DIAMOND PAGE — De Beers strikes deal to buy Canadian diamonds

De Beers Consolidated Mines (DBRS-Q), through Swiss-based De Beers Centenary, has reached an agreement-in-principle with BHP Diamonds to buy 35% of run-of-mine production from the Ekati diamond mine in the Northwest Territories.

The 3-year deal will take effect once a definitive contract is signed and the two majors agree on the choice of a sample against which the purchases will be evaluated.

“With this arrangement in place, we will have implemented the final major component of our marketing program,” states James Rothwell, president of BHP Diamonds. “Once the De Beers agreement is in place, the remaining 65% of the production will continue to be marketed independently by BHP.”

BHP Diamonds, a division of Broken Hill Proprietary (BHP-N), has the right to market all production from Ekati for five years, and has established a sales office in Antwerp, Belgium. In January, BHP and Dia Met announced the first sale of 68,500 carats for US$8.5 million, or an average of US$124 per carat. The sale did not include larger stones of 10.8 carats and above.

De Beers has made no secret of its desire to market Canadian diamonds. It strengthened its presence in Canada in January 1998 by opening an office in Vancouver. The move was designed to give De Beers a more active role in Canadian diamond mining and exploration.

“We’re obviously pleased that BHP and its joint-venture partners have agreed to sell 35% of Ekati’s production to De Beers,” says George Burne, managing director of De Beers Canada. “I think they felt that was a far as they could go, having in mind Big Brother down south.” (Both BHP and Dia Met Minerals [DNM-T] have said that the proportion of production that can be sold to De Beers is limited by anti-competition laws in the U.S.)

Situated 300 km northeast of Yellowknife, the Ekati mine is operated by 51%-owner BHP Diamonds. Dia Met owns a 29% share of the mine, while the remaining 20% is split equally between Dia Met Chairman Charles Fipke and geologist Stewart Blusson. The final capital cost of the mine is expected to be $699.4 million.

Ekati began producing last October, and churned out 27,839 carats for the month. In a mid-December report, BHP said the mine produced 80,048 carats in November and had averaged 5,000 carats per day for the first two weeks of December. The mine is expected to reach full production from the Panda pit in the second quarter at a monthly rate of about 250,000 carats.

The partners report that the quality and size distribution of the initial production are consistent with previous bulk-sampling results. Large diamonds are being recovered, including a 47-carat stone.

Ekati’s proven and probable minable reserves stand at 65.9 million tonnes grading 1.09 carat per tonne, at an average value of US$84 per carat.

The mine is expected to produce 3.5-4.5 million carats of diamonds annually, representing 4% of the world’s current production by weight and 6% by value.

Meanwhile, the final nail has been hammered into a new diamond sorting and valuation plant at the Yellowknife airport.

The facility, the first of its kind in North America, will be used to carry out government valuations on diamonds recovered from the Ekati mine for royalty purposes. The valuations previously were conducted at the mine site. Initially, 15 people will be employed at the plant, construction of which was part of an agreement between the Territorial government and BHP Diamonds. The understanding also addressed matters relating to the potential for manufacturing of rough diamonds from the Ekati mine.

Several proposals for local manufacturing have been received, and more are expected. BHP will be reviewing these in consultation with the government, with a view to selecting its local manufacturing customers.