De Beers opens Canadian office — Launches attempt to market Canadian diamonds

The world’s leading marketer of diamonds, De Beers Consolidated Mines (DBRS-N), is strengthening its presence in Canada by opening an office in Vancouver, an emerging diamond mining centre.

Under the management of a new subsidiary, De Beers Canada, the office will serve to establish contacts with Canadian-based diamond companies operating not only in Canada, but worldwide.

“Being in Vancouver puts us close to the considerable activity now under way in the Northwest Territories and the rest of Canada, and will enable De Beers to take a more active role in Canadian mining and prospecting,” says George Burne, managing director of De Beers Canada.

“The timing is obviously right for De Beers to have a presence here in Canada,” explains Nicholas Oppenheimer, De Beers’ newly appointed chairman, who was on hand to oversee the office opening. “One hopes that a lot of business will pass through here and that we will be able to form partnerships and joint ventures with new diamond mining companies.”

For more than 30 years, De Beers has been intermittently active in the exploration for Canadian diamonds. Monopros, a wholly owned Toronto-based subsidiary, serves as the company’s exploration arm in Canada. Many of Monopros’ activities have remained private, though the company is involved in separate joint-venture projects with Mountain Province Mining (MPV-V) and Gerle Gold (GGL-V) in the Northwest Territories.

De Beers makes no secret of its desire to market Canadian diamonds. Canada’s first diamond mine, Ekati, lies 300 km northeast of Yellowknife in the Northwest Territories and is owned 51% by BHP Diamonds, a unit of Broken Hill Proprietary (BHP-N) and 29% by Dia Met Minerals (DMM-T). The remaining 20% is held privately.

The Ekati mine is more than half constructed and on schedule to begin commercial production in October 1998. The current mine plan is based on the multiple development of five kimberlite pipes over a span of 17 years. Proven and probable reserves total 65.9 million tonnes at an average grade of 1.09 carats per tonne, equivalent to 72.2 million contained carats. The diamonds are valued at an average of US$84 per carat.

The mine is expected to produce between 3 million and 4 million carats per year — roughly 3% of total world production. While no decision has been made as to how the rough stones will be sold, BHP has opened a sales office in Antwerp, Belgium, and signed a marketing consulting agreement with IDH Diamonds.

Oppenheimer says De Beers continues to talk with BHP about marketing its diamonds. It is also in early-stage talks with Rio Tinto (RTP-N) and Aber Resources (ABZ-T), 60-40 owners, respectively, of the Diavik diamond project, 20 km southeast of the Ekati project.

Diavik Diamond Mines (a division of Rio Tinto) and Aber recently completed a 2-year, $80-million prefeasibility study on four diamond-bearing kimberlites that together constitute a resource of 37.3 million tonnes averaging a grade of 3.3 carats per tonne, equivalent to 122.8 million contained carats. Based on the work carried out to date, the diamonds average US$53 per carat in value.

A project description is expected to be filed with the government shortly, which will trigger an environmental review process. A final feasibility study is to be completed this year.

John Hainey, a Toronto-based mining analyst with Yorkton Securities, suggests that production from the Diavik project could start as early as the year 2001 and be in the order of 8 million carats per year, or roughly 6-7% of annual world production.

The combination of the Ekati and the Diavik projects could account for about 10% of world production.

While Oppenheimer calls the current state of the world diamond market “a pretty gloomy affair,” he believes the long-term prospects remain good. Sales from the Central Selling Organization (CSO), the London-based marketing arm of De Beers, were dramatically affected in the second half of 1997 by the market meltdown in Southeast Asia and by a fall in retail sales in Japan. The CSO, which controls about 70% of the world diamond production, accounted for sales of US$4.64 billion in 1997, compared with a record level of US$4.83 billion in 1996.

Oppenheimer expects diamond sales will be off in the first half of 1998, though he is optimistic about the industry’s long-term potential. He predicts that Japanese sales will recover at some stage, and these will be balanced against strong markets in the U.S. and Canada.

De Beers was established in 1888 and has maintained a worldwide standing in the diamond industry for more than 100 years. It produces about half of the world’s gem diamonds from its own mines in South Africa and in partnership with the governments of Botswana, Namibia and Tanzania.