Rio Tinto going deep on Argyle mine (December 13, 2005)

Vancouver – The much delayed decision by Rio Tinto (RTP-N) on whether to transition its Argyle open pit diamond mine, in northwestern Australia’s Kimberley region, to an underground producer has been reached. It’s a go.

The company will spend US$760 million to develop the underground operation that will employ block cave methods and is expected to commence output in 2007 for about 11 years. Later-stage sub-level caving could potentially add another several years of mine-life to about 2024.

Production is anticipated at about 60% of average historic, open pit amounts of 34 million carats annually. At the estimated 20 million carats per year, the mine will still account for over 13% of the world’s output versus its current 22% share.

Rio Tinto successfully lobbied the Western Australian Government for royalty concessions (cut to 5% from 7.5%) to help trim costs of future production from the mine. Some secondary processing and sorting obligations have also been waived although the fancy pink diamonds the mine is famous for will still be cut and polished in Perth. Argyle is the largest single contributor to the Kimberley region’s economy. Additionally, diamond output from the mine shipped to India for cutting and polishing directly and indirectly employs about 200,000 people.

Buoyant rough diamond prices also aided the decision to go underground on Argyle, the world’s largest producer by volume.

The company is also spending a further US$150 million on a cut-back on the massive Argyle open pit to extend production through the transition phase. Previously, Rio Tinto has spent about A$100 million on feasibility studies enroute to the decision, including a 2.4-km exploration decline beneath the existing pit.

For the first three-quarters of 2005, Argyle produced over 24 million carats of diamonds, up 107% from the corresponding period in 2004 when lower grade ore was processed. About 6.8 million tonnes of ore was processed yielding a recovered grade of about 3.5 carats per tonne.