Shear secures Jericho water licence

Vancouver – Shear Diamonds (SRM-V) has been given the final ok on a renewal of its water licence for its Jericho diamond project in Nunavut.

The eight-year licence, which the company reports is the longest in Nunavut’s history, clears the way for the company to advance the project towards commercial production.

On news of the approval the company’s share price gained 6¢ or 20.3% to end at 36¢, despite the company already announcing in late December that the Nunavut Water Board had recommended to the Minister of Aboriginal Affairs and Northern Development Canada that the licence be approved.  

In December the company also completed a US$2-million financing deal with Belgian-based diamond dealer Tache Company N.V. The deal will see Tache selling rough and polished diamonds from the mine, and Shear participating in the final net profits from the sale.

Shear acquired the Jericho mine and related infrastructure in August 2010, along with the former exploration assets of Tahera Diamond, by paying $2 million cash plus 80 million shares and a 2% royalty to Caz Petroleum, the leading creditor. In conjunction with the purchase, Shear raised $13.1 million in a private placement financing by issuing 139.4 million shares at 6.5¢ apiece.

Situated 420 km northeast of Yellowknife in the Kivalliq region of Nunavut, the Jericho mine was a money loser right from the get go when it opened in 2006 until it went bust in 2008. Tahera Diamond invested over $200 million in the development of the Jericho mine, including the construction of a 2,000-tonne-per-day diamond recovery plant, maintenance facility, fuel farm, and offices and accommodations to serve 225 people.

Jericho was put into production based on a revised nine-year, open-pit plan to mine a 5.5-million tonne kimberlite resource grading 0.85 carat per tonne, at a life-of-mine stripping ratio of 5.2-to-1. The mine plan called for the production of some 4.7 million carats at an estimated value of US$95 per carat. The underperforming mine never reached design capacity and suffered higher-than-expected operating costs, compounded by lower-than-planned mining and recovery grades.

From January 2006 to May 2008, 13.6 million tonnes of material was mined from Jericho, including 1.5 million tonnes of kimberlite. Tahera recovered 780,000 carats of diamonds from the processing of 1.26 million tonnes of ore before operations finally ceased.

Jericho was known for its large gem diamond potential. The operation produced in excess of 1,000 diamonds that were greater than 10 carats apiece. One particular diamond, a 59-carat gem, sold for $450,000. Tahera had a marketing off-take agreement with jewelry retailer Tiffany & Co. (TIF-N) for Jericho’s entire run-of-mine production.

Shear had SRK Consulting prepare an updated resource estimate that shows the Jericho kimberlite complex contains indicated resources of 1.8 million tonnes grading 1.06 carats per tonne, equivalent to 1.9 million carats worth an estimated US$103 per carat. Inferred resources host a further 1.7 million tonnes averaging 0.65 carat, equal to 1.1 million carats valued at US$100 per carat.

The company has a 52-week share price range between 12¢ and 58¢ and 45.9 million shares outstanding.