The Ekati diamond mine in the Northwest Territories is operating at full capacity of 250,000 carats per month, with 308,000 carats having been produced in May alone.
BHP Diamonds, a subsidiary of
The mine was brought into production in October 1998 for a capital cost of about $900 million, including contingencies. By the end of April 1999, production from the Panda pipe had surpassed 1 million carats, with some 526,000 carats having being sold in four lots for a total of US$76 million. This is equivalent to an average value of US$144 per carat, which is higher than the US$130-per-carat bulk sample valuation for Panda.
“We have been pleasantly surprised by the market acceptance we’ve had and the realized prices that we’ve had for the diamonds,” said Paul Anderson, managing director and chief executive officer of Australia’s BHP, in a briefing to analysts.
Specials, or large stones of 10.8 carats and up, have been excluded from the sales to date and will be marketed separately. Large diamonds are being recovered, including a 69-carat stone earlier this year and a 47-carat stone last December.
For the year ended May 31, 1999, BHP realized an after-tax operating profit of A$45 million from Ekati. BHP’s executive director of finance, Graeme McGregor, considers this to be a wonderful result for a newly commissioned mine during the ramping-up phase.
BHP is conducting sales of the Ekati diamonds every five weeks, or 10 times a year, to core clients through a sales office in Antwerp, Belgium. Offerings of smaller, more refined parcels, for market test purposes are ongoing. Earlier this year,
“The diamonds have been very well accepted,” Dia Met states in its 1998-99 annual report. “The introduction of Canadian diamonds went very smoothly, and demand has been beyond expectations.”
Gerald Prosalendis, vice-president of corporate development for Dia Met, confirms this view: “The market has been extremely strong. The quality is there from Panda — these are high-quality diamonds, and they are receiving better prices than [those produced at] other mines.”
He adds that there is a current shortage of supply of good-quality stones and that alluvial production from Angola, Sierra Leone and the Congo has been disrupted by civil war.
During Dia Met’s first quarter, which ended April 30, a total of 457,000 carats of rough diamonds was sold for US$67.5 million; this translates into an average of US$147 per carat. Dia Met realized earnings of $4.7 million (or 15 cents per share) on sales of $28.1 million for the quarter. Dia Met’s share in earnings from Ekati for the 3-month period was $15.5 million. Meanwhile, the company has begun repaying its debt obligation for the construction of Ekati. Dia Met’s proportionate share is approximately $276 million. The financing obligations are expected to be retired within three years.
Dia Met notes that operations to the end of April 1999 are not indicative of the projected annual performance. The fiscal year that ends Jan. 31, 2000, will be the first complete year of operations at Ekati and, as such, will be more representative of future operations. In the first quarter, higher costs per tonne were associated with lower production rates during the ramp-up phase. Ekati will also be subject to seasonal fluctuations in costs, such as those associated with operating the winter road.
Plans call for the mining of five separate kimberlite pipes: Panda, Misery, Koala, Sable and Fox. All will be developed by open-pit methods followed, in the case of Panda and Koala, by underground mining. Over an initial 17-year mine life, Dia Met plans to mine a total of 78 million tonnes of ore, of which 85% is defined as proven and probable, plus 508 million tonnes of waste rock. The total life of the project is expected to exceed 25 years.
The diamonds range in value from US$26 per carat for the Misery pipe to US$130 for Panda, with an average of US$84 per carat for all five pipes. Proven and probable reserves were last estimated at 65.9 million tonnes grading 1.09 carats per tonne.
Initially, kimberlite ore is to be processed at the daily rate of 9,000 tonnes. An expansion to 18,000 tonnes per day is planned for year 10 at an estimated cost of US$80 million. Ekati is expected to produce 3-5 million carats of diamonds per year, and Dia Met estimates that the cash operating costs for the first nine years will range between US$30 and US$35 per tonne, falling to between US$22 and US$27 for years 10 to 17.
Exploration at Ekati is ongoing. This past winter, exploration core drilling intersected five new kimberlite pipes, bringing to 112 the total number of kimberlite occurrences reported at Ekati. All five of the new discoveries were made on the outlying Buffer zone claims, where the total number of kimberlite pipes stands at 31. Results from microdiamond analysis are pending.
The Buffer zone block, which surrounds the Core group of claims, is held 51% by BHP, 31.2% by Archon Minerals (acs-v), 10% by Fipke and 7.8% by Dia Met.
In addition, three kimberlite pipes were bulk-sampled by large-diameter, reverse-circulation drilling last winter. A 106-tonne sample was collected from the Phoenix pipe within the Core zone. Mini-bulk samples of 234 tonnes and 90 tonnes were taken from the Gazelle and Piranha (or A-841) pipes, which occur on the Buffer zone claims. The Piranha pipe straddles the property boundary of the neighbouring Diavik project of Diavik Diamond Mines, a division of
Results from the mini-bulk samples are expected by September. Further exploration core drilling and high-resolution airborne geophysical surveys are planned for this summer, at both the Core and Buffer zones.
During the quarter, Dia Met entered into a joint venture with Ashton Mining of Australia to explore for diamonds in the West African country of Mauritania. The joint venture covers some 214,000 sq. km of exploration permits in the Reguibat Shield. A further 20,000 sq. km are under application. The land package is larger than the entire Slave Craton in Canada.
Dia Met can earn up to a 49% interest in the project by incurring exploration expenditures of US$10 million by March 2003. The company is committed to spending US$2.5 million by March 31, 2000. The Mauritanian government holds a 10% interest in some licences included in the joint venture. Ashton is the operator of the project.
Ashton began exploring for diamonds in Mauritania in 1995. Initial reconnaissance sampling in the Guelb er Richat licence area of the central Adrar region returned encouraging kimberlitic indicator minerals, including G10 garnets exhibiting diamond inclusion chemistry. Follow-up geophysics, mapping and sampling defined 18 targets. Stream-sediment sampling yielded two microdiamonds, the first ever reported from Mauritania.
Drill testing and pitting revealed six kimberlite bodies, including two dykes and one sill. No diamonds were recovered.
At the Tasiast exploration licence, farther to the west, a macrodiamond with a maximum dimension of 0.8 mm was recovered, together with pyrope garnets, in a regional gravel sample. In all, six small stones were recovered from regional samples collected in three distinct areas of Mauritania’s Reguibat Shield.
More recently, an extensive aeromagnetic geophysical survey was flown over selected parts of the Guelb er Richat, Tasiast and Bir Mogrein licences covering 14,000 sq. km of ground. Several discrete anomalies have been identified for detailed ground follow-up. Ashton has also been conducting rec
onnaissance sampling programs on other licence areas.
“It’s the kind of project Dia Met would like to be involved in,” explains Prosalendis. “It’s a large, unexplored land parcel. We are able to bring to that project our skills in geochemistry.”
Dia Met and Ashton are also involved in a diamond exploration joint venture in Finland. Dia Met can earn a 60% interest in that project by spending $4 million on exploration. In February, a new kimberlite was discovered at Viitasalo during a drill program that was focused on coincident geophysical and geochemical anomalies, raising the number of known bodies to 25, of which 16 are confirmed as diamondiferous.
Ashton has collected mini-bulk samples from five of the pipes, four of which carry grades that indicate commercial significance.
In early 1999, Dia Met conducted delineation drilling on one of the known kimberlites in order to assess the viability of proceeding to the bulk-sampling stage. Ground geophysical surveys are being carried out over prospective targets in the Kuopio area.
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