Diamonds can be a territory's best friend

A mention of the world's richest diamond mines conjures images of hot, steamy African jungles. Yet it is the frozen tundra of the Canadian Arctic that is yielding the latest treasure trove of diamonds and sparking a staking stampede that is bringing hundreds of prospectors to the far north.

Between 1998 and 2002, 13.8 million carats have been mined in Canada, and the diamonds - precious stones of pure carbon - are worth $2.8 billion. That is roughly a 1.5-kilogram bag of rocks each day for five years, with each bag worth $1.5 million, according to the Canadian government.

Since its first diamond discovery in 1991, Canada has offered some of the hottest prospects for diamond mining on the planet. Three of the biggest diamond mines, all located in the Northwest Territories, are expected to generate $26 billion in gross domestic product over their lifetimes and provide around 125,000 person years of employment, officials say. Diamond mining also has spawned a support industry of cutting and polishing factories in Yellowknife, further stimulating the country's far north economy.

Two mines, Ekati and Diavik, are currently in production in the Northwest Territories. Another mine, Snap Lake-4, also in the Northwest Territories should begin production in 2006.

Today, Canada is the world's third-largest diamond-producing nation by value, behind Russia and Botswana.

A new diamond frontier

Lured by the glitter of high-quality, high-value gems, the mining industry recently laid claim to more than 70 million acres in the Northwest Territories and Nunavut. The most dramatic increase in diamond action is in Nunavut, where the number of prospecting permits jumped to 1,518 in 2004 from 190 in 2003, and 120 million acres have been permitted for diamonds and other precious minerals in the past three years.

This spring construction of Canada's third diamond mine, Jericho-3, got under way in Nunavut, just across the Northwest Territories border about 260 miles from Yellowknife. Developed by Tahera Diamond Corp., the Jericho Diamond Project is expected to begin open-pit mining in early 2006. Tahera has actively explored Nunavut for seven years.

One-tenth the size of its huge cousins to the south, the C$95 million Jericho project is expected to yield 3.1 million carats over an initial eight-year production span at a rate of about 500,000 carats annually.

But with diamonds, size isn't everything.

Jericho is also a standout when it comes to the quality of its diamonds. The project sufficiently impressed Tiffany & Co., one of the world's leading jewelers, to partner with Tahera to assist with project financing and marketing of the diamonds. As part of the agreement, Tiffany also provided a $35 million credit facility to Tahera to assist with project construction costs.

Project heralds better times ahead

Jericho will provide jobs for 125 to 175 workers. It will be Nunavut's first diamond mine and the far northern territory's only operating mine. Three longtime gold and lead/zinc mining operations have shut down in recent years, including Kinross's Lupin gold mine in 2004.

For the sparsely populated region, Jericho is especially important because it will provide spill-over opportunities for inhabitants of western Nunavut, an area similar to remote Alaska where communities are small and job impact multiplies by a factor of five, says Michael Hine, vice president for Nunavut at the Northwest Territories and Nunavut Chamber of Mines.

"Psychologically, to be back in the mining game is a good thing for the territory," Hine said. "Jericho also will be the first mine to operate under the new regulations since Nunavut became a territory, which shows it can be done."

Jericho is also in the vanguard of a host of mining projects poised for development in Nunavut, operations ready to extract not only diamonds but also gold, nickle, lead and zinc, uranium, iron ore and even sapphires. "It's tremendously exciting," Hine added.

Ice road logistics kicks off final push

To save money, Tahera spent eight weeks trucking in 550 semi-trailer loads of goods to the remote mine site via a 372-mile ice road in preparation for the summer construction season. Half of the trailers contained 5.5 million liters of diesel fuel for operating the mine, the mill and a camp for 200 people. The rest of the trucks hauled in steel, cement, machinery and prefabricated buildings.

Tahera also raised its capital cost estimate for the project by more than C$12 million, reflecting higher fuel and steel costs and $8.5 million in project timing differences related to a reclassification of operating items as capital costs.

Exploration only just begun

Tahera said future exploration will continue to focus on kimberlite targets that have been identified in close proximity to the Jericho kimberlite. The company's 2005 exploration budget is about $6 million.

"Kimberlites" are rock formations where diamonds can be found. Diamonds form at least 90 miles deep within the earth and are carried to the surface by strong volcanic activity. A mixture of magma, transported rock and diamonds forms carrot- and bowl-shaped "pipes" that are called kimberlites as it reaches the surface.

Tahera said it has identified seven "kimberlites" on its Jericho claims thus far, including the Jericho kimberlite.

The name "kimberlite" comes from the town of Kimberly, South Africa, considered the world's center for diamond mining in the 19th century. Kimberly was the site of the first diamonds found in a rock.

The factor that governs where kimberlites are found is the thickness of old rocks located at the core of continents. These old cores are called Archean cratons, rocks older than 2.5 billion years.

In Canada, the continental landmass covers one of the greatest extents of Archean craton in the world, from Nunavut and the Northwest Territories (Somerset Island and Mackenzie Mountains) to Alberta (British Columbia-Alberta Rocky Mountains area), Saskatchewan, Manitoba, Ontario and Quebec. All these areas offer a highly prospective geological environment for diamonds.

Geologists say between 5,000 and 10,000 carats of diamonds are needed to fully evaluate a deposit. A diamond concentration that would allow an economic development of a mine would be around 0.5 carat per tonne; a very good one would be in the range of 2 to 4 carats per tonne.

The Jericho project has a defined reserve of 2.6 million tonnes, averaging 1.2 carats per tonne. Potential mineable kimberlite, including reserves and resources, totals 5.5 million tonnes averaging 0.85 carats per tonne.

Exploration this spring and summer will focus on further evaluation the Muskox kimberlite located on joint venture property with De Beers (Polar Project), about 9 miles southwest of the Jericho kimberlite; the Anuri kimberlite, located about 56 miles northwest of the Jericho mine site; several prospective kimberlite targets associated with unresolved kimberlite indicator mineral trains on Tahera's landholdings; three targets on Tahera's Hood River property/Tenacity South property (Tahera/Strongbow joint venture); and the Jericho claims. Tahera can earn a 50 percent ownership interest in the Polar Project by spending C$11 million by 2008 (about C$1.5 million has been spent to date).