Full steam ahead at Diavik mine

Construction of what will be Canada’s second diamond mine is in full swing at a time when the nation’s diamond industry is marking the 10th anniversary of Chuck Fipke’s monumental discovery.

London-based Rio Tinto (RTP-N) and Aber Diamond (ABZ-T) are spending $1.3 billion building the Diavik diamond mine, which will create more than 400 permanent jobs. The mine will produce an average of 7 million carats per year during the first half of its projected life of 20 years, representing more than 5%, by value, of the world’s diamond production. Startup is slated for April 2003.

The Diavik project lies in the Northwest Territories, 300 km northeast of Yellowknife and 30 km southeast of the producing Ekati diamond mine. Diavik Diamond Mines, a wholly owned subsidiary of Rio Tinto, is the operator and 60%-owner of the joint-venture project; Aber owns the remaining 40%.

Fuel, construction materials and equipment have been trucked from Yellowknife along the winter ice road. By mid-April, when the seasonal ice road was closed, 4,089 truckloads had been hauled to the project site.

The main and secondary construction camps, as well as the jet airstrip, have been completed. The two camps are capable of handling short-term housing peaks of up to 1,150 personnel, which are expected during the height of construction in the third quarter. The main tasks for 2001 are the construction of the first open-pit water retention dyke around the two A154 kimberlites, and the construction of mine infrastructure.

The Diavik project centres of four kimberlite pipes that lie immediately offshore of the 20-sq.-km East Island in Lac de Gras. An independent feasibility study prepared by SNC Lavalin in May 2000 defined proven and probable reserves of 25.7 million tonnes grading 4.2 carats per tonne, equivalent to 106.7 million carats at a value of US$65 per carat.

More than half of the minable reserve is contained in the A154 South pipe, estimated at 11.7 million tonnes grading 5.2 carats per tonne at US$79 per carat, which equates to US$412 per tonne of kimberlite. Site operating costs are forecast to average US$89 per tonne during the first 10 years and US$101 per tonne for the life of the mine. These operating cost estimates do not include sorting, valuation, marketing, royalties and reclamation.

The total resource is 37.4 million tonnes grading 3.7 carats per tonne, or 138.1 million contained carats.

The mine development plan calls for the construction of a series of water retention dykes to permit open-pit mining of the four pipes in three separate pits. As the pits deepen, mining will move underground on the A-154 South and A-418 pipes.

A kimberlite process plant with an annual design capacity of 1.9 million tonnes is being built. The plant will process ore at an annual rate of between 1.5 and 1.8 million tonnes using conventional diamond-processing technology.

Production for the first 10 years will come from the A-154 pit, which will incorporate both the A-154 South and A-154 North pipes (1.3 million tonnes of proven and probable reserves grading 3.5 carats per tonne at US$33 per carat). Production from the A-418 pipe (8.7 million tonnes of minable reserves grading 3.4 carats per tonne at US$56 per carat) will begin in 2010 and continue to 2022. Pipe A-21 (4 million tonnes of minable reserves grading 3 carats per tonne at US$28 per carat) will be mined from 2013 to 2019. Underground production from A-154 South is scheduled for 2015-2019.

Critical to the accelerated construction schedule is the completion of the A-154 dyke in 2001, followed by de-watering of the A-154 pool in mid-2002 in preparation for open-pit mining.

Nearly 4 million tonnes of rock will be placed along a 4-km-long path in Lac de Gras this summer to construct the first dyke around the two A-154 pipes, which are only 100 metres apart. First, a barge-mounted dredge will remove lake bottom sediments so that the dyke can be built on the more stable underlying glacial till. The sediments will then be pumped to containment ponds that have recently been constructed on the island.

A booster pumping station has been placed, as have sediment slurry pipelines from the dredge to the sedimentation ponds. The dredge has been assembled and is undergoing initial trials.

Construction underway

Installation of plastic silt curtains to contain suspended solids generated by dredging and dyke construction in Lac de Gras has also begun as planned. Construction of the on-land portions of the A-154 dyke is under way, including the pouring of a 1-metre-tick impervious plastic concrete wall through the centre of the dyke extending to bedrock. The concrete wall will create a waterproof barrier along the dyke’s entire length, preventing lake waters from seeping into the A-154 pit. Pouring of the watertight wall will be finished in 2002.

Concrete foundation work for the kimberlite processing plant, diesel power plant and maintenance complex is continuing on schedule, while concrete work on the boiler plant nears completion.

Iron workers and crane operators are erecting the internal structural steel columns for the 11-story processing plant. (In mid-July, two steelworkers lost their lives when a manlift overturned accidentally.) The outer mill shell is expected to be complete this year, to allow further indoor work over the winter. Construction has begun on a third fuel tank. A permanent sewage treatment plant is in the final phases of commissioning.

The Diavik joint venture had spent $275 million to the end of 2000, with another $553 million budgeted this year, of which Aber’s share is $221 million. At the end of the first half of 2001, the joint-venture had spent a total of $515 million.

Project loan

Aber’s sale of its minority interest in the Snap Lake project to De Beers for $173 million provided it with sufficient equity to fund its share of this year’s construction phase. The company is arranging the remainder of its financing requirements through a project loan. The 2000 feasibility study projected an after-tax internal rate of return of 22.6%. Aber expects to recover its 40% share of capital costs within 2.7 years of commercial production.

The joint-venture structure provides for each partner to market its share of diamond production. Aber has entered into an agreement with upscale jeweller Tiffany & Co. (tif-n), which will buy at least US$50 million worth of diamonds annually over 10 years. Tiffany holds a 14.7% stake in Aber.

Aber is also developing a marketing strategy with Overseas Diamonds of Antwerp, Belgium, under the name CanaDiam. Overseas is a leading diamantaire and a De Beers sightholder, as well as regular buyer of Canadian and Australian production. As part of this strategy, Aber intends to establish a Canadian identity marque supported by an ISO 9001 certificate of Canadian origin for all of its Diavik diamonds. These ISO-certified rough or polished stones will carry a hallmark guaranteeing the quality of their handling and manufacture.

To service these marketing arrangements, Aber is establishing a diamond-sorting office in Toronto. The plant will perform functions normally carried out in Antwerp and will permit the sale of sorted diamonds directly to its main markets.