David James, mining analyst for Canaccord Capital, has been watching developments in Canada’s emerging diamond industry since the first discoveries were made in the Lac de Gras region in the early 1990s. With the first mine now in production and two others on the drawing board, James speculates that the Snap Lake project may vault ahead of its northern competitors to take second place in the great Canadian diamond race.
Snap Lake is owned 68% by
“This implies a resource with an in situ value of US$3.57 billion,” James notes in a research report. “More recent sampling results, which extrapolate microdiamond counts to a final recovered grade, imply an in situ grade of 2 carats per tonne.”
James issues a “buy” recommendation for Winspear, based on “excellent mining economics” at Snap Lake. With 41.2 million shares outstanding (59.7 million fully diluted), the company currently trades at about $2.10 within a 52-week price range of $5.30 to $2.25.
Mining planning at Snap Lake is based on a scoping study completed by MRDI Canada (a division of AGRA Simons), which outlined a $241-million, open-pit/underground mine operating for at least 10 years. It is expected to provide a 44% internal rate-of-return and payback in about 3.6 years.
The operation could have a longer life, as this study is based on a resource of 8.7 million tonnes at an assumed head grade of 1.6 carats per tonne to the plant. “No credit has been given to the deeper portion of the global resource nor for additions to the east and northeast, where the deposit remains open,” James notes. “It is possible that the deeper resources could be exploited in the future via a shaft sunk on the north shore of Snap Lake.”
These resources are in kimberlite dykes, rather than the kimberlite pipes exploited at the Ekati mine near Lac de Gras. The scoping study projects that the more-than-2-metre-thick deposit should be minable (using underground room-and-pillar methods) within a 10% dilution factor.
Production would begin at about 1,000 tonnes per day, rising to 3,000 tonnes by 2005. During this period, annual output is expected to increase from 0.56 million carats to 1.68 million carats, but at lower per-unit costs.
Operating costs for open-pit and underground operations are expected to average US$47.68 per tonne over the 10-year mine life.
James’s report also details the work yet to be done at Snap Lake, including underground bulk sampling this winter. “This would involve establishing an access drive 20 metres below the northwest dyke, driven out under Snap Lake. This drive is planned to be 1,200 metres long. A ramp would then be driven into the kimberlite and about 600 metres of development undertaken.”
This work would result in the mining of 20,000 tonnes of kimberlite, of which 6,000 tonnes would represent three 2,000-tonne samples separated by about 300 metres. The results of the bulk-sampling program will be included in a final feasibility study.
The underground program is also expected to provide geological, geotechnical and hydrogeological data for mining-planning purposes.
“Winspear is preparing sufficiently detailed and substantiated data to permit an environmental impact assessment report on the property, which is to be submitted in early 2000,” James adds. “It is anticipated that a project description covering both the proposed open-pit and underground operation at Snap Lake will be submitted to the regulatory authorities toward the end of this year. This may possibly allow the project to go into production as early as the beginning of 2002.”
However, a funding dispute between Aber and Winspear could potentially reduce to 16% Aber’s interest in Snap Lake and the Camsell Lake joint venture. Canaccord has not commented on the merits of the case. Its review is based on Winspear’s current interest, and not on the potential increase to 84%.
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