The Diavik diamond mine in Canada’s Far North completed its first ramp-up year of operations in 2003, producing more than 3.8 million carats of rough diamonds at an operating cash cost of US$31 per carat.
The mine is centred on a small, 20-sq.-km island on the eastern shores of Lac de Gras in the Northwest Territories, 300 km northeast of Yellowknife and 30 km southeast of the Ekati diamond mine. Diavik was put into production based on a 20-year plan to mine four kimberlite pipes — A-154 South, A-154 North, A-418 and A-21 — in phases using a combination of open-pit and underground methods. The $1.3-billion project was completed in January 2003, well ahead of schedule and within budget.
“The timing of Diavik has been excellent,” says Leigh Clifford, chief executive office of
Neither Rio Tinto nor
The kimberlite process plant reached a planned throughput of 1.5 million tonnes per year (or 4,100 tonnes per day) in the third quarter, utilizing 76% of design capacity some six months ahead of schedule.
Nearly 1.3 million tonnes of kimberlite ore and about 26 million tonnes of waste rock were mined from the A-154 pit in the first year of operation. Grades increased as mining progressed through the upper transition zones and into the orebody proper. Two of the largest gem-quality stones recovered weighed 151 and 150 carats.
As mining progresses into the core of the A-154 South pipe, the diamond recovery against the feasibility study estimate is approximately 95% on a weight basis and more than 98% by value.
“The quality of the diamonds recovered, reflected in sales revenue, has exceeded the feasibility study projections, though there is substantial variability linked to geological change within the orebody,” reports Aber President Robert Gannicott.
During the fourth quarter of 2003, the mine recovered 1.1 million carats of diamonds from the treatment of 300,000 tonnes of diamond-bearing material. That’s down somewhat from the third quarter, when almost 1.5 million carats of diamonds were recovered from the processing of 388,000 tonnes of material. Production in the final three months of 2003 was adversely affected by the processing of stockpiled lower-grade ore from the A-154 South pipe and transitional low-grade material from the top of A-154 North. The processing of these materials was done to clear the stockpile areas in preparation of receiving A-154 North ore during calendar 2004. Processing of ore from the South pipe proper resumed in the second half of December.
“We expect rapid improvement from here on,” says Clifford.
To take advantage of a strong global marketplace, the Diavik diamond mine has raised its production target for 2004 to 8.2 million carats of rough diamonds at a projected cash cost of US$24 per carat, based on a throughput of 1.7 million tonnes. To support this increase, Diavik is adding three 218-tonne haulage trucks, bringing the number of trucks in the mining fleet to 11. This will help boost Diavik’s workforce to about 700 by mid-year.
Proven and probable reserves at the start of 2004 were estimated at 25.6 million tonnes of kimberlite grading 3.8 carats per tonne, equivalent to 97.8 million carats. The pipes host additional measured, indicated and inferred kimberlite resources totalling 11 million tonnes at 2.4 carats per tonne, for an extra 26.4 million carats.
The cluster of four pipes lies just offshore in the shallow waters of Lac de Gras. A series of water-retaining dykes will be built out from the island. The first of the dykes was built around the A-154 South and North pipes, which will be mined from the same pit as they are only 100 metres apart. A-154 South is the largest and richest pipe of the bunch. Alone, it will deliver 49.1 million carats from an open-pittable 10.2 million tonnes of kimberlite grading 4.8 carats per tonne, with an underground portion containing a further 6.1 million carats in 1.4 million tonnes grading 4.2 carats per tonne. The A-154 South stones were independently valued for Aber by WWW International Diamond Consultants (WWW) at US$79 per carat in 2000.
“Initial sales of diamonds attracted a high level of interest, with prices being achieved at a significantly higher level than originally projected,” states Rio Tinto in its 2003 annual report. “The production was of a coarser size distribution and a better-quality profile than initially indicated in earlier bulk sample analysis.”
Bulk sample
The mine plan incorporates only 9.1 million carats of A154 North from 2.9 million tonnes of open-pit ore grading 3.1 carats per tonne. The A-154 North pipe appears to have some significant upside to it. A 19,342-tonne bulk sample was mined last year from the low-grade upper geological phase of the pipe, and the quality of the diamonds was revealed to be much higher than originally assumed. The 11,771 carats of diamonds recovered above a bottom-size cutoff of 1 mm were valued by WWW at US$82 per carat, versus the original price estimate of US$33 per carat, which was based on a limited parcel of only 157 carats recovered during the prefeasibility drilling campaign. This substantial increase in value, combined with other engineering considerations, has led to a fundamental reconsideration of the mine plan, says Aber’s Gannicott.
A-154 North has an overall resource containing some 28 million carats. Ore reserves, based on the US$33-per-carat valuation, account for about 33% of the pipe’s resource. By comparison, reserves at A154 South which comprise about 86% of the pipe, based on a valuation of more than US$60 per carat.
Rio Tinto has established a team to recommend ways to capitalize on the higher-than-expected value of the ore in both the A-154 pipes. The company has yet to decide when to go underground at these pipes and when to accelerate construction of the A-418 dyke.
Under Rio Tinto’s original production schedule, the A-418 pit was not slated to begin production until 2010, followed by the A-21 pit in 2013. The A-418 pipe contains minable open-pit reserves of 5 million tonnes grading 3.4 carats per tonne, equivalent to 17.4 million carats, plus an underground portion containing an additional 13.3 million carats in 3.6 million tonnes grading 3.8 carats per tonne. In A-418, two distinct facies units are recognizable in terms of grade and value. A diamond price averaging US$56 per carat was estimated by WWW using January 2000 market values, based on a portion of the 8,326 carats recovered from underground bulk-sampling on A-418 in 1996.
This new assessment, which will be completed over the next 12 months, will evaluate various combinations of open-pit and underground development proposals, with the objective of boosting revenue.
62 and counting
Exploration efforts are being stepped up this year with a $9-million program aimed at expanding the mine life and capacity beyond the current 20-year estimate. In total, 62 kimberlite pipes have been discovered on the Diavik property, half of which are diamond-bearing. The Diavik property comprises about 2,400 sq. km in and around Lac de Gras.
This year’s program will include the pilot plant testing of two mini-bulk samples collected last year. In light of the improvement in the A-154 North carat price resulting from the larger bulk sample, a program to extract a much bigger bulk drill sample from the A-21 pipe is planned for late this year. A-21 has a feasibility study diamond price estimate of only US$28 per carat, based on a small mini-bulk drill sample that returned just 90 carats of diamonds from 30.5 tonnes of kimberlite. A-154 North will be further tested with large-diameter deep drilling this spring.
Ongoing exploration
During the fourth quarter, a 3,200-line-km airborne gravity survey was conducted over the western portion of the Diavik claim group. The geophysical results from this survey will be used to guide ongoing exploration.
For the year ended Jan. 31, 2004, Aber realized net earnings of US$27.7 million (or 50 per share) on diamond sales of US$114.8 million, representing its 40% share of Diavik. By comparison, 2002 saw a loss of US$3.9 million (7 per share), though that was prior to the commencement of diamond mining.
Subsequent to year-end, Aber completed an equity offering of 1.5 million shares that netted the company $71.6 million as an integral component of refinancing its previous, US$230-million project loan facility. The credit facility was reduced to US$175 million, of which US$100 million is a 5-year secured term loan, with the balance of US$75 million in the form of a 5-year secured revolving credit arrangement.
“The combination of the equity and the refinancing has enhanced our financial flexibility while reducing our debt-servicing costs,” explained Alice Murphy, Aber’s chief financial officer. The refinancing was primarily designed to remove restrictive covenants in the original credit structure so that the company can initiate a dividend payment policy.
Aber’s rough diamond sales are based on a traditional 5-week cycle comprising 10 sales annually. Under a direct off-take agreement, upscale jeweler
Further to the company’s announcement in November 2003 that it had reached a preliminary agreement with the owners of jeweler Harry Winston to buy the company in a staged transaction, Aber is continuing the due diligence and negotiation process. Harry Winston is the prestigious, New York-based “jeweler to the stars,” with retail sales outlets in Manhattan, Beverly Hills, Paris, Tokyo and Osaka. Gannicott says the proposed acquisition provides the ideal platform for expansion into America and Japan, the core diamond jewelry markets.
“Although there is no assurance that the transaction will be completed, we do expect a conclusion in our first quarter,” says Gannicott.
Diamonds have grown into a major product for Rio Tinto — so much so that its Diamonds group was spun out in 2003 from the former Diamonds & Gold group. The newly formed group comprises Rio Tinto’s diamond interests in Australia, Canada and Zimbabwe, as well as its diamond sales offices in Belgium and India. Diamonds in 2003 accounted for 8% of the Rio Tinto Group’s operating assets, while contributing 5% of turnover and 8% of adjusted earnings. Diamonds contributed US$113 million to earnings, up from US$63 million in 2002. Diavik accounted for US$41 million in net earnings from only six months of sales.
Rio Tinto also owns and operates the Argyle diamond mine in Western Australia, which is in its 20th year of operation. Argyle brought in US$72 million in net earnings in 2003, or US$9 million more than in 2002, despite an 8% decline in carat production. In 2003, Argyle produced 30.9 million carats from the open-pit mining of 9.8 million tonnes of AK1 lamproite ore grading 3.2 carats per tonne. Argyle benefited from the sale of inventory stocks during the first half of 2003. The sale of these stocks was modest in the second half of the year and is now complete.
Exploration decline
Proven and probable reserves at the start of 2004 were 62.3 million tonnes grading 2.3 carats per tonne, equivalent to 143 million carats. Open-pit production at Argyle is expected to continue until 2007. Ashton has gone underground with an exploration decline as it begins a feasibility study into extending the life of the operation with underground mining. A production decision is expected in 2005. Undeveloped resources total 147 million tonnes grading 2.8 carats per tonne, equivalent to 412 million carats.
The Argyle production is predominantly one of small, coloured, affordable diamonds. In contrast, the Diavik product has a significant proportion of its value in gemstones with good clarity and colour in larger sizes. Argyle’s rough and polished diamond sales in 2002 totalled US$371 million, giving an average carat price of around US$11. The Argyle product is readily absorbed by the Indian cutting centres. India’s share of world production grew significantly in 2002. Rough imports into India in 2002 totalled US$5.7 billion — a 41% increase over 2001 levels. By volume, Indian imports totalled 166 million carats, up 40% from 2001.
Diavik sales, along with those from Argyle, are being handled by Rio Tinto Diamonds in Antwerp. All Rio Tinto diamond sales take place on a willing-buyer/willing-seller basis. Rio Tinto says it will focus on leveraging the Canadian origin of the Diavik product. Rio Tinto Diamonds says it is supporting industry efforts to stimulate consumer demand and believes Canadian-origin diamonds are an exciting new product that may generate additional demand.
“Demand for the Diavik product has been strong, particularly in Canada itself, but most marketing attention has been given to the larger, better-quality stones mounted on solitaire rings,” said Nigel Jones, general manager of marketing for Rio Tinto Diamonds, during a presentation at the 10th anniversary of the Indo Argyle Diamond Council. “We believe an opportunity exists to promote the more commercial quality of Canadian diamonds mounted in Indian-made jewelry, and we will be working with our customers and IADC members to find the best ways to bring this to the market.”
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