DIAMONDS — The Tli Kwi Cho fiasco

In the end, quality — not quantity — determines the economics of a diamond-bearing kimberlite. If the diamonds can’t be marketed as gems, the deposit — no matter how high-grade — is virtually worthless.

Kennecott Canada and its junior partners learned this lesson the hard way when, in early 1994, they spent more than $10 million on an underground bulk sample from the Tli Kwi Cho kimberlite pipe at Lac de Gras.

The decision to go underground was based on encouraging results from 20 exploratory boreholes into the pipe: 349 macrodiamonds and 1,111 microdiamonds in 1.14 tonnes of material.

The next logical step would have been to take a relatively inexpensive 200-tonne sample to provide a rough estimate of grade and quality and to guide future exploration.

But Kennecott, likely feeling pressured to keep up with the furious exploration pace at the Dia Met-BHP camp next door and encouraged by the quantity of diamonds, decided to skip this stage and take a risk on a 5,000-tonne bulk sample.

It was a costly gamble. Although the pyroclastic (top) portion of the pipe returned a respectable grade, less than a third of the stones were of gem quality.

The disappointing results triggered a selloff that wiped $500 million off the collective value of the Lac de Gras diamond players in the summer of 1994. Some of the juniors involved in the play never recovered from the blow.