mine will cost $860 million to build and operate at the daily rate of 7,000 tonnes. Victor is expected to produce 600,000 carats and generate $117 million in revenue annually.

Most native communities in the region favour development and signed agreements allowing access to the project; however, a small group took exception to this approach and blockaded the winter road earlier this year. The matter has since been resolved and the blockade removed. Community consultations are ongoing.

De Beers recently hired at least 170 people from local communities for this year’s program. Plans call for up to 600 jobs to be created during the construction phase, and 380 permanent positions will be offered during operations.

De Beers fully expects to extend the 12-year mine
life, as the project area covers 18 known kimberlites, including Victor, 16 of which are known to be diamond-bearing.

Gahcho Ku

In the N.W.T., De Beers will carry out a $25-million study at Gahcho Ku (formerly known as Kennady Lake), part of the AK block of claims, 300 km east-northeast of Yellowknife. The study will focus on the Hearne, 5034 and Tuzo kimberlites, and consist largely of engineering and geotechnical work. If results warrant production, De Beers will seek permits and engage in community consultation, all of which should take 2-3 years, followed by three years of mine construction.

A similar budget has been proposed for the Fort la Corne project, 50 km northeast of Prince Albert, Sask. De Beers operates and holds a 42.25% interest in the joint venture; Kensington Resources (KRT-V) also holds 42.25%, with the remainder held by Cameco (COO-T).

The project is an intriguing one, given that 63 kimberlite bodies have been identified to date, making it one of the largest diamond-bearing kimberlite clusters in the world.

Kensington President Robert McCallum notes that this year’s program will focus on 14 kimberlite targets, selected on the basis of their size, potential for high-grade zones, kimberlite characteristics, and historic diamond recoveries. At least three of these will be drill-tested to delineate potential tonnage, while one will be bulk-sampled to determine grades and the average value of commercial-sized diamonds. Engineering and environmental studies are also planned.

De Beers also has numerous exploration projects in various parts of Canada, including about a dozen joint ventures, and has found more than 200 kimberlites to date. Last year the company spent $46 million (or about 35% of its global budget) on its Canadian holdings, which cover more than 163,000 sq. km of prospective ground. Most of the properties are in Nunavut.

Early this year the company signed a 2-year “data evaluation agreement” with Inco (N-T) covering land and claims in northern Baffin Island. The companies will share geophysical and geochemical data to help them in their respective quests for diamonds and base metals.

Last year also saw a flurry of deals with junior companies. Pure Gold Minerals (PUG-T) picked up the Colville Lake property north of Norman Wells, N.W.T. The junior, a long-time diamond explorer, can earn an 85% interest by spending almost $4 million over three years. De Beers has back-in rights to buy a 70% interest should a discovery be made that exceeds a specific, but undisclosed, value.

Another diamond explorer, Majescor Resources (MAJ-V), acquired rights to earn 100% of the Upper Carp Lake and the Hardy Lake projects in the N.W.T. by spending $5 million and $10 million on exploration, respectively, over five years.

Ditem Explorations (DIT-V) acquired rights to earn 100% of various properties on Southampton Island in Nunavut. The junior must spend not less than $1 million on exploration over three years to earn the interest; however, De Beers also has back-in rights to buy back part of Ditem’s interest.

Despite its beefed-up presence, De Beers still has plenty of competition in the exploration sector — mostly from companies headed by individuals involved in the initial discoveries in Canada and who stayed in the game even through recent industry downturns.

Stornoway Diamonds (SWY-T) has extensive holdings covering 88,000 sq. km in 10 key project areas. The company is headed by Eira Thomas, who helped discover the Diavik mine and who also contributed to the growth of the mine’s 40%-owner, Aber Diamond (ABZ-T).

Stornoway plans to spend $15 million on its own exploration programs this year, or more than $22 million if contributions from various partners are included.

The company and minority partner BHP Billiton recently announced a drilling program at the Aviat project, on Nunavut’s Melville Peninsula. Six diamond-bearing kimberlites have been found, including the AV-1 pipe, which produced an initial sample grade of 0.83 carat per tonne from a 10.4-tonne sample.

Ashton Mining of Canada (ACA-T) recently discovered its 10th kimberlite in the Coronation Gulf region of Nunavut, where it plans to spend $1.5 million on exploration this year. The company’s most advanced project is the Foxtrot property in north-central Quebec. To date, six kimberlitic bodies have been found there, four of which were tested by a 664-tonne bulk sample that yielded 457 carats of diamonds. A more recent, 6-tonne sample from the Renard 9 body returned an estimated diamond content of 92 carats per 100 tonnes. The project is held equally by Ashton and Quebec government-owned Soquem.

Diamondex Resources (DSP-V) owns 16 diamond properties totalling 32,000 sq. km in the N.W.T., Nunavut and northern Quebec. Most of the properties were previously held by Winspear, the company that discovered Snap Lake.

The company has spent almost $8 million at Lena West in the N.W.T., and a further $4.2 million program is proposed for this year. Drilling will test known and newly defined targets.

Work programs have been announced for numerous early-stage projects across northern Canada, which, combined with the budgets for advanced projects, suggest 2005 will be one of the busiest years for diamond companies this decade.

— The author is a Vancouver-based freelance writer and former editor of The Northern Miner.

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