Diavik refused permit

Canada’s Department of Indian Affairs and Northern Development (DIAND) has refused to issue Aber Resources (ABZ-T) and London-based Rio Tinto (RTP-N) an interim land use permit for the US$1.3-billion Diavik diamond project in the Northwest Territories.

The project, situated on East Island in Lac de Gras, 300 km northeast of Yellowknife and 30 km southeast of the producing Ekati diamond mine, is a 60-40 joint venture between Rio Tinto and Aber Resources. The mine is expected to supply about 5% of the world’s diamond production and was scheduled to start production in 2003. Construction could now be delayed by up to one year.

The permit was refused chiefly because an environmental agreement has not yet been reached. Such an agreement would cover air quality, caribou herd management and the involvement of local communities in environmental monitoring. Indian Affairs Minister Robert Nault says that once the environmental agreement is reached, the land use permit will be issued.

Diavik has about 1,300 truck loads of materials in Yellowknife waiting to be shipped to the mine site. Construction was due to begin in the second quarter.

The supply line to the site is a winter road that is usable only from January to March.

Diavik Diamond Mines, Rio Tinto’s wholly owned subsidiary, says it will continue to negotiate with DIAND in an effort to obtain the regulatory approvals required for the project to proceed as scheduled.

Diavik’s minable reserve is estimated at 102 million carats in 25.6 million tonnes grading 3.96 carats per tonne. The figure includes only measured and indicated resources to a depth of 420 metres; the inferred resource, which totals 12.5 million tonnes grading 2.38 carats (or 29.8 million carats), has been excluded from the feasibility study.

The diamonds are valued at an average price of US$53 per carat. Total capital costs are pegged at $1.28 billion, whereas operating costs over the first 10 years are expected to ring in at $85 per tonne.

In related news, Franco-Nevada Mining (FN-T) has increased its interest in Aber by acquiring an additional 1.1 million shares for $8.3 million. This effectively increases Franco-Nevada’s holdings to 7.7 million shares, or 14.34%.