Pandemic curbs diamond mining, markets

Though world diamond markets remain closed after their shutdown this spring in response to the COVID-19 pandemic, diamond mining in Canada's North is showing signs of life.

One mine, Ekati, shut down in the spring remains closed and most explorers have delayed field work until 2021, an intrepid few are reporting pre-pandemic progress and post-pandemic activities.

In the spring, the governments of Northwest Territories and Nunavut imposed strict operating guidelines for all businesses and residents to curb the spread of the highly infectious disease, measures that have met with considerable success.

Output at Gahcho Kué

The Gahcho Kué diamond mine, jointly owned by De Beers Canada (51%) and Mountain Province Diamonds Inc. (49%), continues to produce diamonds, albeit at a rate lower than anticipated.

Mountain Province July 15 reported second-quarter 2020 production from Gahcho Kué of nearly 1.55 million carats recovered at an average grade of 1.97 carats per metric ton from 527,664 metric tons mined. The output reflected an 11% decrease from comparable production in the second quarter of 2019 of 1.73 million carats grading 1.96 c/t, and a 29% drop from 746,583 metric tons mined during the same three months a year earlier.

The company said the decreases, specifically total ore and waste metric tons mined, are a direct result of the impact of COVID-19 on mine operations, including reduced levels of personnel, travel restrictions to and from site, revised health and safety protocols on site, and new operating procedures aimed at reducing the risk of COVID-19.

No formal diamond sales were held in the second quarter due to ongoing COVID-19 strictures. However, Mountain Province entered into a US$50 million sales contract with Dunebridge Worldwide, which allowed the company to sell its current production at market-related prices and to participate in future potential upside when the diamonds are sold by Dunebridge.

As a result, the company sold 757,360 carats at an average value of C$44.92 per carat (US$33.01/carat) for total proceeds of $34 million (US$25 million). The second quarter diamond sales do not represent normal run of mine production as they contain a lower proportion of larger, higher value diamonds which were accelerated into earlier sales to maximize revenue in the previous quarter. Further, diamonds larger than 10.8 carats recovered during the quarter were not included in sales due to logistics constraints.

The sale to Dunebridge has allowed the company to maintain its liquidity and meet its current expense obligations. The company expects to resume its normal market structured sales starting in September.

"At the start of the pandemic, we immediately modified our operating procedures to reduce the risk of the virus on site in order to ensure the health and safety of our workers. We will continue operating under the newly modified conditions until there is a solution to this crisis, said Stuart Brown, Mountain Province's president and CEO. "Looking ahead, I am confident that we will meet our revised guidance of 6.3 million – 6.4 million carats for 2020, which is a very credible performance of our operations in comparison to our original budget of 6.75 – 6.95 million carats, given the challenges posed by the COVID-19 pandemic."

Although prices in the post COVID-19 period remain under pressure, Brown said the demand for rough diamonds is gradually opening up with demand for certain categories being demonstrated.

"We believe the market will start improving later in Q3 of this year and strengthen with the start of the major retail season towards the end of the year and into 2021. We aim to resume our traditional sales methods in September," he added.

Ekati, Diavik troubles

Dominion Diamond Mines Inc. filed a lawsuit in mid-June against Rio Tinto, its longtime partner in the Diavik Diamond Mine, over Rio's management of the project, the latest sign of discord between the two companies that has surfaced following Dominion's insolvency filing in April.

Rio Tinto owns 60% of Diavik, located 320 kilometers (198 miles) northwest of Yellowknife, Northwest Territories and manages the operation through subsidiary Diavik Diamond Mines Inc. Dominion owns the remaining 40% of Diavik.

Dominion's civil suit, filed June 16 in the Supreme Court of British Columbia, charges DDMI with breach of contract and breach of fiduciary duty, arguing it prioritizes the interests of DDMI and Rio in its management of the Diavik Mine to the detriment of Dominion and the joint venture as a whole.

Dominion complained that, after the COVID-19 pandemic brought the diamond industry to a virtual halt, DDMI continued full operations at the Diavik Mine, knowing Dominion had ability to pay for [its contractually required] cash calls because it could materially monetize diamond inventories to pay for them.

Dominion, which filed for protection from insolvency on April 22 in the Court of Queen's Bench in Alberta, Canada, also owns the nearby Ekati mine. Ekati has been on care and maintenance since the onset of COVID-19.

Exploration update

Planned exploration for 2020 at Gahcho Kué of 2,100 meters of core drilling over an eight-week period was greatly reduced due to the COVID-19 pandemic. The program was designed around a joint review of historical data for the JV lease area. Of 13 target areas identified, only two targets (#8 and #12), located roughly four kilometers northeast of the mine, were drill-tested before the program was terminated. Two drill-holes were completed on each of the targets for a program total of 549 meters, and no kimberlite was intersected.

At the adjacent Kennady North diamond project where five kimberlites – Kelvin, Faraday 1-3, Faraday 2, MK and Doyle – have been identified. Mountain Province said operator De Beers completed one hole in the Kelvin kimberlite in a six-hole winter geotechnical drilling program aimed at collecting additional data on the Kelvin, Faraday 1 and Faraday 2 kimberlites before Covid-19 concerns shut down the drilling.

The Kelvin kimberlite has a 2018 indicated resource estimated at 8.5 million metric tons with 13.6 million carats grading 1.6 carats per metric ton, and the Faraday kimberlites have a 2018 inferred resource estimated at 3.3 million metric tons with 5.0 million carats grading 1.54 c/t.

Other 2020 exploration activities at Kennady North included the completion of a 43 line-kilometer OhmMapper resistivity geophysical survey over a combined kimberlite indicator mineral-geophysical target located 1.5 kilometers (one mile) to the east and up-ice of Faraday 2. De Beers also staked 41 claims in this area covering roughly 39,000 hectares (96,369 acres) to the east of the project. The area of interest was initially identified for exploration in 2016 but was only recently reopened to staking. With the additional claims, the Kennady North project now comprises 106,202 hectares (262,425 acres) and surrounds the Gahcho Kué joint venture property.

In January, the JV hired Hayward CSR Strategies Inc. to manage environmental and permitting activities and community relations for the Kennady property. Primary summer activities included fish connectivity and hydrology studies in June, a desktop assessment of historical data for the new claim area with exploration activities anticipated for later in the year.

2020 plans for Naujaat

In June, North Arrow Minerals Inc. reported entering into an option agreement with Australian junior EHR Resources Ltd. to fund further evaluation of the Q1-4 diamond deposit at the Naujaat Diamond Project in Nunavut. North Arrow currently holds a 100% interest in the project, including the Q1-4 diamond deposit, located nine kilometers (5.6 miles) from the hamlet of Naujaat on the shore of Hudson Bay in central Nunavut.

Under terms of the option agreement, EHR can earn a 40% interest in the Naujaat project by investing C$5.6 million to collect a 1,500- to 2,000-metric ton preliminary bulk sample during the 2021 summer field season. As part of the agreement, EHR has posted a C$300,000 non-refundable advance to be used by North Arrow, as operator, to preposition fuel and other supplies by sealift in 2020. Under terms of the option agreement, EHR must close a financing sufficient to fund the remaining C$5.3M investment by April 2021 in order to proceed with the option and 2021 bulk sample program. In addition to the option agreement, North Arrow and EHR also have entered into a non-binding letter of intent to negotiate a second option agreement under which EHR may elect, after completion of the 2021 preliminary bulk sampling program, to earn an additional 20% in the Q1-4 diamond deposit by funding collection of a 10,000-metric-ton bulk sample.

Ken Armstrong, president and CEO of North Arrow, said the option puts the Naujaat diamond project on a clear path for continued evaluation with a focus on determining diamond size distribution and valuation of the Q1-4 diamond deposit.

Armstrong said EHR's Managing Director, Peter Ravenscroft, is a leading expert in the statistical evaluation of diamond deposits and populations, making his company an ideal partner for understanding the Q1-4 deposit's unique diamond population.

Ravenscroft said there is a substantial upside opportunity in value provided by the Q1-4 diamond deposit's population of rare, orangey yellow-colored diamonds.

By taking advantage of the 2020 annual summer sealift to preposition critical fuel and sampling materials, North Arrow said the bulk sample program will be in position to commence in June 2021. The sample will be shipped south and processed during the fourth quarter of 2021, with final diamond recovery results scheduled for the first quarter of 2022.