Canada's diamond country still sparkles

Growing demand, especially in China and India, is driving intensified diamond exploration, development and mining activities in Northwest Territories. Diamond prices, which plunged during the recession, also have steadily rebounded recently amid healthier demand.

The territory's producing diamond mines are pulling out the stops to boost their output, while developers of potentially a fourth large diamond mine reported progress recently in moving their project closer to startup.

Output climbs at Diavik

Harry Winston Diamond Corp., 40/60 co-owner of the Diavik Diamond Mine with Rio Tinto plc, reported in April that the mine produced 1.35 million carats from 0.5 million metric tons of ore processed in the first calendar quarter of 2011.

The most valuable rough stones from Diavik, Canada's largest mine, sold for $205 a carat in April, up 14 percent from $180 in March.

Though ore processed and diamonds recovered in the 2011 first quarter were lower than the calendar fourth quarter 2010 due to maintenance at the processing plant and a shift in ore mix from the higher grade A-154 South underground to the lower grade A-154 North underground and A-418 open pit, production at Diavik, which opened in 2003, is still increasing.

Harry Winston said it expects that in the second half of the year the higher grade A-154 South pipe will be mined using a recently approved higher velocity and lower-cost mining method. The Diavik mine calendar year 2011 production remains on target for 6.9 million carats from the mining of 2.0Mt of ore and processing of 2.2Mt of ore. That output would reflect a 6 percent gain from 6.5 million carats produced in 2010. In April, the company said it was updating its mine plan, which it plans to release later this year.

Harry Winston held two rough diamond sales in the first quarter and experienced an increase in rough diamond prices. The majority of the diamonds sold during the quarter were from the A-418 B-type ore.

The Diavik mine is located 300 kilometers, or 186 miles, northeast of Yellowknife, Nwt. near the Ekati Diamond Mine, the oldest and largest diamond mine in Canada.

Renewed push at Ekati

BHP Billiton, 80 percent owner of Ekati, May 10 reported the approval of the Misery open-pit project at Ekati, which will involve more production from the existing Misery open pit, which was mined from 2001 to 2005. Stripping operations are expected to begin in October, with ore production beginning in late 2015 and final output from Misery expected in mid-2017.

A BHP spokesman told the Globe and Mail in Toronto that Misery will help the Ekati mine stay in business until 2018, one year longer than originally planned. The minority 20 percent interest in the mine is held by Chuck Fipke and Stewart Blusson, the two geologists who discovered the kimberlites at Ekati.

The estimated capital cost of the project is US$323 million, of which BHP Billiton's share is 80 percent. Some US$29 million of pre-commitment capital was approved in 2010 to enable long lead equipment to be brought in on the 2011 winter road.

"Since it started production in 1998, Ekati has been a cornerstone of the economy of the Northwest Territories and has contributed enormously to local communities," said outgoing President of BHP Billiton Diamonds and Specialty Products Graham Kerr. Since Ekati has been in operation, BHP estimates that about 81 percent of the mine's budget has been spent with Northern suppliers and the mine also supports and develops Northern communities through socio-economic and impact benefit agreements, employment and community investment programs.

"With the approval of the Misery project, we are able to continue to make the most of the resources at Ekati and also continue our proud legacy," he said.

Tim Cutt will replace Kerr as head of diamonds and specialty products at BHP Billiton, effective June 1. The company announced the personnel change May 10 with news of the imminent relocation of its Canadian offices to Saskatoon, Sask., from Vancouver, B.C. to reinforce its commitment to its potash business.

Production at Ekati during the first three months of 2011 totaled 689,000 carats of diamonds, of which BHP's 80 percent share was 551,000 carats. The total output fell 28 percent from the same period in 2010, due mainly to the mine's aging and lower-quality deposits, BHP said in April.

Ekati accounts for about 3 percent of the world's rough diamond supply measured by weight, and about 9 percent of the total when tallied by value, according to BHP's 2010 annual report.

The company said the trend of lower ore grades and weaker production, which had been expected, will continue in fiscal 2012.

Before this year, production had been relatively steady. It fell 4 percent in fiscal 2009 to 4.03 million carats and slid a further 5 percent in fiscal 2010 to 3.81 million carats.

In the first three quarters of fiscal 2011, diamond production is down 16 percent - which leaves BHP on pace to produce 2.41 million carats for the full fiscal year.

Milestones at Snap Lake

De Beers Canada Inc. recently issued its third annual report on the impact of its Canadian diamond mines in 2010, including operations at the Snap Lake Mine, which is the third diamond producer in Northwest Territories.

Among highlights of the report:

De Beers Canada employed 1,087 people (about 460 at Snap Lake) and injected about C$474 million directly into the Canadian economy;

926,000 carats were mined at Snap Lake;

C$5.9 million was invested through cash, in-kind and staff time for corporate social investment with a focus on education and literacy for the communities near the company's mine sites in Northwest Territories and northern Ontario, where the Victor Mine, De Beers' other diamond producer, is located; and

At Snap Lake, C$119 million was spent on operations contracts; C$104 million (87 percent) of this was supplied by northern businesses, and C$48 million (46 percent) of this total were provided by Aboriginal suppliers.

Encouraging valuation

De Beers also reported that an independent NI 43-101 feasibility study for the Gahcho Kué Project was completed and submitted in 2010, and an 11,000-page environmental impact study was submitted for the Gahcho Kué Project in December. The project is currently undergoing permitting.

Located in Northwest Territories, Gahcho Kué is the largest new diamond project under development globally. The project consists of a cluster of kimberlites, three of which have a probable reserve of 31.2 million metric tons grading at 1.57 carats per metric ton and containing 49 million carats.

The Gahcho Kué project is a 51/49 percent joint venture between De Beers Canada and Mountain Province Diamonds Inc.

Mountain Province Diamonds Inc. May 5 reported results of an updated independent valuation of the diamonds recovered from the Gahcho Kué Project in Northwest Territories.

The valuation was conducted by WWW International Diamond Consultants Ltd. and took place at the London offices of the Diamond Trading Company in early April. All diamond values presented below are based on the WWW Price Book as at April 11, 2011.

The company said that importantly, for the first time, the Gahcho Kué diamonds were grouped into larger parcels, each parcel representing diamonds from the Hearne, Tuzo and the separate lobes of the 5034 kimberlite. In the opinion of WWW, grouping of the diamonds into larger parcels increased the accuracy of the diamond valuation.

"The results of this independent diamond valuation reflect the strong performance of rough diamond prices since the previous valuation conducted on April 2010," said Mountain Province President and CEO Patrick Evans said.

Based on the analysis of leading diamond producers and analysts, Evans said the global diamond industry will experience peak diamond supply during 2011, with burgeoning demand - particularly from the robust Chinese and Indian markets - outstripping mine supply.

"There is a strong probability that rough diamond prices will continue to experience strong double digit increases as production from aging mines decrease and new mine supply falls short of growing demand. As the world's largest and richest diamond development project, Gahcho Kué is well placed to enjoy excellent diamond price support as it prepares for production," he said.

In its report to Mountain Province, WWW said the most valuable stone is in the Tuzo sample. This 25.13-carat stone is the largest stone in all of the bulk samples. The stone is an octahedron of H/I color, which WWW valued at C$20,000 per carat giving a total value of C$502,600."

WWW added: "The stone with the highest value per carat sample is a 9.90- carat stone in the 5034 C/E sample. This is a makeable stone of high color (D/E) which WWW valued at C$24,000 per carat, giving a total value of C$237,600."

Evans said experience shows that during the mining phase larger populations of large, high-value diamonds are commonly recovered, which has the potential to improve modeled diamond revenues.

"Besides the high-value 25.13- and 9.9-carat diamonds referred to above, several other large high-value diamonds of gem quality have been recovered from Gahcho Kué, including 7.0-carat, 6.6-carat and 5.9-carat diamonds from the 5034 kimberlite and 8.7-carat, 6.4-carat and 4.9-carat diamonds from the Hearne kimberlite. The presence of coarser diamonds is an important driver of overall diamond value at Gahcho Kué," he added.

The WWW averaged modeled price per carat for the Gahcho Kué kimberlites is C$122, which represents a 41 percent increase over the WWW 2010 average price. The WWW models use size distribution models (carats per size class) developed by De Beers.

"The 2010 independent definitive feasibility study, under which the revenue assumption was based on the mean average of the April 2010 WWW and De Beers modeled diamond prices, reported a 33.9 percent internal rate of return, excluding sunk costs," Evans added. "Further, sensitivity analysis shows that a 10 percent increase in modeled diamond prices results in an approximate 3 percent increase in the project IRR. Accordingly, the 41 percent increase in the modeled price over the past year would result in an approximate 12 percent increase in the project IRR."

Few new discoveries

While diamond exploration in Northwest Territories in recent years has resulted in few new discoveries, some explorers are still looking.

Diadem Resources Ltd., for example, reported more encouraging results May 9 from its 2010 exploration program. In addition to results reported Feb. 1, a caustic fusion test found two additional micro diamonds. Based on this report, Diadem said it is pursuing its commitment to drill additional targets previously identified as high priority on its Parry Peninsula property in Northwest Territories and work was scheduled to commence shortly.

Diadem operates a diamond exploration joint venture on the Parry Peninsula with its 50 percent partner, Darnley Bay Resources Ltd. More than 20 potential drill targets have been identified on the property, which currently constitutes the Franklin joint venture project area. Ground magnetic surveys over three of the targets were completed in 2010. Additional surveys over another 38 targets are planned for 2011. When this is completed, Diadem plans to finalize plans for a drilling program later in the season.

Five diamond drill holes totaling 707.6 meters were drilled in August to test four negative ground magnetic anomalies in an area where kimberlite intrusives were discovered in an earlier exploration program carried out in 2000 and 2001. One of the magnetic anomalies was tested with two holes. In addition, ground-based total field magnetic surveys were carried out over three separate grids to evaluate anomalies detected in an earlier airborne magnetic survey carried out by Diadem. As a result of this drilling, three new kimberlite intrusives were discovered, bringing to 13 the total number of kimberlite pipes discovered in this emerging diamond district.

A single hole to test anomaly MT113 failed to intersect any evidence of kimberlite in the core. Samples from each of the newly discovered kimberlites were submitted to CF Mineral Research Ltd of Kelowna, B.C. to be examined for the presence of KIMs (kimberlite indicator minerals). Preliminary reports received from the lab indicate the presence of a high incidence of chrome diopside, olivine together with purple and orange garnets (kimberlite indicator minerals) in the samples submitted. Of particular note is the presence of one microdiamond which measured about 0.25 millimeter in diameter.

The partners said a representative sampling of the KIMs would be scanned with an electron microscope, particularly those associated with the diamond that was recovered, and those with the best chemical compositions will be subjected to electron microprobe analyses. In addition, caustic fusion was carried out to test for the presence of additional diamonds in the core.

All permits regarding the joint venture are in place through 2012 and a proper campsite is being investigated in order to benefit both joint venture partners. Diadem recently entered into a revised joint venture arrangement with Darnley Bay.