Gahcho Ku on path to production in 2012

With the Snap Lake underground mine in the Northwest Territories and the Victor open-pit operation in northern Ontario already under construction, De Beers, the world’s leading diamond player, is looking to build a third diamond mine, at Gahcho Ku in the N.W.T.

As proposed, Gahcho Ku will be an open-pit mine, producing 3 million carats of diamonds annually over a life of 15 years to generate $342 million in annual revenue. In the mine plan, three pipes are modelled to contain 30 million tonnes of kimberlite minable by open pit averaging 1.48 carats per tonne, equal to 44.4 million carats at a value of US$70-US$77 per carat.

Operating costs are pegged at $65 per tonne. The waste-to-ore stripping ratio over the mine’s life is 10.6:1. The project carries an estimated price tag of $825-$960 million and will have ongoing annual operating costs of $135 million.

De Beers completed a technical study in June 2005 at a cost of $25 million. The study was conducted to a high level of technical confidence but could not be published as a prefeasibility study under National Instrument 43-101 because a significant portion of the resources remain in the inferred category, reports Mountain Province Diamonds (MPV-T, MDM-X), a carried partner in the joint venture.

The study assessed the project’s economic potential based on indicated kimberlite resources measuring 14.4 million tonnes grading 1.64 carats per tonne and inferred resources totalling 17 million tonnes of 1.35 carats.

In its 2006 annual review, Mountain Province wrote that the expected profitability of the project warranted proceeding to the next phase.

In July 2005, De Beers approved $38.5 million in funding to take the project through advanced evaluation and permitting. The goals of the program, which will be completed at the end of 2007, are to: upgrade the diamond resources to the indicated category; collect sufficient data to support a definitive feasibility study; establish the potential upside of the project; gather critical data required for final mine design; and secure construction and operating permits for the Gahcho Ku mine.

During the 2006 drilling campaign, which was carried out this past winter and summer, De Beers completed 31 core holes to further delineate the 5034 North lobe and Tuzo pipe, and for pit design and civil engineering purposes. A planned large-diameter drill program was shelved last winter after the drilling contractor had problems setting up the holes. Further drilling is being considered for the first quarter of 2007.

De Beers began the permitting process in November 2005, filing applications with the Mackenzie Valley Land and Water Board for land and water use licences to build and operate a mine at Gahcho Ku. The permitting process is expected to take anywhere from 24 to 36 months, which would put the project on a timeframe for startup in 2011 and full production in 2012. In June, the project was referred to an environmental impact review. De Beers responded by filing an application for a judicial review of the referral. Once the judicial review is complete, the priority will be to move through the permitting process in an efficient and timely manner.

The project

Gahcho Ku is about 20 km above the tree line, at the headwaters of the Lockhart River drainage system in the high Sub-Arctic tundra region, 300 km northeast of Yellowknife, N.W.T. It’s south of Lac de Gras, where both the Ekati and Diavik diamond mines are located, and 80 km southeast of Snap Lake. The property is in the declared traditional use area of the Lutsel Ke’ Dene and an area of interest for the Tlicho, Yellowknife Dene, Fort Resolution Dene and North Slave Metis.

Like the other diamond mines, the site is remote and accessible by air only, except in the winter, when it can be reached by an ice road typically open in February and March. The winter road to Gahcho Ku is a 120-km spur road off the main road between Yellowknife and Lac de Gras.

Unlike its other Canadian projects, De Beers is not the sole owner of Gahcho Ku. While it is the project operator, the company currently owns 51%. By producing a bankable feasibility study, it can boost its interest to 55%, and by also funding the mine’s construction, De Beers will have earned a 60% stake. At that time, Mountain Province will hold 36% and Camphor Ventures (CFV-V, CMVIF-O) will own the remaining 4%. Mountain Province also owns a 33.5% position in Camphor.

The project centres on the Kennady Lake cluster, which comprises four main kimberlite pipes, including 5034, Hearne, Tuzo and Tesla. The mine plan incorporates only the first three pipes; the Tesla pipe, the smallest of the bodies, is considered too low-grade, based on early mini-bulk sample work. The pipes are steep-sided and mainly occur under the southern portion of Kennady Lake, which is about 8 metres deep, on average. One of thousands of small lakes in the arctic barrens, Kennady Lake is about 4 km long and irregular in shape.

The 5034 kimberlite has a very complex plan view shape and sub-surface structure, with irregular pipe walls and an overall surface area of 1.7 hectares. The surface expression of the pipe measures 120 by 180 metres. It was discovered by Mountain Province and Camphor in 1995 while drilling the head of a prominent kimberlite indicator mineral train in the Kennady Lake area near the southeast corner of the AK property. The new discovery was subsequently tested by more than 104 holes in 1996 under the direction of the project’s then-consultant Canamera Geological. A mini-bulk sample of 104 tonnes collected from 42 of the holes showed an implied grade of 2.48 carats per tonne, giving an early indication of the pipe’s potential.

The 5034 pipe is subdivided into four lobes based on internal geology. While most of the pipe is overlain by the shallow waters of Kennady Lake, the north lobe extends partly under land and is covered by 80 metres of country rock. As currently defined by De Beers, 5034 contains 8.7 million tonnes of indicated resources grading 1.6 carats per tonne, plus inferred resources of 4.9 million tonnes averaging 1.7 carats per tonne, for a total of 22.3 million carats worth an estimated US$82-US$90 based on 2005 valuation and modelling.

De Beers optioned the AK-CJ properties in early 1997 and immediately flew a detailed helicopter-borne magnetic and electromagnetic survey over the southern portion of the claim group. During the 1997 exploration season, De Beers discovered three new kimberlite pipes, Tesla, Tuzo and Hearne — all in a 1-km radius of 5034 and all significantly diamond-bearing. De Beers has since invested $92 million in the Gahcho Ku project and the AK property.

Tuzo has a circular plan view shape, with surface area of 1.2 hectares. It appears to expand at depth. The pipe contains a 10.6-million-tonne inferred resource averaging 1.15 carats per tonne, equal to 12.2 million carats at US$57 a pop.

Hearne consists of two bodies that may be connected. Hearne South, the smaller of the two, is a roughly circular pipe, while Hearne North is a narrow, elongate body. The surface area of the two bodies is 1.3 hectares. The pipes’ indicated resources stand at 5.7 million tonnes grading 1.7 carats per tonne, with another 1.6 million tonnes of inferred averaging a grade of 1.53 carats, for a total of 12 million carats worth US$70 each.

Water issues

In order to mine the pipes by open-pit methods, De Beers is proposing to lower the lake’s water level to expose natural land features and thereby limit the number of water-retaining dykes it will need to build. The first dyke (dyke A) will be built across a small arm of Kennady Lake where the water reaches a depth of about 1 metre, isolating the eastern portion. The western part, which will comprise roughly two-thirds of the lake, will be lowered as required for mine development. The 75-metre-long dyke will form a causeway that will be used to access the airstrip.

Lowering the water level will begin in the first year of construction and take two summer
seasons to complete. Using pump barges, the water will be gradually pumped and redirected to the watershed north of the lake and to natural lake outflows east of the lake. The water quality will be carefully monitored. A water treatment plant will be installed in the second year to ensure the water is clean of any built-up sediment.

Only the small areas around the three pipes will be completely drained. The lowered water level in the balance of the lake will be maintained through the life of the mine.

The kimberlites will be mined in sequence, the first being 5034, followed by Hearne and Tuzo. Waste rock material that is removed as the pits are developed will be used to build dykes, roads and containment areas.

In the first year of construction, the waste rock covering the on-land part of the 5034 pit will be used for construction. By the third year, the portion of the pit that was under the lake will be pre-stripped and any rock not required for construction will be stored in the waste rock pile. It will take roughly eight years to mine out 5034.

Mining of the Hearne kimberlite pipe will start in year seven of operations and last for about six years. Once the 5034 has been mined out, waste rock from the Hearne pit will be mixed with processed kimberlite tailings and be used to backfill 5034 in year 10 of operation, the same year that pre-stripping starts on the Tuzo pipe. Waste rock from Tuzo will be used to backfill 5034 and Hearne. The Tuzo pit will be mined for six years. Should it prove economically attractive, De Beers may begin underground mining from the bottom of the Tuzo pit.

“The mine plan has been designed to optimize closure and progressive reclamation,” states a De Beers information guide. “By mining the pits in sequence and using the waste rock to fill in the pits, we are able to reduce the surface space required for waste rock. Our goal is to include all needed services in as small a footprint as possible, so we minimize disturbance to the land in the area.”

Land disturbance will be confined to an area of under 12 sq. km and reclaimed when no longer in use. Wildlife will be given the right-of-way and hazards will be minimized; fish habitat loss will be compensated.

The kimberlite treatment plant will be designed to process 2.1 million tonnes of ore annually (or 5,750 tonnes per day). The processed kimberlite tailings will be stored on-land in containment areas until year 10 when it will be directed to the mined-out pits.

De Beers will need 250 workers to operate the mine and 600 through construction. In the second year of construction, about 400 permanent positions will be created, with over half of that number on-site at any one time. To support the mining and processing operations, buildings and services will include: accommodations, power, telecommunications, water treatment, waste disposal, roads, fuel storage, supplies storage and more.

De Beers has been mining and marketing diamonds for more than 100 years. The company is now building on that knowledge here in Canada. Snap Lake will be the company’s first-ever diamond mine outside of southern Africa.

A proposed 3,150-tonne-per-day (1.1 million tonnes per year) underground operation at Snap Lake is expected to produce 1.5 million carats annually over a life of at least 22 years. Minable ore reserves are estimated at 18.3 million tonnes grading 1.46 carats per tonne, equal to 26.7 million carats at a revised value of US$144 per carat. Snap Lake remains on track for commissioning, as planned, in late 2007.

The Victor project in the James Bay Lowlands of northern Ontario calls for the development of a 7,000-tonne-per-day (2.5 million tonnes annually) open-pit mine and on-site kimberlite processing plant. Minable reserves are estimated at 27.4 million tonnes averaging 0.23 carat per tonne, or about 6.3 million carats. The operation will produce as much as 630,000 carats annually over a 12- to 13-year life. It’s on track for start-up in late 2008.

Together, the Snap Lake and Victor mines were originally estimated to cost $1.6 billion in all. De Beers’ board recently approved some $400 million in additional spending to bring the two projects into production on schedule.

De Beers blames the increase in project costs on: higher fuel, material and labour costs in the highly competitive, booming Canadian natural resource industry; technological and construction challenges; and the impact of this year’s shortened winter ice road season in the Arctic — which delayed the transport of large items, and forced the company to fly others in at a higher cost.