Shore says Saskatchewan diamond project feasible

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

The study covers 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, NMC-T). The mining plan envisages two open pits: Star and Orion South.

Pre-production capital costs are estimated at $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 is earmarked for an in-pit crush and convey system that would help the company meet its 45,000-tonne-per-day processing target, and over half a billion would go to a processing plant to recover diamonds.

Shore expects to extract 34.4 million carats from probable reserves of 278 million tonnes, with an average grade of 12.3 carats per hundred tonnes. Star contains 20.4 million of those carats, and Orion 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 the mine. The study used a February pricebook for sale figures, but with rough diamond prices up 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 (NPV) 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 feasibility study. The robust economics confirm that a world-class diamond mine is feasible in central Saskatchewan.”

Shore also emphasizes the cautious nature of the study. The company points to inefficient 150-tonne trucks that were proposed because of assumed traffic constraints. Combined with shallow pit slopes, they led to the exclusion of 70 to 100 million tonnes of potential resource, containing between 5.9 and 10.4 million carats. The study also includes 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 assumes a late 2013 construction start and an early 2017 production start, while the prefeasibility study 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 continues dialogue with native groups, with one reserve adjacent to the property. The project sits 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 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.