With two diamond mines already established and three projects at the permitting stages, Canada will surpass South Africa this year in terms of diamond production value and move into third place, behind Botswana and Russia.
The Ekati and Diavik diamond mines in the Northwest Territories accounted for 11% of the world’s diamond production by value in 2003. What’s more, Canada’s share is expected to increase to more than 15% in the next five years as
Promising new kimberlite finds in eastern Nunavut and Quebec continue to demonstrate that the potential for additional discoveries of diamond deposits in relatively unexplored areas of Canada has not diminished. Of the US$250 million spent annually on diamond exploration worldwide, almost half is spent in Canada, said Robert Boyd, president of Ashton Mining of Canada, during a recent presentation. To the end of 2002, more than 540 kimberlites had been found in Canada, and in excess of 350 of those are estimated to be diamond-bearing. Indeed, 17 have been proved to contain diamonds in economically minable quantities, which equates to a success ratio of one in every 32 kimberlites discovered in Canada. These are pretty favourable statistics considering that worldwide only one in every 133 kimberlites turns out to be economic.
Last year, in the neighbourhood of 50 kimberlites were discovered in different parts of Canada, including eastern Nunavut, the Coronation Gulf area, the Northwest Territories, Quebec, Alberta, northern Ontario and Saskatchewan. Diamond exploration in eastern Nunavut has intensified, fuelled by the highly prospective discoveries of
In early February, the Nunavut Mining Recorder issued a record 1,518 prospecting permits covering 64 million acres (259,000 sq. km) across Canada’s Far North. The Canadian exploration arm of De Beers tied up more than 28 million acres (113,535 sq. km) of new permits, while BHP Billiton Diamonds acquired 16.4 million acres (66,190 sq. km). Stornoway added 5.5 million acres (22,298 sq. km) to its holdings, Kennecott Canada Exploration picked up 2.1 million acres (8,406 sq. km). In addition,
The Ekati mine is Canada’s first-ever diamond mine. Situated in the Lac de Gras area of the Northwest Territories, 300 km northeast of Yellowknife, the mine officially opened in October 1998. By May 2003, Ekati had produced 15 million carats of rough diamonds for a total value in excess of US$2 billion. BHP Billiton is the operator and 80%-owner of Ekati and the core group of mining claims. The remaining interest is split between geologists Charles Fipke and Stewart Blusson.
Ekati was brought into production initially at the daily rate of 9,000 tonnes. Plans call for the mining of five kimberlite pipes — Panda, Misery, Koala, Sable and Fox — in phases over 17 years using a combination of open-pit and underground methods. Based on the 1997 feasibility study, the five pipes combined contain proven and probable reserves of 65.9 million tonnes grading 1.09 carats per tonne, equivalent to 71.8 million carats, at an average value of US$84 per carat.
The diamonds were originally estimated to range in value from US$26 per carat at the Misery pipe to US$130 at Panda. However, a revaluation in 2001 indicated that the range is closer to US$34-168 per carat.
BHP Billiton has since added the Koala North pipe to the mine plan and received licences to develop two additional pipes: Beartooth and Pigeon.
Open-pit mining on the Panda open-pit, which began in early 1997, is just about finished. The replacement pit for Panda is the nearby Koala, and both are adjacent to the camp facilities. BHP Billiton has begun feasibility studies of a 3,200-tonne-per-day underground operation on the deeper Panda ore. The preliminary capital cost of developing the underground mine is estimated to be US$181 million, with startup targeted for mid-2005. The company has been exploring underground on Koala North since 2002. In addition, open-pit production is coming from the Misery pipe, 29 km southeast of the main camp and 5 km from the Diavik mine. Misery is high-grade in terms of carats but low in value with respect to diamonds. The Misery ore is fed through the treatment plant at a fairly low rate, the objective being to blend the US$30-per-carat stones with those at US$160 to give an average of US$110-125 per carat. Ekati is operating at an overall throughput rate averaging 12,000 tonnes per day.
Preproduction activities were to begin in the second half of 2003 on the Beartooth pipe, just north of the Panda pit. This pipe is expected to begin contributing ore sometime this year. The Fox pipe, 7 km southwest of the mine facilities, is to start producing in 2006.
During BHP Billiton’s fiscal year ended June 30, 2003, Ekati produced 5.4 million carats of rough diamonds — up 19% over the previous year. Mine production in the six months ended Dec. 31, 2003, amounted to 4.1 million carats, or 61% higher than in the corresponding period in 2002. Ekati achieved record quarterly production of 2.1 million carats for the quarter ended Dec. 31, 2003 — 59% higher than in the corresponding quarter in 2002 and 10% higher than in the quarter ended September 30, 2003. The increase is attributed to the processing of a pocket of higher-grade ore from the Koala pit, along with various improvements at the processing plant.
For calendar 2003, Ekati produced just shy of 7 million carats from 4.5 million tonnes of kimberlite ore grading 1.56 carats per tonne at a cash operating cost of US$50-55 per carat. The stripping rate is about 50 million tonnes per year.
Trend
Significantly, higher carat production does not necessarily translate into higher revenue. Ekati is mining higher-grade ore, in terms of carats per tonne, but the diamonds are lower quality, and this may become a trend. As with most mines, Ekati started with the highest-grade and highest-quality pipe but is now mining lower-value ore. BHP plans to offset this by increasing throughput.
For the six months ended Dec. 31, 2003, the diamonds and speciality products division contributed earnings before interest and tax (EBIT) of US$158 million (excluding US$37 million realized on the sale of a non-core royalty interest). Earnings were up slightly from US$150 million in the corresponding period of 2002. Diamonds and specialty products constitute one of seven customer sector groups of BHP Billiton, and includes the Ekati diamond mine, the titanium-producing Richards Bay Minerals, Integris Metals, a North American metals distribution joint venture, and exploration. The sector accounted for 8.9% of BHP Billiton’s EBIT of US$2.18 billion for the fiscal half-year ended Dec. 31, 2003.
BHP does not disclose the individual results of each operation, but for the fiscal year ended 2002, Ekati generated a cash flow of US$142 million and earnings, before interest and tax, of US$180 million, based on the production of almost 4.6 million carats.
Ekati’s reserves at June 30, 2003, totalled 47.7 million tonnes grading 0.8 carat per tonne, equivalent to 36.6 million recoverable carats, based on a 2-mm bottom-stone cutoff size. The overall measured, indicated and inferred kimberlite resource in the central Core zone stands at 88.5 million tonnes grading 1 carat per tonne, or 88.5 million carats, using a 1-mm size cutoff. In the outlying Buffer zone claims, kimberlite resources total 39.4 million tonnes grading 2.1 carats per tonne, for an additional 82.7 million carats.
The Buffer zone block, which surrounds the central Core group of claims, is held 58.8% by BHP Billiton, 31.2% by
BHP has continued to explore the Ekati mine property. Exploration core drilling of geophysical and geochemical targets during 2001 and 2002 resulted in 12 discoveries, bringing the total number of known kimberlites on the 3,480-sq.-km property to 150. Further evaluation work and engineering studies are expected to bring some of these pipes into the mine plan, reports BHP. Of note is the Lynx pipe, which was discovered in 1999 in the Buffer zone under a small lake 3 km southwest of Misery.
A 425-kg sample from two of the original discovery holes yielded 344 microdiamonds weighing a total of 1.656 carats, including 69 stones exceeding 0.5 mm in at least one dimension. The largest stone was a transparent brown octahedral weighing 1.43 carats. A follow-up mini-bulk drill sample of 168 tonnes was collected from the 0.6-hectare Lynx pipe in 2000, returning 140.74 carats for an implied diamond content of 0.83 carat per tonne. A second bulk sample, of about 150 tonnes, confirmed the earlier grade. A 277-carat parcel of diamonds recovered from Lynx was valued at US$108 per carat — “well above the economic threshold for the mine plan,” Archon reported at the end of 2002. During the spring of 2003, the joint venture carried out geotechnical and delineation drilling on Lynx and revised its resource estimate for the pipe to 1.5 million tonnes. Further geochemical and till sampling was carried out last summer, and three targets in the Buffer zone were drilled, but kimberlite was not intersected in any of the holes. The known Taz pipe was re-tested with a single angle hole that pulled 163 metres of fine-grained, re-sedimented volcaniclastic kimberlite containing low abundances of olivine and rare indicator minerals. A 232.8-kg sample delivered only 12 microdiamonds. The largest — a grey opaque fragment — was caught in the +0.6-mm sieve size screen.
Within the Buffer zone, 12 anomalies were followed up with soil geochemistry and other surveys. In addition, 158 till samples were collected mostly along the eastern edge of the Buffer zone.
Production from the Ekati diamond mine represents 7% of the world’s supply by value. BHP Billiton markets all of Ekati’s rough diamond production. Sales are made in 10 cycles per year. Typically, the Ekati diamonds are sold in the following manner:
— between 60% and 70% of sales are made to regular customers;
— between 10% and 20% of sales occur in smaller allocations by auctions or negotiations, for a much larger number of “window” customers;
— up to 7% of sales are under contract to three manufacturers in the Northwest Territories;
— the remainder are sold as both polished diamonds and rough diamonds directly to jewelry retailers or polishers.
Like De Beers, BHP Billiton has been exploring “branding” options as a way to increase consumer diamond and capture a premium, based on a polished product offering purity and quality. In November 2002, BHP Billiton began a global consumer sales initiative under the Aurias banner. CanadaMark, a hallmark program, was launched in May 2003 and identifies the polished stones as being of Canadian origin. CanadaMark is a co-branding initiative, like Woolmark or Intel, that will be sold through large jewelry chains. If a product carries the CanadaMark brand, it carries a guarantee of quality and origin.
At a company briefing last year, Marcus Randolph, president of BHP’s diamonds and speciality products division, stated: “When you rack all of this up, what it really leaves us with is a fantastic mine in Ekati. It runs well. It is an industry leader. It has fantastic margins. But it is also a single-asset business, and it has a defined life which today is 17 years. So the biggest challenge we actually face in our diamond business is to get another one.”
The company is carrying out significant diamond exploration programs in Canada, Botswana and Australia, along with some minor programs in India, Angola and South Africa. Last year, BHP Billiton acquired a 20% interest in privately held
Botswana has two of the best diamond mines in the world — Orapa and Jwaneng — and BHP Billiton considers the country to be among the most prospective in the world. The problem is the Kalahari sands, which are often 30-100 metres thick and play havoc with traditional exploration techniques. BHP says its proprietary Falcon gravity airnborne system can penetrate this cover, which has been confirmed with the discovery of at least one diamond-bearing kimberlite pipe to date. BHP has made the Falcon system available to Kalahari at cost for three years.
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