Early ice road closures could cool diamond operations

Unseasonably warm weather, which has left many Canadians wondering what happened to winter this year, has played havoc with a seasonal ice road used to supply many of the mines and exploration projects in Canada’s Arctic.

Deteriorating ice conditions along the southern portion of the winter road have forced its indefinite closure, several weeks ahead of schedule. The mines that depend on this winter ice road to bring in fuel, bulk supplies, explosive material and heavy equipment each year, include the Diavik diamond mine, BHP Billiton’s (BHP-N) Ekati mine, Tahera Diamond’s (TAH-T, TAHDF-O) newly constructed Jericho mine, and De Beers’ Snap Lake project.

The past-producing Lupin gold mine, 400 km northeast of Yellowknife, N.W.T., laid the foundation for winter road trucking starting in the early 1980s, which, up until this year, typically provided a 2-month trucking window for the mining industry in the Far North.

The “Tibbitt-to-Contwoyto” winter road was only open for 42 days in 2006, compared with a total of 70 days during the 2005 season. The winter road was several weeks late in opening.

The winter ice road is managed by a joint-venture committee comprised of BHP Billiton Diamonds and Diavik Diamond Mines. The decision to suspend trucking operations was made in consultation with EBA Engineering, which provides ice engineering services, and Nuna Logistics, which builds and operates the winter road on behalf of the joint venture.

The impact of the early road closure on these northern diamond mining operations will depend upon how much of the year’s fuel and supplies made it through.

“All of us that were relying on the road for supply, I don’t think anyone has got a full fill of their total requirements,” said Tahera chairman and CEO Peter Gillin during a conference call.

The Diavik mine has about 44 million litres of diesel fuel on-site, enough for about 10 or 11 months, says Aber Diamond (ABZ-T, ABER-Q), which owns a 40% interest in the mine. London-based Rio Tinto (RTP-N), the owner of a majority 60% interest, is the operator.

Aber says it will review the mine plan development schedule, but mining operations won’t be suspended because of the road closure. The company says most equipment too big to bring in by air is already on-site. It is considering “other alternatives for delivery” for the remainder, described as “ten truck loads of excavation shovel and dyke cutoff wall construction components.”

The Diavik mine, 300 km northeast of Yellowknife, produced 8.3 million carats of rough diamonds in 2005 from open-pit mining on the A-154 South and A-154 North kimberlite pipes. During 2005, Diavik began its latest construction initiatives, which include a rock-fill dyke that is being built around the A-418 pipe, and underground mining feasibility studies, at a total cost of $363 million.

Tahera’s Jericho mine received only 60% of the 450 truck loads that were planned to travel up the winter road, including more than half of its fuel allotment. With 6 million litres of fuel on site, Tahera is confident that it will be able to maintain diamond processing and production at original planned levels for the next 10 months into January 2007, but will operate at a reduced mining rate by deferring waste stripping until next year. In order to further conserve fuel, discretionary capital projects, such as the extension of the airstrip, will be postponed.

“Since we are just starting the pit, to maintain a starter pit and defer stripping in the first year, it’s not a big issue for us,” said Daniel Johnson, executive vice-president of operations.

Air transport options

Should air transport of supplies and fuel be required, the price differential is estimated at 75 per kg or litre over trucking costs. Tahera estimates that it would cost an extra $3 million to fly in all of the remaining loads that didn’t make it by road.

“Frankly, it’s at our discretion whether we choose to do that or not, but as you can see it’s pretty expensive to deliver,” Gillin explained. “We are quite reluctant to fly fuel in because it’s an expensive way to deliver it.”

The wholly owned Jericho mine is 420 km northeast of Yellowknife and 28 km north of the dormant Lupin mine. Compared with the two other Canadian diamond mines in the Northwest Territories, Jericho is a small operation. An updated 2004 mine plan calls for the production of some 4.7 million carats averaging US$95 apiece over a life of nine years, based on a revised pit model containing a 5.5-million-tonne resource averaging 0.85 carat per tonne, at a stripping ratio of 5.2:1.

“We’re about to have operational experience and the real driver of all this is going to be the actual values we get for our diamonds and what the actual costs are . . . recognizing that in the meantime, diamond prices have moved considerably, the dollar has changed, and the price of fuel has changed,” Gillin said.

On the cusp

Constructed in less than 12 months without a lost-time accident, the Jericho mine is on the cusp of production. At year-end 2005, Tahera had spent $96.9 million on capital costs. Engineering commissioning was completed in early February and plant throughput is ramping up. The diamond recovery plant is on target to reach the nominal design production level of 2,000 tonnes per day in the early part of April. Most of the material processed to date has come from stockpiled kimberlite material encountered earlier than anticipated during pre-stripping, and not included in the open-pit model.

Jericho produced its first diamonds in the last days of January and since then, throughput in the plant has been increasing. Tahera has had one small sale of diamonds to date, but is anticipating a second sale before the end of March. The values realized from these sales volumes will comprise Tahera’s revenue for the first quarter. Tahera has an offtake agreement in place with jewelry retailer Tiffany & Co. (TIF-N) for Jericho’s entire run-of-mine production.

Tahera currently has a $13-million exploration program planned on the Muskox kimberlite pipe, which falls under the Polar option deal with De Beers Canada. A core delineation drilling component of the program started in January and large-diameter reverse-circulation (RC) drilling from atop the frozen lake is now under way on Muskox.

In 2004, Tahera struck a deal with De Beers to acquire control of a neighbouring property package covering 365 sq. km and four known diamondiferous kimberlites, including the sizable Muskox pipe, 14 km west of Jericho. Tahera can earn an initial half-interest by spending $11 million on exploration before the end of 2008. If a deposit is found, valued at less than US$750 million, Tahera will remain as operator and have the right to boost its stake to 75% by paying anywhere from $6 to $12 million, depending on the project’s worth.

Tahera is putting a strong emphasis on evaluating the Muskox kimberlite pipe, which offers potential to prolong the life of Jericho. This year’s aggressive program will enable Tahera to assess diamond grade as well as diamond value potential. An 800- to 1,300-tonne bulk sample is planned. Currently estimated to contain 12 to 14 million tonnes of kimberlite to a depth of 250 metres, Muskox is more than two times the size of the Jericho pipe. It’s composed of two major phases: the MKU-A (hypabyssal) and MKU-B (volcaniclastic) units, each comprising half the volume of the pipe.

Muskox pipe

Muskox was partially evaluated by De Beers with upwards of 50 drill holes. Two mini-bulk drill samples were collected from the central and eastern portions of the pipe in 1996 and early 1997. The 1996 program involved the extraction of 11.5 tonnes of kimberlite using RC drilling. The RC sample was collected from vertical holes drilled on the east side of the pipe, where the body is not overlain by a small lake. In total, 5.3 carats of rough diamonds were recovered, giving a sample grade of 0.46 carat per tonne. A further 35.5 tonnes were collected from core drilling in 1997,
resulting in the recovery of 11.5 carats, for an inferred grade of 0.32 carat per tonne. The combined mini-bulk sample of 47 tonnes delivered 16.8 carats of diamonds exceeding a bottom stone cutoff of 1 mm, representing a preliminary grade of 0.36 carat per tonne.

Last year, Tahera completed four core test holes into the Muskox pipe. A 3.7-tonne sample, derived from the four holes plus two previous De Beers holes, was analyzed by caustic fusion methods for microdiamonds. A 943-kg sample of the MKU-A hypabyssal unit returned a staggering 13,605 microdiamonds greater than 0.105 mm, including 12,925 stones under 0.212 mm in size. With regard to commercial potential, 25 diamonds greater than 1.18 mm weighed 1.34 carats, giving a promising sample grade of 1.42 carats per tonne.

The three largest stones were a 0.31-carat (4.3 by 3.3 by 2.5 mm) colourless octahedron, a 0.16-carat (5 by 3 by 2 mm) amber octahedron fragment, and a 0.1-carat (3.2 by 2.7 by 2.2 mm) white octahedroid fragment.

A 2,749-kg sample of the MKU-B volcaniclastic unit held 19,437 microdiamonds exceeding a 0.105-mm cutoff, including 19,437 stones under 0.212 mm in size. Twenty-two stones weighing 0.71 carat exceeded 1.18 mm, representing a preliminary grade of 0.26 carat per tonne. The two largest diamonds were an amber-coloured 0.098-carat (3.2 by 2.1 by 1.4 mm) stone and a 0.064-carat (3.5 by 2.5 by 1.6 mm) white fragment.

Over 95% of the microdiamonds above 0.3 mm were described as transparent or translucent, with colourless stones accounting for 61% of the parcel. A small population of pinks (2%) included several stones larger than 1.18 mm. More than 60% of the described stones are octahedrons or octahedroid shaped, while 31% remain unclassified.

Gillin stressed that this year’s early road closure will have no material impact on the Muskox exploration program.

“We thank our lucky stars that to the extent we had a warm winter, it was this year, and not last year . . . when we mobilized a great volume of construction equipment, supplies and steel,” Gillin said.

De Beers is not so lucky. It’s in the midst of construction and development of the Snap Lake underground project, 220 km northeast of Yellowknife. The road closure is expected to have “significant implications” for the project. Of the 2,200 scheduled loads, 600 of them never made it up. Some of the crucial components left behind include fuel, the scrubber for the diamond processing plant and a 200-man accommodation complex for the construction workers.

With a price tag of $636 million, a proposed 3,150-tonne-per-day underground operation is expected to produce 1.5 million carats per year over a life of at least 22 years. Snap Lake is scheduled for startup in late 2007 or early 2008.