NWT Diavik mine outlook muddied

Low-grade ore has delivered a setback to the flourishing Diavik diamond mine in the Northwest Territories.

Toronto-based Aber Diamond, 40 percent operator of the joint venture with 60 percent partner Rio Tinto, said the material has forced it to revise this year's production target from 8.2 million carats to the "mid to upper range" of 7 to 8 million carats.

It said the problem is a "shell of low-grade kimberlite mud surrounding the ore body.

"This low-grade material will continue to dilute the grade of ore processed through a substantial period of 2004. Because the kimberlite mud has not been adequately recovered in earlier ore reserve estimation drilling, its diamond content and therefore its dilutive effect, is not well understood."

The announcement trimmed 4.4 percent off Aber shares, which are continuing to trade around C$41.20, well below the 52-week high of C$52.50.

It followed a strong 2003, when Aber posted a C$27.7 million profit in the first year of operation at Diavik and said it looked forward to "playing an expanded role in a robust diamond market."

Full production was only reached in the third quarter of 2003, with Aber Chief Executive Officer Robert Gannicott praising the "success of Rio Tinto in bringing this extraordinary mine to production without delays or cost overruns."

But there were hints of troubles in the fourth quarter, when results were down from the previous three months due to the cost of stripping mud from the top of a kimberlite pipe.

Diavik yielded 3.83 million carats for 2003, with Aber's share at 1.53 million carats, including 440,000 in the final quarter.

The joint venture plans to spend C$46 million on exploration this year as it evaluates the commercial value of 62 kimberlite pipes.

Aber is also hoping to wrap up a deal this month to buy U.S. jewelry chain Harry Winston and provide direct access to the retail market for Diavik diamonds.