The Gahcho Kue diamond project in the Northwest Territories is remaining on the back burner after an updated desktop study by
“Considering the indicated internal rate of return, which is well below the agreed hurdle rate, . . . De Beers has decided to postpone a prefeasibility decision until next year, when the desktop study will be updated again,” states
Instead, De Beers will continue to explore for additional tonnage, targeting the highly diamondiferous Kelvin and Faraday dyke systems, 10 km northeast of the Kennady Lake cluster. De Beers is the operator and 51% owner of Gahcho Kue.
“Looking ahead, the possibility of increased diamond prices, the U.S. dollar rising against the Canadian dollar, and increased resources coming from further exploration all represent upside, which we find encouraging,” says Richard Molyneux, president of De Beers Canada Mining.
The Gahcho Kue project is 275 km northeast of Yellowknife and 150 km southeast of the Ekati diamond mine. It centres on the Kennady Lake cluster of five highly diamondiferous kimberlite pipes, including 5034, Hearne, Tuzo, Tesla and the much smaller Wallace, within the joint venture’s AK mineral claims.
In the fall of 2000, De Beers tabled the results of a scoping study of Gahcho Kue that fell short of a minimum economic threshold. The desktop study analyzed the costs arising from conventional open-pit mining of the 5034 and Hearne pipes, along with a high-grade zone in the upper 140 metres of the Tuzo pipe. The results of the original study showed that an increase in diamond revenues of 15% would get the project over the hump.
De Beers believed the key to enhancing the economics was to gain a better understanding of grade, diamond size and frequency distribution characteristics, and diamond values, as this would increase the confidence level and accuracy of the revenue modeling.
De Beers spent more than $20 million over the course of winters 2001 and 2002 conducting bulk-sample drilling on the two best pipes, 5034 and Hearne, and carrying out additional exploration. An additional 2,129 carats of diamonds (all to a 1.5-mm square-mesh lower cutoff) were recovered from the 5034 pipe during the winter bulk-sampling programs of 2001 and 2002, on top of the 1,044 carats that had already been recovered from a 1999 bulk sample.
The 5034 pipe is irregularly shaped with surface dimensions of roughly 120 by 80 metres and an overall near-surface area of 2.1 hectares. A dyke-like body about 35 metres wide extends some 300 metres to the northeast from the pipe. Most of the pipe consists of hypabyssal macrocrystic kimberlite hosting abundant xenoliths or inclusions of the surrounding country rock. The pipe has been subdivided into four lobes on the basis of internal geology.
The 5034 kimberlite is modeled by De Beers to contain an overall resource of 13.1 million tonnes to a depth of 290 metres below lake-surface, grading 1.67 carats per tonne, equivalent to 21.9 million carats. This compares favourably with the 2000 model of 12.5 million tonnes grading 1.64 carats, or 20.5 million carats.
The 3,173-carat parcel recovered from all three bulk-sample programs was valued by the Diamond Trading Company (DTC) at US$62.70 per carat, or US$104.70 per tonne, based on January 2003 diamond prices. The average carat value for the 5034 pipe is in line with the 2000 scoping study valuation of US$63 per carat.
De Beers recovered an additional 1,925 carats from the Hearne pipe, adding to the 856 carats collected from the 1999 bulk sample. The Hearne kimberlite consists of two kimberlite pipes containing a modeled resource of 7.1 million tonnes grading 1.67 carats per tonne, equivalent to 11.9 million carats. By comparison, the 2000 scoping study model was 7.2 million tonnes grading 1.71 carats per tonne, or 12.3 million carats. The main body, or the north lobe, is an elongated pipe extending more than 250 metres in length in a north-south direction. The south lobe is a smaller elongated pipe, measuring up to 100 metres long in an east-west direction. The two lobes are further divided into several low- and high-grade phases.
The revised carat value of the Hearne pipe is now estimated at US$50, equal to US$83.50 per tonne rock. This represents a dramatic decline from the US$65-per-carat value reported in the 2000 study, which translated into US$111 per tonne kimberlite.
With the assistance of AMEC E&C Services and other Canadian outside consultants, De Beers updated the 2000 desktop study, incorporating the latest resource estimates and diamond values, together with knowledge gained from its Snap Lake optimization study and Victor prefeasibility study. The detailed study envisions open-pit mining on the 5034 and Hearne pipes, as well as a high-grade zone in the top 140 metres of the Tuzo pipe, at an annual rate of 2 million tonnes per year. Based on the 2000 model, Tuzo is estimated to contain a 10.2-million-tonne resource averaging 1.22 carats per tonne at US$43 per carat. The top 80 metres of the pipe are modeled to contain a higher-grade 1 million tonnes grading 2.7 carats per tonne at US$47 per carat.
The projected capital cost of $600 million is slightly more than that proposed in the 2000 study, but forecasted operating costs improved to US$56 per tonne from US$81 per tonne. The operating cost savings were achieved by boosting production to 2 million tonnes per year.
John Kaiser, publisher of the Bottom-Fish Tracker, notes that at this mining rate, the 22-million-tonne resource would be depleted within 11 years. “In a harsh Arctic setting like the Northwest Territories, where mines have to be expensive, self-contained operations on a par with the moon base and reclamation is no small cost, no major mine with such a short life will ever be built,” states Kaiser.
Lower diamond values and a stronger Canadian dollar have worked against the project. While the internal rate of return implied by the updated desktop study has not been disclosed, it is lower than that obtained in the 2000 study. Kaiser believes it falls somewhere between 5% and 10%, well below the 15% target.
In spite of the disappointing desktop results, De Beers remains encouraged. “We have already made a significant investment in this project and remain committed to finding opportunities for improving the projected economics, which will allow us to take it forward,” states Molyneux.
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