Argyle diamond mine enters transitional period

Kimberley Plateau, Western Australia — The future of Rio Tinto‘s (RTP-N) Argyle diamond mine is in question now that the open-pit operation is starting to wind down.

Discovered in the late 1970s and started up in the mid-1980s, Argyle became the world’s pre-eminent supplier of diamonds. No other single operation anywhere even comes close to matching the output from the AK1 pipe.

But with the huge pit nearing exhaustion (anticipated for 2007-2008), Rio Tinto decided to test the underground potential of the AK1 lamproite pipe. In 2003, work began on an exploration decline 2 km from the centre of the operating pit. This initiative forms the main thrust of an A$80-million study into the feasibility of extending the mine life to 2020. A decision is expected by mid-2005.

Until then, Rio will continue to explore for the root structure of the lamproite by carrying out extensive drilling. The decline has advanced 1,700 metres along its planned length of 2,800 metres; it should terminate roughly 85 metres beneath the floor of the AK1 pit.

Throughout the 1970s, numerous companies searched for the source of alluvial diamonds in the eastern portion of the Kimberley region. In October 1979, after more than a decade of exploring in the area, the Ashton joint venture (managed by CRA, which was later acquired by Rio Tinto) tracked the alluvials to their source — the partially eroded AK1 lamproite pipe, in the southern end of the Matsu Range.

Lamproites have long been known to be mineralogically similar to kimberlites, but none that had been discovered had ever hosted economic quantities of diamonds. The olivine lamproite at AK1 was different from that of previously tested pipes. Sampling and testing showed that the pipe was incredibly rich, with grades upwards of several carats per tonne in specific sections, albeit at low values. The diamond population of the Argyle lamproite consists, on average, of 5% gem quality, 70% near-gem and 25% industrial-grade.

The 1.2-billion-year-old pipe is 2 km long and 150-500 metres wide, and has been structurally modified by faulting, regional tilting, and the coalescence of several phases of intrusion.

After three years of delineation, alluvial mining began in 1983, followed, two years later, by open-pit mining of AK1. Before long, the operation grew to become the world’s largest diamond producer by volume.

Annually, over the past 19 years, the mine has extracted an average of 70 million tonnes of waste rock and 11 million tonnes of diamond-bearing lamproite.

In 2003, Argyle produced 30.9 million carats of diamonds from 9.8 million tonnes of ore, adding US$72 million in net earnings to Rio Tinto’s financials.

Two decades of mining have revealed that the grade of the AK1 pipe decreases with depth. In the early to mid-1990s, the mined grade exceeded 5 carats per tonne; it is now in the order of 2.5 carats.

At the end of 2003, open-pit reserves totalled 62.3 million tonnes grading 2.3 carats per tonne, and Rio Tinto had outlined an additional resource of 146.7 million tonnes grading 2.8 carats per tonne.

The contraints of the pit, coupled with lower grades, are reflected in Argyle’s production of 11.6 million carats of diamonds in the first nine months of 2004 — less than half of what was produced in the corresponding period of 2003.

A few years ago, open-pit operations were extended by about five years by pushing back the pit wall and allowing access to deeper ore.

Argyle is renowned for its fancy, coloured diamonds, particularly its pinks. Although these stones constitute not even 1% of the total output, they account for a significant fraction of the mine’s value. About 90-95% of the world’s pink diamonds come from Argyle, and in some cases these exceed many tens of thousands of dollars per carat.

Most of Argyle’s output consists of small, near-gem quality diamonds, which, by and large, are shipped to India, where they are cut for the jewelry market. The influx of such a large volume of diamonds into India translates into about 300,000 jobs, directly and indirectly; these range from cutting and polishing to marketing.

About 850 people, mostly locals, are employed at the actual mine site.

Diamond production from Argyle represents about 25% of the gross regional product (GRP) of the Kimberley region. As well, the operation contributes to state coffers through taxes and royalties. Rio Tinto has lobbied heavily for concessions and breaks in its state taxes, which many mining companies regard as excessive. The government of Western Australia seems to be listening, having recently offered financial support for underground development at the operation (provided an independent review shows that mining could not proceed without it).

Underground plans call for elaborate block caving, sub-level caving, and the installation of an underground crusher, the total cost of which is pegged at about A$800 million.