Shore says Saskatchewan diamond project feasible

Vancouver – Shore Gold (SGF-T) has set out the details of its ambitious diamond project in Saskatchewan with a full feasibility study.

The study covers both Shore’s wholly-owned Star Diamond project and the adjacent Star West and Orion South kimberlites, held 66% by Shore and 34% by Newmont Mining (NEM-N). The mining plan envisages two open pits – the Star and the Orion South, with the financials of the study covering both.

Pre-production capital costs are about $1.9 billion, while total capital costs over the 20-year mine life are estimated at $2.5 billion with a 5.3-year payback period. Almost half a billion dollars goes to an in-pit crush and convey system that will help the company meet its 45,000-tonne-per-day processing target while over half-a-billion goes to the sophisticated type of processing plant required to achieve full and intact diamond recoveries.

Shore expects to extract 34.4 million carats from probable reserves of 278 million tonnes with an average weight of 12.3 carats. The Star pit contains 20.4 million of those carats while the Orion pit hosts the rest, with almost the same average grade in both pits.

The company has calculated an average price of US$242 per carat for the life-of-mine, while average prices per kimberly unit range from US$148 per carat to US$408. The study used a February pricebook for sale figures, but with prices up roughly 30-35% since then, the company added 15% to the prices in the study.

After taxes and royalties, and using a 10% discount, the project has a net present value of $535 million with an internal rate of return of 13.7%. At a 7% discount, the NPV goes up to $1.27 billion.

Shore’s president and CEO Kenneth MacNeill stated that “Shore is very pleased with the positive results of the feasiblity study. The robust economics confirm that a world class diamond mine is feasible in central Saskatchewan.”

Shore also emphasized the cautious nature of the study. The company pointed to the proposed use of less-efficient 150-tonne trucks because of assumed traffic constraints, which, combined with shallow pit slopes, led to the exclusion of some 70 to 100 million tonnes of potential resource containing somewhere between 5.9 and 10.4 million carats. The study also included the cost to extract 80 million tonnes of inferred resources but, because of the advanced level of the study, potential revenues were excluded.

The study assumed a late 2013 construction start and an early 2017 production start while the prefeasibility study had projected a 2016 production start date. Shore first discovered diamonds on the property in 1996.

The company is in the later stages of an environmental impact study and is continuing dialogue with native groups, with one reserve adjacent to the property. The project sits about 60 km east of Prince Albert. The company is working with Saskatchewan Power to extend a 230 kilovolt line 16 km east to the site.

Shore’s share price briefly climbed as much as 20% but ended the next day almost flat at 69¢. The company has a 52-week share price range between 54¢ and 98¢. The company had almost $21 million in cash at the end the first quarter and 225 million shares outstanding.