Big changes at De Beers Canada

In a plan that is expected to be complete by the end of next June, De Beers Canada is moving its headquarters to Calgary from Toronto as part of a larger restructuring of its operations.

The company is also relocating some workers from its Yellowknife and Timmins offices to Calgary, as well from its Victor mine in northern Ontario.

In an interview, Kim Truter, De Beers Canada’s new CEO, said the move was not solely a reaction to the diamond market, which has weakened over the past year.

“We wanted to show a little bit of industry leadership around how we’re organized within Canada,” Truter said. “When you look at De Beers in Canada, we’ve probably got the largest geographical spread of operations that any of the mining companies has under one commodity type.”

De Beers’ Snap Lake mine and 51%-owned Gahcho Kué project in the Northwest Territories and its Victor mine in Ontario are spread out over 4,000 km, he explains.

“What we’re trying to do is maximize the sum of the parts, find a way of operating in Canada that is more efficient.”

Truter joined De Beers Canada in August to replace former CEO Tony Guthrie, who has retired.

Calgary was chosen because of a combination of features, including its status as a flight centre and an attractive place to live and work, Truter said.

“Generally it’s easier to attract people with industrial skill sets to a place like Calgary,” Truter said.

“Our operations are obviously very remote, either Arctic or sub-Arctic and as I said, 4,000 km apart — so we needed to do something a little bit different. All of that obviously also helps with the market because we’re also looking for a cheaper operating model to sort of cushion ourselves against the market.”

Diamond Market

Rough diamond prices have fallen by about 16% over the past year, according to the WWW rough diamond index. De Beers, which is 85% owned by Anglo American (LSE: AAL) and 15% owned by the government of Botswana, has cut production repeatedly
this year in response to market weakness.

The company is now expecting to produce around 29 million carats for 2015, down from its forecast of 32-34 million carats at the start of the year.

Canadian operations haven’t seen any cuts yet, though Truter says they could, depending on market conditions.

“The diamond market has now followed what’s happened to some of the other commodities, so we’re seeing three effects: we’re seeing the demand for rough stones come off, we’re seeing prices soften somewhat, and then we’re obviously suffering some of the effects from exchange rates, especially with the deterioration of all of the major currencies vs. the U.S. dollar.”

Whether the recent drop in diamonds prices will be a sustained drop is a difficult question to answer, Truter says.

“At the moment, we’re just looking at it and examining what our responses could be, but we don’t really know, to be honest,” he said. “Christmas is a very important period for us, because traditionally it’s a good indicator of things to come. I think once we’ve been through the festive season, we’ll be in a better position to understand the broader implications.”

Truter says there are also important milestones coming up next year that could affect demand — China’s five-year plan and developments in the U.S.

Gahcho Kué

De Beers is building the Gahcho Kué mine, due to come online in the second half of 2016, with 49% partner Mountain Province Diamonds (TSX: MPV).

Construction at the project was 70% complete in early October and both companies are very happy with the development project, which is on budget and on time, so far.

“It’s going very well, and that’s important because if you look around the world when people build projects, they often don’t go well,” Truer says. “We’re very pleased with the way the Gahcho Kué project has proceeded in terms of timelines and our cost containment efforts.”

As for timing of first production at Gahcho Kué and whether those diamonds will be sold into a stronger market, Truter says closer to that time, the companies will work out whether the timing is right.

“At this stage, our plans aren’t changed. Our plan currently between ourselves and Mountain Province is to bring it online in the second half (of 2016), as was previously indicated.”

Lastly, regarding De Beers’ Victor project and the Tango extension, which could add seven years to the mine life, Truter said more work is needed before the company can make a decision on whether to build the project. An environmental assessment is under way at the Tango extension, as are economic and other studies. Without Tango, Victor’s mine life will end in 2018.

“Our intentions with Victor are to maximize value whichever way we go. Obviously Tango would be a very nice addition to Victor, but we need to make sure we’re examining it from all sides,” Truter said.

“We’re not under any significant time pressure. So we don’t have an imminent decision planned for Tango — we’ll just read it as we go along.”

— This article originally appeared in the November 2015 issue of Diamonds in Canada.