During the first quarter of 2006, Tahera Diamond (TAH-T) completed construction of its wholly owned Jericho diamond mine in Nunavut and began producing rough diamonds.
Final costs to build Jericho have come in at just over $104 million, 36% higher than originally estimated in fall 2004. The escalation was due in part to a rise in fuel, labour and steel costs to the tune of $9.5 million. Some $13.4 million in costs is attributed to the timing and reclassification of operating items — the truck shop and accommodation complex — to capital costs. The company originally planned to rent both for the life of the mine. Due to terms contained in the water licences and land leases, however, Tahera is required to own these assets, resulting in additional upfront capital costs.
The company says another $4.4 million in cost overruns experienced in the first quarter was directly related to frozen core dam construction, a new diamond cleaning facility that wasn’t originally planned, and extra work carried out in various areas of the site.
From January through March, Tahera processed a little more than 63,000 tonnes of kimberlite material, producing 28,318 carats of rough diamonds. Of course, January volumes were small, rising as the quarter advanced.
The grade of the processed material averaged 0.33 carat per tonne for the month of February and 0.61 carat for March.
That trend continued into the second quarter, and in April, Tahera processed almost 45,000 tonnes that yielded 28,316 carats, for an implied grade of 0.63 carat per tonne.
“It’s clearly going in the right direction and we expect that trend to continue,” said Peter Gillin, Tahera’s chairman, at the company’s recent annual meeting. “Our strategic objective for the balance of this year and beyond is to bring the Jericho mine up to full production and profitability.”
Operating costs in the first quarter totalled $12.7 million, which translates into $448 per carat.
“Certainly if you did do the arithmetic and divide by the volumes, you get a very large per-tonne or per-carat number, clearly that is not representative of normalized operations,” stated Gillin. “It is early days, we are at the top of the pipe, we’ve barely scratched the surface, so what the actual costs are going to be going forward, it’s hard for us to predict other than what we have experienced in the first quarter.”
The kimberlite mined and processed during the quarter was comprised primarily of transition material and low-grade inferred resource material. This lower-grade material was considered appropriate plant feed for the startup and commissioning phase of the diamond processing plant.
During the month of March, the mine experienced some throughput issues that arose out of excessive wear on the primary roll crusher at the front end of the processing plant. The manufacturer of the crusher has agreed to provide a replacement unit, with more serviceable component parts. It’s expected that the new crusher will be operational during the third quarter. In the meantime, a portable gravel crushing plant employed during the construction phase — a combination jaw and cone crusher — will be used.
Daniel Johnson, executive vice-president of operations, isn’t worried about any potential diamond damage as the portable plant doesn’t crush anything smaller than 3 inches (or 7.5 cm).
Tahera expected the processing plant to have reached the full design capacity rate of 2,000 tonnes per day during the second quarter.
Tiffany’s deal
Two parcels of rough diamonds, representing production to March 13, 2006, were delivered to Tiffany & Co. (tif-n) during the first quarter. Tahera has a purchase and marketing agreement with the high-end jeweller for Jericho’s entire run-of-mine production. The diamonds from the first two parcels averaged US$88 per carat in value — “a good number for that early stage production,” Gillin commented. A third diamond valuation, comprising production from March and April, averaged US$97 per carat.
“These values, particularly taking into account the fact that it was a mixture of some starter material at the top of the pipe together with some of the resource material, certainly met or exceeded our expectations as to value,” Gillin said.
Under terms of the offtake agreement, Tiffany’s will buy a “significant” portion of the run-of-mine production for its own manufacturing and design needs. Tiffany’s will also sell the diamonds it does not purchase, on Tahera’s behalf, in the international diamond market for a fee.
The Jericho pipe is a complex multi-phase, land-based pipe, with three major intrusive phases or lobes — South, North and Central — each of which has a distinctive diamond distribution. The modified mine plan calls for the production of some 4.7 million carats averaging US$95 apiece over nine years, based on a revised pit model containing a 5.5-million-tonne resource grading 0.85 carat per tonne, at a stripping ratio of 5.2:1. Annual production is forecast at roughly 500,000 carats.
The largest stone produced in the first quarter was a 39.7-carat, high-quality, slightly coloured but clear, gem diamond valued at US$100,000. Subsequent to the April valuation, Tahera recovered a larger, 63-carat diamond.
“We suspect it may not be worth quite as much on a per-carat basis, but nonetheless, it is encouraging,” Gillin said.
Due to unseasonably warm winter weather, the seasonal ice road used to supply many of the mines and exploration projects in Canada’s Arctic was only open for 17 days. In the past, the winter road typically operated in a 40- to 50-day window.
“The winter road was a problem,” Gillin acknowledged. “The company realized a sixty-per-cent fill on its various shipments, primarily fuel and explosives.”
As a result, Tahera has modified its capital spending plans for 2006 and is in fuel conservation mode, all to help maintain its target production levels. Management has deferred water stripping and postponed non-essential capital projects, such as the extension of the airstrip, to mitigate the impact of the reduced fuel supply.
The added cost to fly in fuel over trucking is about 75 per litre. The company estimates it would cost up to $3 million were it to fly in all of the remaining loads that didn’t make in by road.
Muskox pipe
The company’s holdings include the Jericho, Polar and Rockinghorse projects, covering 1,900 sq. km in the West Kitikmeot region of Nunavut and the Northwest Territories. The economics of developing additional kimberlites within trucking distance of the Jericho project area have now been enhanced by the construction of the Jericho processing plant infrastructure.
The Jericho pipe is one of seven kimberlites discovered on the 760-sq.-km Jericho group of claims. The others include the JD-3, Contwoyto-1, JD-2 and TAH-1 pipes, as well as the OD and Bird Lake dykes. Tahera believes it has not yet exhausted the potential for new discoveries at Jericho; nor has it ruled out the possibility that some of the other Jericho pipes might serve to prolong the mine’s life.
Tahera is putting a strong emphasis on evaluating the Muskox kimberlite pipe, which falls under the Polar joint venture with De Beers.
“This kimberlite is viewed as offering the best potential for reserve addition in the Jericho area,” said Grant Ewing, executive vice-president corporate development, during the shareholder presentation. “Based on limited sampling conducted to date, we believe the kimberlite has excellent grade and tonnage potential.”
In 2004, Tahera struck a deal with De Beers Canada Exploration to acquire control of a neighbouring property package covering 475 sq. km and four known diamondiferous kimberlites, including the sizable Muskox pipe, 14 km west of Jericho, along with Unicorn, Voyageur and Rush.
Following this year’s winter drilling and bulk-sampling campaign on the Muskox pipe, Tahera crossed over the $11-million mark in exploration spending, earning a
50% interest in the Polar package of ground. Tahera will remain as operator, with De Beers obligated to contribute its proportionate share of spending. Should Muskox or another of the Polar kimberlites prove economic, as defined in a feasibility study, Tahera will be operator of development projects valued at less than $750 million and have the right to boost its stake to 75% by making certain compensatory payments. Conversely, for larger-scale projects exceeding $750 million, De Beers will have the right to assume operatorship and increase its ownership to 70%.
De Beers initially started staking ground in the region in the winter of 1992-1993. The current property is only a small fraction of the original claims staked. Between 1992 and 2003, about 5,753 till samples were collected by De Beers on the current Polar claims. More than half the samples returned anomalous indicator mineral grains. Three clearly defined indicator mineral trains are generated by the Muskox, Unicorn and Voyageur kimberlites. There are at least eight unresolved trains and groups of anomalous till samples defined by the data.
De Beers discovered the Muskox kimberlite in May 1996 while drill testing a magnetic feature under a small, circular lake, and would eventually evaluate the pipe’s potential with 47 drill holes, including 16 large-diameter reverse-circulation (RC) holes. All but eight of the holes were drilled vertically.
The Muskox kimberlite is an elliptical-shaped body measuring 200 by 215 metres and covering 3.5 hectares at surface. Like other kimberlites, the pipe tapers at depth. The surface area of the pipe narrows to 2.1 hectares at 200 metres depth and 1.4 hectares at 300 metres below the lake surface. Prior to the start of the 2006 program, the Muskox pipe was modelled to contain 12.3 to 16.3 million tonnes of kimberlite to a depth of 300 metres.
About 87% of the pipe is covered by lake water, which averages a depth of 10 metres. The overburden covering the pipes is another 35 metres thick.
The geology of the kimberlite is not well understood, but it appears the pipe has a complex interrelationship of two major phases: the MKU-A (hypabyssal magmatic kimberlite) and MKU-B (volcaniclastic kimberlite breccia) units, each aligned vertically and each comprising roughly half the volume of the pipe.
Caustic fusion analysis on 1,748 kg of Muskox core drilled by De Beers between 1996 and 1998 yielded 9,546 microdiamonds exceeding a 0.075-mm sieve size classification. The material was taken from intervals deemed “representative.” Two mini-bulk drill samples were collected from the central and eastern portions of the pipe in 1996 and early 1997 in order to assess the pipe’s commercial potential. The 1996 program involved the extraction of 11.5 tonnes of kimberlite using RC drilling. The RC sample was collected from vertical holes drilled on land into the east side of the pipe no deeper than 70 metres below surface.
In total, 5.3 carats of rough diamonds exceeding a cutoff size of 0.85 mm were recovered, giving a sample grade of 0.46 carat per tonne, or 0.39 carat per tonne using a larger-size 1-mm cutoff. A recent 2006 in-house technical report on the Polar project notes that there was significant breakage of 37% of the diamonds recovered in the RC program.
“A number of different drill bits were used in the program resulting in a wide range of diamond breakage and recovered grade,” states the report. “This RC sample may have pulverized the rock to the point of crushing larger diamonds.”
A further 35.5 tonnes were collected from the 1997 core drilling on the east part of the lake, resulting in the recovery of 11.5 carats, for an implied grade of 0.32 carat per tonne. The combined mini-bulk sample of 47 tonnes represented a preliminary grade of 0.36 carat per tonne.
“Several complexities exist relative to the collection and processing of these samples and there are indications that these results are not necessarily representative of the actual grade of the pipe,” the 2006 technical report says.
Geological reports provided to Tahera by De Beers reveal that 350 kg of mantle xenolith samples and 800 kg of petrographic samples were removed from the 1997 mini-bulk core sample prior to processing. Based on a preliminary review of the data and photographic evidence of some of these xenoliths, Tahera is convinced that a number of these mantle xenoliths are diamond bearing.
An X-ray scan on one of these recovered xenolith samples revealed three commercial-sized diamonds in a 6-cm piece of core, including a 0.72-carat stone. “Including just this one piece of extremely rich core in the original sample would have had a significant increase on the overall diamond grade of the sample,” Ewing remarked.
The company’s geological consultant, Eugene Flood, is of the view that removal of the xenoliths may have lowered the grade of the bulk sample and skewed the diamond characteristics by eliminating that population of stones. However, mantle material was not removed from the 1996 RC mini-bulk sample.
Last year, Tahera completed four core test holes into the Muskox pipe. Three were angled from the MKU-A unit into MKU-B and the fourth hole was drilled vertically into the MKU-B unit. A 3.7-tonne sample, derived from the four holes plus two previous unsampled De Beers holes, was analyzed by caustic fusion methods for microdiamonds. Drilled in 2003, the two De Beers holes had intersected only the MKU-B unit and had not been analyzed.
A 943-kg sample of the MKU-A hypabyssal unit returned a staggering 13,605 microdiamonds greater than a 0.105-mm sieve size classification, of which 12,945 of the stones were under 0.3 mm in size. With regard to commercial potential, 25 diamonds greater than 1.18 mm weighed 1.34 carats, giving a promising sample grade of 1.42 carats per tonne.
The three largest stones were a 0.31-carat (4.3 by 3.3 by 2.5 mm) colourless octahedron, a 0.16-carat (5 by 3 by 2 mm) amber octahedron fragment, and a 0.1-carat (3.2 by 2.7 by 2.2 mm) white octahedroid fragment.
A 2,749-kg sample, representing the MKU-B volcaniclastic portion, held 19,437 microdiamonds, of which 18,446 were smaller than 0.3 mm. The 22 biggest diamonds exceeded 1.18 mm and weighed 0.71 carat, giving a preliminary grade of 0.26 carat per tonne.
Tahera notes that intervals with higher stone counts correlate well with the presence of mantle xenoliths, especially eclogitic xenoliths. The indicator mineral chemistry suggests that both the MKU-A and MKU-B units exhibit strong eclogitic diamond potential but poor peridotitic diamond potential.
“The current understanding of the nature of these kimberlite units suggests that the MKU-A unit has significantly better diamond potential than the MKU-B unit, however both units warrant further investigation on the basis of the indicator mineral chemistry,” states Tahera’s technical report.
‘Highly desirable’
“Observations on the diamonds recovered from this caustic sample and the previous De Beers bulk sample indicate that the stones have highly desirable qualities, with respect to crystal shape, clarity and colour.”
The Saskatchewan Research Council, which processed the 2005 core samples, describes over 95% of the diamonds larger than 0.3 mm as transparent or translucent. Colourless stones make up 61% of the parcel, and a population of pink diamonds, accounting for 2% of the parcel, include several stones larger than 1.18 mm. More than 60% of the diamonds described from these samples are octahedrons or octahedroids.
The technical report acknowledges that 93% of the microdiamonds in the caustic fusion samples are too small to be recovered in a typical commercial diamond recovery plant.
Grade modelling was performed on both the MKU-A and MKU-B units by Mineral Services. Based on the diamond distribution curves generated by the microdiamond results from the six core holes, the modelled grade for the MKU-A subset was between 0.82 and 1.65 carats per tonne, significantly better than the grades indicated by De B
eers’ bulk sample. The modelled grade for the MKU-B subset was between 0.28 and 0.52 carat per tonne.
In November, Tahera announced an aggressive $13-million exploration program for 2006 centred on evaluating the economic potential of the Muskox pipe. This year’s winter program involved two components, including a 5,000-metre core-drilling program to better delineate the pipe. There was an emphasis on infilling boundary gaps at the 150-metre and 300-metre levels, and clarifying the internal geologic contacts between the MKU-A and MKU-B units.
To assess the diamond grade potential and value, a large-diameter RC rig was used to collect a 900-tonne bulk sample from the pipe. The bulk sample will be processed at Kennecott’s diamond laboratory in Thunder Bay, Ont. Analytical results are not expected until late summer or early fall.
Tahera also has plans to further assess its wholly owned JD-3 kimberlite pipe, which lies about halfway between Muskox and the Jericho mine site, in the near future. Discovered in 1996 under a small lake, the JD-3 pipe has returned preliminary diamond grades of around 0.3 carat per tonne based on early mini-bulk sampling work. Past delineation drilling defined a nearly circular body roughly 170 metres in diameter and containing some 10.5 million tonnes of kimberlite to a depth of 300 metres. It remains a “prospective project.”
At Tahera’s recent annual general meeting, shareholders approved a proposal to consolidate the company’s shares on a 1-for-5 basis. The company now sits with about 157 million shares outstanding.
T.N.M. Nugget
TAHERA DIAMOND — RAMPING UP PRODUCTION
NEW MINE: Jericho diamond mine
OWNERSHIP:Tahera Diamond, 100%
RESOURCE MODEL: 5.5-million-tonne kimberlite resource grading 0.85 carat per tonne, at a stripping ratio of 5.2-to-1, equivalent to 4.7 million carats averaging US$95 apiece
MINE: Open pit, 680,000 tonnes per year
CAPITAL COST: $104 million
LIFE: 9 years
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