Ekati mine a shining symbol of Canada’s diamond potential

Ekati, Canada’s first and only diamond mine, is the largest supplier of rough diamonds to the global market by value outside of De Beers. As other projects such as Diavik, Snap Lake and Jericho come on-stream, the market share of Canada’s diamond industry is expected to grow to 10-15% over the next three to five years.

Situated 300 km northeast of Yellowknife, Ekati is 51%-owned and operated by BHP Diamonds, a subsidiary of Broken Hill Proprietary (BHP-N). Dia Met Minerals (DMM-T) owns a 29% stake, with the remaining 20% split between geologists Charles Fipke and Stewart Blusson.

Ekati produced 2.51 million carats of diamonds in its first fiscal year ended Jan. 31, 2000. Nearly 90% of production, or 2.24 million carats, was sold at an average price of US$168.05 per carat — 29% higher than originally predicted. Currently, all production is coming from the Panda pit, which will be mined by open-pit methods until 2002.

Dia Met says the higher prices reflect the extraordinary high quality of the Ekati stones. The bulk of the value is in white commercial goods, which are typically 1+ in colour and S11+ in clarity.

For fiscal 2000, Dia Met posted net earnings of $47.5 million (or $1.56 per share) on revenue of $102 million, compared with a prior-year loss of $6.5 million (21 per share) on revenue of $5.6 million.

In the 3-month period ended April 30, Ekati produced 619,000 carats — 9% more than a year ago — and sold 727,000 carats at US$168 per carat. Dia Met had net earnings of $13.2 million (43 per share) for the first three months of fiscal 2001 on revenue of $32.5 million, versus $3.2 million (11 per share) earned on revenue of $15.9 million a year earlier.

Dia Met has applied 100% of its share of cash flow to repaying its debt obligations for Ekati, which, at the end of April, totalled $183.4 million, down from $204.7 million at Jan. 31, 2000. The company expects to eliminate all remaining debt obligations in the next two years.

In August, Dia Met appointed James Rothwell, former president of BHP Diamonds, as its new president. The company also formed a special committee to assess the merits of consolidating the company’s Class A and Class B shares into a single class.

Under Ekati’s original mine plan, five kimberlite pipes — Panda, Misery, Koala, Sable and Fox — were slated to be mined by open-pit methods, followed, in the case of Panda and Koala, by underground mining. Three additional pipes — Koala North, Pigeon and Beartooth — have been integrated into an amended mining schedule, pending final permits. Koala North falls within the existing permitted area. If the new pipes are not mined, the mine life would be reduced to 15 years from 18 years.

The eight pipes lie within the Core block of claims. Koala North and Beartooth were discovered in 1996, and mini-bulk samples were collected from them in early 1998. A 201.7-tonne sample from Koala North pipe yielded 126.58 carats exceeding 1 mm in size, for a grade of 0.63 carat per tonne. The diamonds were valued at US$200 per carat, with three gem-quality stones, ranging in size from 3.26 to 5.41 carats, accounting for 77% of the value.

Beartooth yielded 227.09 carats from a 189.3-tonne sample, giving a grade of 1.2 carats per tonne at an average value of US$79 per carat. It contains 1.4 million tonnes of ore at a waste-to-ore stripping ratio of about 12-to-1.

The land-based Pigeon pipe is 4.5 km northwest of Panda and contains 5.3 million tonnes of kimberlite at a stripping ratio of 9.7-to-1. The pipe is divided into an upper crater zone and a lower hypabyssal zone. A 213.6-tonne drill sample of the crater zone yielded 113.89 carats, for an indicated grade of 0.53 carat per tonne and a value of US$71 per carat. In the lower hypabyssal zone of the Pigeon pipe, a 351.2-tonne sample returned 137.42 carats, giving an implied grade of 0.39 carat per tonne and a carat value of US$39.

The mine plan calls for mill feed tonnage of 9,000 tonnes per day for the first nine years, doubling to 18,000 tonnes per day from 2008 onward. At current production levels, operating costs are expected to average between US$30 and US$35 per tonne.

Some 125 kimberlites have been discovered to date on the Ekati property, including 37 on the outlying Buffer claims held 51% by BHP, 31.2% by Archon Minerals (ACS-V), 10% by Fipke and 7.8% by Dia Met.

During the past winter, BHP bulk-sampled the Wolverine, Zach and Cougar pipes on the Core claims, as well as the Lynx pipe on the Buffer zone, by large-diameter RC drilling. The bulk samples were to be processed on-site during the summer.

Archon Minerals, launched by geologist Stewart Blusson, recently entered into a farm-out agreement with DHK Diamonds, with respect to the DHK, WI and WO claim blocks covering 720 sq. km in the Lac de Gras area. Archon can earn a 25% interest in any kimberlite discovery it makes.

DHK Diamonds is a private company, equally owned by Dentonia Resources (DTA-V), Horseshoe Gold Mining (HSX-V) and Kettle River Resources (KRR-T). DHK holds a 75% interest in the claim blocks, following the conclusion of an agreement with Kennecott Canada Exploration, a subsidiary of London-based Rio Tinto (RTP-N). Kennecott transferred its 40% interest in the DHK properties and a 100% interest in the Pellat Lake claims to the junior in return for a 9.9% equity position, with an equal number of warrants, upon DHK’s acquiring a listing on the Canadian Venture Exchange. Kennecott retains a 2% royalty on the 13 known kimberlites on the DHK properties and a 1% royalty on one kimberlite known to exist on the Pellat Lake property. Kennecott also retains the diamond sales rights concerning the known kimberlites, with the exception of DO27 and DO18 (Tli Kwi Cho).

SouthernEra Resources (SUF-T) holds the remaining 25% interest in the DHK properties.

In August, DHK entered into an agreement with BHP Diamonds and modified the Archon farm-out on the DHK and WI claim blocks. The agreement allowed BHP to conduct an airborne gravity survey with its proprietary Falcon gravity system over part of the DHK and all of the WI blocks. BHP can earn an initial 35% interest in any new discovery it makes. SouthernEra, Archon and DHK have agreed to drill-test each target defined by BHP’s work at their respective costs. BHP can increase its interest to 51% by conducting a 200-tonne bulk-sample test on the new discovery.

The final permit required to begin construction of the nearby Diavik project, a Class A water licence, was issued in August, but project operator Diavik Diamond Mines (DDMI), a Rio Tinto subsidiary, is still reviewing the terms and conditions of that licence. DDMI’s acceptance of the licence will clear the way for the joint-venture partners to endorse a formal production decision.

Situated 35 km southeast of Ekati, Diavik is owned 60% by DDMI and 40% by Aber Diamond (ABZ-T). In May, Aber released the details of an independent bankable feasibility study that showed the project to be “extraordinarily robust,” predicting an after-tax internal rate of return of 22.6%. Aber expects to recover its share of the some $1.29 billion (US$870 million) in capital costs within 2.7 years of commercial production.

The study prepared by SNC-Lavalin incorporates a reserve estimate prepared independently by MRDI. The study focuses on the development of four pipes — A-154 South, A-154 North, A-418 and A-21 — that together contain proven and probable reserves of 25.7 million tonnes grading 4.2 carats per tonne, equivalent to 106.7 million recoverable carats at a revised value of US$74 per carat. The largest of the pipes and the first to be mined is A-154 South, which hosts 11.7 million tonnes grading 5.2 carats for a total of 61 million carats. This pipe has a diamond value of US$79 per carat, or US$412 per tonne (C$606 per tonne).

The total resource comes in at 37.4 million tonnes grading 3.7 carats, equal to 138.1 million carats. The mine is expected to produce 7.1 million carats per year for the first 10 years of the project’s 20-year life, based on a production rate of 1.5 million tonnes per year. The mine operating costs are estimated to be $89 per tonne for the initial 10-year open-pit mining phase and $101 per tonne for the life-of-mine average.

The project schedule calls for commercial production to begin in mid-2003, with engineering currently in progress. DDMI was able to move nearly 1,000 truckloads of material over the frozen road this past winter.

The four kimberlite lie immediately offshore of East Island in Lac de Gras. Diavik proposes to dam off the pipes with water retention dykes, and then mine the pipes from three open pits. As the pits deepen, mining will move underground on A-154 South and A-418. Project facilities, including a kimberlite processing plant, accommodations, maintenance shop and fuel containers, will be built on East Island.

Aber has engaged N.M. Rothschild & Sons to act as advisors in support of debt-financing requirements. The company has roughly $196 million on hand and a product off-take agreement with upscale jeweler Tiffany & Co. (TIF-N) to buy a minimum of US$50 million worth of diamonds annually over 10 years. Aber retains the right to market its 40% share of the diamonds.

Aber also owns 32.24% of the Snap Lake project, which is being advanced to feasibility by De Beers Consolidated Mines (DBRSY-Q) following a successful $305-million takeover of Winspear Diamonds. A $45-million underground development program is designed to lead to the completion of bulk-sampling and a bankable feasibility study in the new year.

Since 1992, 53 kimberlites have been discovered on the Diavik area properties, where Aber holds varying interests of 10% to 44.4% in 10 separate property blocks that cover 3,088 sq. km. In February, Aber transferred interests in many of its northern grassroots exploration properties — including Kuujjua, Crystal, Gem, Contwoyto, Anki, SP, Point Itchen, Bugow and Ulu — to Navigator Exploration (NVR-V), a junior company with which it shares some directors.

Navigator has been acquiring ground in both Ontario and the Northwest Territories, and currently holds varying interests in about 1,900 sq. km of prospective properties.

In July, Navigator entered into an option agreement with Monopros, the exploration arm of De Beers, to explore the Thor project, 12 km south of Diavik. By spending $5 million over five years, Monopros can earn an initial 51% interest in the project. This can be increased to 60% by spending a further $5 million by July 2008 and completing a feasibility study.

Previous work included limited till sampling, airborne geophysics and the drilling of three targets. In May, Navigator commissioned a helicopter-borne geophysical survey over the LDG and GT blocks.

Meanwhile, Tahera (TAH-T) is struggling to develop its Jericho project, 420 km northeast of Yellowknife in Nunavut. A recent $13-million, 12.5-per-share financing with Edensor Nominees, a trustee for the family trust of mining financier Joseph Gutnick, has left Tahera with 214 million shares outstanding, or 400 million fully diluted. Gutnick will be appointed non-executive chairman of the company.

A feasibility study, completed in June by SRK Consulting, indicates that a proposed open-pit and underground operation on the land-based JD-1 pipe could produce 3 million carats over a mine life of eight years. The study is based on a minable reserve of 2.5 million tonnes grading 1.19 carats per tonne at a value of US$75 per carat.

SRK proposes an open-pit operation capable of mining 1.9 million tonnes of kimberlite, equivalent to 2.4 million carats, over the first four years at a stripping ratio of 8.4-to-1. This would be followed by the underground extraction of a diluted 614,000 tonnes grading 0.99 carat per tonne, equal to 610,000 carats, by a combination of sub-level caving and open-benching methods in the higher-grade central lobe.

Capital expenditures are estimated at $7.9 million, which would be funded from cash flow.

The total resource of the Jericho pipe stands at 7.1 million tonnes grading 0.84 carat per tonne, equivalent to almost 6 million carats. This summer, Tahera carried out extensive till sampling, mapping and further ground geophysics in the immediate Jericho area to select drill targets for a winter program.

Tahera holds varying interests in 6,740 sq. km of ground in the Northwest Territories and Nunavut, where 12 kimberlite bodies have been discovered to date. Earlier this year, Kennecott discovered two new kimberlites on ground held through a joint venture with Tahera.

During the spring campaign, Kennecott made its first discovery on the Hood River property, 110 km north of Jericho. A 558-kg core sample from the Tenacity pipe yielded 211 microdiamonds and 7 macros that exceeded a square mesh sieve of 0.5 mm. A second kimberlite, Nanurjuk, was intersected at the southern end of the Rockinghorse property, 100 km west of Hood River. A 7.2-kg sample of material returned no diamonds.

Kennecott is carrying out further till sampling and geophysical surveys in the immediate area of the Tenacity kimberlite. Several targets have been outlined at the northern end of the Rockinghorse property, with two scheduled to be drilled this summer.

Kennecott can earn a half-interest in the Ice, Rockinghorse and Hood River properties by spending $50 million by 2008. Kennecott has spent about $17 million to date.

The past year has been a bit of a disappointment for Mountain Province Mining (MPV-T) at the Kennady Lake project, where Monopros has earned a 51% interest. In August, Monopros completed a desktop study that showed the project to be sub-economic. An increase in diamond values of approximately 15% is needed to achieve the agreed-upon 15% internal rate of return before Monopros will commit to a feasibility study.

Situated 120 km southeast of Lac de Gras, Kennady Lake comprises a portion of the AK-CJ properties. Last year Monopros collected bulk samples from a cluster of four pipes, including 5034, Hearne, Tuzo and Tesla. While results were encouraging for the 5034 and Hearne pipes, the grade and carat values for the Tuzo pipe were less than anticipated.

The 5034 kimberlite contains a resource of 12.5 million tonnes grading 1.64 carats per tonne at an average value of US$63 per carat. The Hearne pipe is modeled to host 7.2 million tonnes grading 1.71 carats per tonne at US$65 per carat, versus a preliminary 1998 estimate of 2.33 carats per tonne at US$44 per carat.

Tuzo hosts 14.9 million tonnes grading 1.22 carats per tonne at US$43 per carat, versus an earlier estimate of 2.2 carats per tonne at US$68 per carat that was made on the basis of the 1998 mini-bulk sample. Tesla is the smallest of the four pipes sampled, with an estimated resource of 4.6 million tonnes grading 0.35 carat per tonne.

When the Tuzo results were announced in March, both De Beers and Mountain Province realized that it was unlikely that the agreed-upon rate of return would be achieved from the mining of the 5034, Hearne and Tuzo pipes using conventional open-pit mining methods.

The desktop study analyzed the projected costs of open-pit mining the 5034 and Hearne pipes, along with the high-grade zone within the top 140 metres of the Tuzo pipe, using various options aimed at minimizing capital and operating costs. The study also examined costs involved with the underground mining of the three pipes. The open-pit mining proposal carries with it a higher rate of return than the underground mining option.

“The desktop study has given us a far better understanding of where we are now and what needs to be done,” says Richard Molyneux, president of De Beers Canada. “We remain fully committed to this project.”

The AK-CJ properties are held 51% by Monopros, 44.1% by Mountain Province and 4.9% by Camphor Ventures (CFV-V). Monopros drill-tested 19 targets consisting of magnetic and electromagnetic signatures on the AK claims this past spring. Eight holes intersected kimberlite. A new kimberlite body, dubbed Kelvin, was discovered in a lake 9 km northeast of Kennady Lake. In addition, drilling increased the southern lobe of the Hearne pipe, and, on the northern shore of MZ Lake in the central part of the AK claims, several kimberlite sills or dyke-like bodies were confirmed.

An exploration program continued through the summer on the AK property outside of the Kennady Lake cluster of pipes, with the objective of adding to the resource.

Mountain Province recently arranged a private placement expected to raise proceeds of up to US$1.6 million in two tranches. Monopros has agreed to subscribe to the first tranche of US$800,000.

Immediately south of Kennady lake are the LA 1-25 claims, which comprise part of the Doyle Lake project, a 60-40 joint venture between Monopros and GGL Diamond (GGL-V) (formerly Gerle Gold). Monopros continues to work these claims; last spring, it drilled three geophysical targets. No kimberlite was found. This summer, sampling is continuing in an attempt to define several indicator mineral trains the source of which has so far eluded the joint venture.

GGL staked more than 518 sq. km of new ground in the Lac de Gras area in March. Summer exploration on the wholly owned claims included till sampling and geophysical surveying, which led to the staking of an additional 324 sq. km of adjoining claims. GGL also carried out exploration work on its TCG claims, 30 km south of Kennady Lake.

Further sampling and geophysical work are planned for this fall on the Dessert and Fishback claims, southwest and northwest of Yellowknife (they were formerly held by the Slave Diamond Syndicate), and, weather permitting, on the Murray claims near GMD Resource‘s (GMD-V) Royce Group project, where Monopros has been busy collecting till samples.

The De Beers subsidiary can earn a 51% interest in the Royce Group property, 150 km north-northwest of Yellowknife, by spending $16 million by April 30, 2004.

SouthernEra Resources (SUF-T) intends to drill two holes at its MacKay Lake property in the Northwest Territories in order to test the possible northeastern extension of the NW Snap Lake dyke. Earlier this year, Winspear Diamonds extended the NW dyke over a distance of 3.2 km north-south and 3.1 km east-west. One of the most northerly holes intersected a 3.27-metre intercept of kimberlite (including 0.63 metre of internal waste) within 400 metres of the King property boundary, shared with Diamondex Resources (dsp-v). However, the depth of the dyke is approaching 1,000 metres to the north and to the east, where the eastern margin of the structure appears to have narrowed to about 1.3 metres.

SouthernEra says that one of Winspear’s most northerly holes is within 1 km of its MacKay Lake property. Winspear estimated a total indicated and inferred resource for the NW and SE dykes at 45.6 million tonnes grading 1.9 carats, equal to 86.4 million carats.

The MacKay Lake property is held 70% by SouthernEra and 30% by Kalahari Resources (KLA-V).

Randy Turner’s Diamondex has focused on the Hilltop, Carat and Kelsey properties in the N.W.T. In addition, a limited exploration program was conducted by Kennecott over the company’s Alymer West property. The main exploration program carried out in the spring was centred on the Hilltop property, where a total of $525,000 was spent on ground geophysics, sonic drilling and diamond drilling.

Ashton Mining of Canada (ACA-T), which holds varying interests in some 2,200 sq. km of ground in the Northwest Territories and Nunavut through the Slave Regional, Lupin and CR-LL joint ventures, has spent the summer targeting unexplained indicator mineral anomalies.

The Nunavut properties are held by the Slave Regional joint venture, between Ashton and Pure Gold Minerals (PUG-T). Pure Gold has elected not to fund the current program, and, as a result, Ashton’s interest will increase to 87.5%.

In April, Ashton discovered the Cygnus kimberlite on the Roundrock property, 130 km west of Ekati. An 87.8-kg sample of hypabyssal kimberlite yielded 8 micros. Cygnus is near the diamondiferous Aquila kimberlite discovered in 1996. An initial 125-kg sample of Aquila yielded 3 macros and 16 microdiamonds. Additional drilling in the area intersected kimberlite dykes up to 3 metres thick in two holes 500 metres and 1,500 metres north of the Aquila body.

Despite the disappointing diamond results, Ashton remains encouraged about the property’s overall exploration potential. Several indicator mineral anomalies remain unexplained. In addition, the company has recovered indicator minerals exhibiting promising geochemical signatures.

The 19.4-sq.-km Roundrock property is held 53.3% by Ashton, 24.5% by Tahera, 12.29% by Pure Gold, 8.25% by Paramount Ventures and Finance (PVF-V) and 1.65% by Silverarrow Explorations (SVI-V). Ashton and Paramount are funding the 2000 exploration program, while the remaining partners have elected not to participate and will be diluted down.