Jericho, Nunavut — By early next year, the Jericho diamond project in Canada’s Far North will be producing its first diamonds. It will be Canada’s third diamond mine and Nunavut’s first.
The road to production has not been easy for Tahera Diamond (TAH-T), which secured ground in the early days of the diamond rush and continued to advance the project through some considerably lean years. But things turned around for the company when Peter Gillin came on board as chairman and CEO in October 2003. After receiving federal approval in June 2004, Tahera was granted the necessary permits, licences and access rights earlier this year to begin building the mine. Construction has been in full swing throughout the summer and should be mostly completed by year-end, with commercial production set for early 2006.
“It’s going well, we’re on schedule. Our costs are within reason. We are doing great things here,” says Roland Jones, Jericho’s mine manager.
Jericho is 420 km northeast of Yellowknife, N.W.T., about an hour’s flight. The dormant Lupin gold mine of
“The logistical supply of a remote camp like this is truly remarkable. Everything you see here, all of the rolling stock, all the dump trucks, indeed even the camp facilities, which are portable, have been brought up here on heavy trucks over the ice road in the winter, and that was no easy task,” says Tahera Chairman Peter Gillin.
About 550 truckloads of equipment, materials and supplies were transported over the seasonal road this past winter, including a 200-man modular camp. “All of these supplies mean our construction team has what it needs,” says Gillin. “The work has been going on around the clock, taking advantage of 24 hours light each day all summer long.”
Several buildings at the Jericho site were already finished at the time of a recent site visit by The Northern Miner, including the housing complex. Comfortable hotel-style rooms are currently occupied with upwards of 160 construction workers. The building is also home to a number of offices, including the environmental monitoring team. “It’s all part of our promise to make the Jericho mine environmentally responsible,” explains Gillin.
Eventually, the new buildings will be attached by a covered, heated walkway to the processing plant. “It’s like being in downtown Toronto in the winter time, the employees will never have to go outside,” says Gillin. The mine is expected to create about 100 permanent jobs.
Compared with the two other Canadian diamond mines in the Northwest Territories, Jericho is a small operation. Discovered just south of Carat Lake in 1995, the Jericho pipe is a multi-phase elliptical intrusion measuring 300 metres in length and up to 100 metres in width. It has been defined to a depth of 350 metres by 133 drill holes totalling 28,000 metres. The pipe contains an indicated and inferred resource of 7.1 million tonnes averaging 0.84 carat per tonne, for almost 6 million carats.
The Jericho kimberlite formed from multiple eruptive phases or events, including a precursor dyke and three major intrusive phases of lobes — South, North and Central — each of which has a distinct diamond distribution. In 1996, a 787-metre-long exploration decline was driven 287 metres in kimberlite and used to collect 14,555 tonnes of bulk-sample material at a depth of 65 metres below surface. In total, 10,539 carats of rough diamonds at a bottom-size cutoff of 1 mm were recovered from 9,435 tonnes of processed kimberlite. A number of larger stones were recovered, including 44 diamonds in the 5- to 10-carat range and 23 stones larger than 10 carats. The largest stone weighed 40 carats, and the largest gem-quality diamond was almost 24 carats.
The original feasibility study was prepared by SRK Consulting in 2000; it was updated in May 2003 to reflect an improved diamond market. To further capture the project’s economic potential, SRK carried out a preliminary assessment of an alternate mine plan Tahera proposed based solely on an expanded year-round open-pit operation without including the underground mining component, as was originally planned.
The modified mine plan calls for the production of some 4.7 million carats averaging US$95 apiece over a life of nine years, based on a revised pit model containing a 5.5-million-tonne resource averaging 0.85 carat per tonne, at a stripping ratio of 5.2-to-1.
Plans include 6-8 months of pre-development stripping, 6.2 years of open-pit mining and 1.7 years of processing from stockpiles after pit production ceases.
The pit model pushes the open pit 50% deeper to a depth of 270 metres by incorporating steeper pit walls and additional pit “pushbacks.” The revised pit, measuring about 500 metres long and 350 metres wide, is 200 metres south of Carat Lake. “Our kimberlite is right here on land and not under that lake, something that makes a big difference in the success of this mine,” says Gillin. “If it was under that lake, we would have to spend twice as much in capital to build this. It’s a tremendous advantage.”
In order to support an increased production rate of 680,000 tonnes per year (versus 330,000 tonnes in the 2003 study), inferred kimberlite resources and additional indicated resources are included in the new open-pit production figure.
Aggressive mine planning factors were used in the pit optimization and preliminary design, states the October 2004 SRK report. These include increased pit-wall angles that result in overly steep pit slopes. SRK notes that the steepness of the walls, particularly that of the east and west walls, requires further engineering work which will likely result in a pit that does not extend as deep as the preliminary design used in Tahera’s optimization plan. A flattening of pit slopes is expected to increase the waste-to-ore stripping ratio to around 6.1-to-1.
By expanding plant capacity, Tahera will have the flexibility to process, rather than stockpile, lower-grade kimberlite during the early years of production, thereby getting the most out of a robust diamond market. The kimberlite will be processed on-site in a plant capable of treating 680,000 tonnes annually, on a nominal throughput basis.
The plant, considered by Gillin to be one of the most efficient in the world, will consist of crushing, scrubbing, dense media separation (DMS), X-ray sorting, cleanup and sorting of the diamonds. The coarse plant wastes are essentially inert, sand-sized particles that will be stored in a stockpile facility on-site. The fine tailings will be deposited in the Long Lake tailings impoundment southwest of the processing plant.
“The plan is to have the processing plant enclosed by the end of September, and so far we’re on schedule and on budget,” says Gillin. The plant will operate on a year-round basis. Water for the plant and accommodations will be drawn from Carat Lake, while power is supplied by diesel generators. The diesel fuel tank farm holds just a bit shy of 10 million litres, which is more than enough to run the facility for a year.
Diamond Analysis
The diamond prices used in the Tahera economic evaluation rely solely on a 2003 diamond valuation analysis by WWW International Diamond Consultants, and a September 2004 WWW market review that includes a forecast of the expected price trend for rough and polished diamonds through to 2013.
Two size frequency distribution models were produced in the original 2003 valuation: a combined model for the Centre and JDF2S lobes, which show a high incidence of large diamonds, and a second model for the North, South and J
DF1 lobes. According to the WWW valuation, the model assumes that the better-quality, larger diamonds “that were absent in the samples will be recovered in production, and that the model price for the better-quality large stones has been deliberately viewed conservatively.” WWW estimated diamond values of US$94 per carat for the Central lobes and US$75 per carat for the North lobe in 2003.
Tahera uses higher modelled values of US$103 per carat for the Centre and JDF2S lobes, and US$82.50 for the North, South and JDF1 lobes in its first year of production based on a projected 10% increase over 2003 prices. Beyond 2006, Tahera assumes that diamond prices will increase by 3% per year.
The base case scenario suggests Jericho could generate $683 million and with cash flow of $219 million over the life of the mine, based on a $70-per-tonne processed cost. Tahera has retained Nuna Logistics as its mining contractor. The October 2004 preliminary evaluation study of an expanded year-round, open-pit mining operation projected a capital cost of $76.5 million, which showed a 30% internal rate of return, before royalties and taxes.
Capital costs were further revised in the first quarter of 2005, jumping to $94.4 million, which included an additional $9.5 million due to increases in fuel, steel and labour costs. Another $8.4 million was attributed to timing and reclassification of costs. Due to terms contained in the water licence and land leases, Tahera is required to own the truck shop and accommodation facilities, resulting in additional upfront capital costs as opposed to lease payments originally included in the budgeted operating costs.
“I am proud to say Tahera has assembled an exceptional team and that is attracting some big attention,” says Gillin.
Renowned jewelry retailer
Tiffany will buy a “significant” portion of Jericho’s run-of-mine production for its own manufacturing needs. With respect to the diamonds Tiffany does not purchase, the diamond jeweler will sell them, on behalf of Tahera, in the international diamond market for a fee. This purchase-and-marketing arrangement is a commitment for the full life of the mine.
“High-quality diamonds truly are rare and they are not easily found,” says James Fernandez, Tiffany’s CEO. “Whenever we see a way to secure supply, we will pursue that and Tahera provided us with a unique opportunity.” Tiffany already has a direct sourcing arrangement with
Tahera completed a $50-million equity offering in November 2004, followed by a $22-million bought-deal financing in May in order to take care of the balance of the working capital requirements for Jericho. The company currently has 718 million shares outstanding, or 808 million fully diluted, and is trading around 42 in a 52-week range of 61-33.
Exploration
Tahera believes it has not yet exhausted the potential for new kimberlite discoveries on its holdings, nor has it ruled out the possibility that some of the other Jericho pipes might serve to prolong the mine’s life. Tahera struck a deal with
Tahera can earn an initial half-interest in the Polar property package by spending $11 million on exploration before the end of 2008. If a deposit is found valued at less than $750 million, Tahera will remain as operator and have the right to boost its stake to 75% by paying anywhere from $6 to $12 million, depending on the project’s worth. Conversely, for projects exceeding $750 million in value, De Beers will have the right to increase its ownership to 70% and become operator by paying Tahera as much as $24 million based on a project book value of up to $1.7 billion, and up to $48 million for projects exceeding $1.7 billion.
Tahera is putting a strong emphasis on evaluating the Muskox kimberlite body. A modest-sized diamond-bearing pipe, with a surface expression measuring 250 by 270 metres, Muskox is considered the most prospective of the Polar bodies. It has been partially evaluated by De Beers with upwards of 50 drill holes. Two mini-bulk samples were collected from the central and eastern portions of the pipe in late 1996 and early 1997.
The 1996 program involved the collection of 11.5 tonnes of kimberlite using reverse circulation (RC) drilling. The RC sample was extracted from vertical holes drilled on the east side of the pipe, where the body is not overlain by a small lake. In total, 5.3 carats of rough diamonds were recovered, giving a preliminary grade of 0.46 carat per tonne. A further 35.5 tonnes were collected from core drilling in 1997 resulting in the recovery of 11.5 carats, for an inferred grade of 0.32 carat per tonne. The combined mini-bulk sample of 47 tonnes delivered 16.8 carats of diamonds exceeding a bottom-size cutoff of 1 mm, representing a preliminary grade of 0.36 carat per tonne.
Muskox appears to be a complex cylindrical intrusion composed of two major phases; volcaniclastic and hypabyssal kimberlite. The relative proportions of the two phases are not currently well understood, largely because the bulk of the drilling has been completed in only the hypabyssal kimberlite. Historic sampling work was conducted in a non-systematic manner and resulted in an under-sampling of the volcaniclastic unit, believes Tahera. Considering the large size of the pipe, it needs further sampling to confirm the diamond distribution of each kimberlite.
“Muskox is not about adding to annual production, but adding years to the Jericho mine,” says Gillin. The company’s primary exploration focus is on increasing the reserve base within trucking distance of the Jericho plant.
This past winter, Tahera completed four core holes into the pipe, recovering about 5 tonnes of kimberlite for microdiamond analysis. The pending results from about 3.8 tonnes of sample, which are expected shortly, will be used to guide further bulk-sampling work in 2006.
Tahera also carried out further drilling during the winter on the highly diamondiferous Anuri pipe at the Rockinghorse property, 100 km northwest of the Jericho mine site. About 2 tonnes of kimberlite was recovered from two holes drilled into the west lobe. During the sampling of this drilling, a 3-mm diamond was found in the split core. Results are pending.
The summer 2005 exploration program is focusing on several regions within 100 km of Jericho. The work includes investigative mapping and geochemical sampling so that targets can be prioritized for drill-testing this winter.
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