Gahcho Kué: positive feasibility study for partners De Beers, Mountain Province

Will Gahcho Kué be Canada’s next diamond producer? It may very well be, based on the positive results emerging from a recently completed independent feasibility study.

“The feasibility study delivers an economically viable, technically credible and environmentally sound development plan for the Gahcho Kué project,” reported Patrick Evans, the chief executive officer of Mountain Province Diamonds (MPV-T, MDM-X).

Located in Canada’s Far North, Gahcho Kué is owned 51% by De Beers Canada and 49% by Mountain Province.

The final draft of the year-long feasibility study, conducted by JDS Energy and Mining, was presented to the Gahcho Kué joint-venture partners in mid-September, with details released in mid-October.

The study, completed at a cost of $10 million, suggests the project can support a mine life of 11 years, based on an average annual production of 4.5 million carats. The diamonds are expected to command an average price of US$102 per carat. Initial capital costs total $599 million, including $49 million in working capital, and operating costs come in at $49 per tonne.

The project’s after-tax internal rate of return, including sunk costs, is estimated at 20.7%.

“As the internal rate of return surpasses the minimum 15% defined in the joint-venture agreement between Mountain Province and De Beers Canada, the partners are now required to support a decision to build,” Evans stated in a recent message to shareholders. “Our focus now turns to permitting and financing.”

The partners revised their original option agreement in 2009 to make it a more equitable relationship. By agreeing to repay De Beers some $59 million in historic explorations costs, Mountain Province is now an active participating partner in the JV and has the right to market its proportionate share of any future diamond production.

Gahcho Kué is in the Northwest Territories, about 20 km above the tree line, at the headwaters of the Lockhart River drainage system in the high Sub-Arctic tundra region, 300 km northeast of Yellowknife. It’s 150 km south of Lac de Gras, where both the Ekati and Diavik mines are located, and 90 km southeast of De Beers’ Snap Lake mine. Like the other diamond mines, the site is remote and accessible by air only, except in the winter, when it can be reached by an ice road typically open in February and March. The winter road to Gahcho Kué is a 120-km spur road off the main road between Yellowknife and Lac de Gras.

The project centres on a cluster of four main kimberlite pipes, including 5034, Hearne, Tuzo and Tesla, all within 2 km of each other. The mine plan incorporates only the first three pipes, as Tesla, the smallest of the bodies (0.4 hectare), is considered too low-grade, based on early mini-bulk sample work. The pipes are steep-sided and mainly occur under the southern portion