China Diamond boosts output at 701 mine

Diamond mining is not new to China. The 701 Changma mine has been operating for decades, and is China’s largest diamond producer. It is an old mine currently profiting from new management and technological upgrades.

China Diamond (CDC-V), through its subsidiary VVS1 Ltd., has been operating in the country for more than a decade. Until January of this year, China Diamond operated under the name Pan Asia Mining. In January 2003, its joint-venture interest in the 701 mine increased by 1%, to 51%. The other 49% is held by China Non-metal Mine Enterprise Group 701 Mine (China 701). China Diamond took over operational control of the 701 joint venture last August. There may be amendments to the joint-venture agreement allowing for a further increase in China Diamond’s stake in the mine.

The 701 Changma mine is in Shandong province. The closest town, Mengyin, is 14 km to the northeast and 500 air-km southeast of Beijing. The closest airport with regular flights from Beijing is 200 km by road from Mengyin, at Jinan, the provincial capital.

The 701 mine has operated continuously since 1970. In January 1997, the mining lease was renewed to permit underground mining for 30 years. Previous to June 2002, the mine was an open pit, but since that time, production has been entirely from underground. The mine employs 472 people; 109 are contractors working on underground development. Electrical power is provided from a national grid run by coal-fired plants in Shandong province.

The Changma deposit consists of a couple of kimberlite pipes and a dyke, which merge together at minus-40 metres (approximately 300 metres below surface). The pipes have been subjected to delineation drilling to a depth of 600 metres below surface; they are still present at this depth. The kimberlite is hosted in competent gneiss. The area is characterized by gently rolling hills with elevations varying from 250 to 300 metres above sea level.

During the past 30 years, 1.6 million carats of diamonds have been processed from 1.3 million tonnes of ore with an average grade of 1.27 carats per tonne. The largest diamond recovered to date was 119 carats. It was recovered in 1988 and is kept in a museum in Shanghai. From 1988 to 1993, 45 diamonds greater than 10 carats in size were recovered. During this same period, a further 35 stones in the range of 5-10 carats were recovered, and 1,272 diamonds weighed in at 1-5 carats. A 33-carat diamond of VVS quality (very very slightly included) was recovered in December 2003 and subsequently sold on the international market for $187,000. Fifty-one percent of the diamonds recovered are gem quality.

At the end of 2003, SRK Consulting estimated the indicated resource to be 1.4 million tonnes grading 0.92 carat per tonne, with an inferred resource of 1.5 million tonnes at 0.63 carat. The resource is based on a 1-mm stone size cutoff. The indicated resource extends from below the open pit at the 160-metre level to minus 40 metres. The geometry of the pipes is known from available drill data, but SRK says that until more data are available, the resource should be considered “indicated” rather than “measured.” The inferred resource (below minus-40 metres) was calculated using information from just 15 drill holes.

Underground development has focused on a ramp between the 140- and 110-metre levels, with sublevels established from the ramp at 10-metre height intervals. Crosscuts intersect both the large and small pipes. Raises have been developed, and sublevel caving is the mining method used.

The company plans to modernize operations by upgrading technology. This has already commenced, and production doubled in each of the last two months of 2003. In November and December 2003, the mine produced a total of 15,659 carats greater than 1 mm. A 4,277-carat sample of diamonds recovered between Nov. 26 and Dec. 22 resulted in an average realized carat price of $88.

China Diamond has earned a 60% interest in the 702 Xiyu property, approximately 30 km north-northeast of the 701 mine. Diamond exploration began in the area in 1965, and diamondiferous kimberlites were identified shortly thereafter. Nine kimberlite pipes have been identified on the property, and exploration is ongoing. An independent resource estimate of these pipes, completed last November by SRK to a depth of 450 metres below surface, resulted in a total measured and indicated resource of 9.7 million tonnes with an average grade of 0.055 carat per tonne. This is based on a 1-mm stone size lower cutoff. The kimberlite is known to contain some large diamonds, and a grade of 1.27 carats per tonne was assessed locally. Further work is required to define different phases in the kimberlite, which may indicate specific areas containing larger stone size and quality.

The 703 Linyi property, southwest of the 701 mine, covers 1,600 sq. km. To date, three highly prospective diamond targets have been identified. Diamonds have been recovered from a bedrock basal conglomerate and a “para-kimberlitic” rock. China Diamond also plans to explore the Huixian gold and copper mine, and has commissioned a technical report on the property.