The managers of
Tahera can earn an initial half-interest in a property package covering 360 sq. km immediately adjacent to Jericho by spending $11 million on exploration before the end of 2008. The agreement allows for mining should a particular project in the joint-venture area prove to be economically feasible as determined by an independent consultant.
“This agreement has great benefits for Tahera by extending the economic life of the proposed Jericho plant while potentially allowing for the De Beers kimberlites, which may not otherwise sustain a stand-alone project, to be mined,” says Tahera Chairman Peter Gillin. “The transaction clearly adds to the potential long-term value of the Jericho camp.”
For projects with a defined value of up to $750 million, Tahera will remain the operator and have the right to buy an additional 25% stake from De Beers for anywhere from $6 million 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 assume operatorship 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.
“There is a lot of flexibility to adjust the proportions, depending on the value of the project,” says Gillin.
The agreement allows for one or more projects on the property to be developed individually, and in each case, the operator will market the production.
“Chances are that if there is to be an economic body, it’s probably not going to be $1.7 billion in value,” explains Grant Ewing, Tahera’s vice-president of exploration. “There’s a better chance it’s going to be $500 million, which is too small for De Beers to develop as a stand-alone.”
This is the first agreement in which De Beers Canada has allowed a junior company to conduct an exploration and development program as the operator on its lands. The partnership seeks to optimize opportunities for the potential development of small-to-modest-scale production through synergies that may exist as a result of the planned Jericho mine.
“The significance of this agreement is its flexibility as regards who the operator will be and how the product will be marketed,” says Richard Molyneux, president of De Beers Canada. “We believe this partnership with Tahera is the most efficient means to move these kimberlite discoveries forward, and it will put us firmly on the map with project development in Nunavut.”
De Beers has identified four known kimberlites — Unicorn, Voyageur, Rush and Muskox — on its property claims, which Tahera is now calling the Polar project. Two additional kimberlite bodies — Peregrin and Troll — are known to exist on neighbouring claims held by
The RC portion delivered 5.3 carats of diamonds from 11.5 tonnes of treated material, giving a sample grade of 0.46 carat per tonne. Another 35.5 tonnes collected from core drilling yielded 11.5 carats, or 0.32 carat per tonne.
Ewing says there is a large dyke system up to 40 metres thick associated with the Muskox pipe, and that this dyke system remains largely untested. “Probably over half the body, in terms of tonnage, has not been drilled,” he adds. The tonnage potential of Muskox is considered to be double that of the Jericho pipe.
“There is no reserve on this Muskox body; it’s early days in terms of grade evaluation and there is no indication of diamond valuation yet, so that will be our goal in the coming programs.”
Even though De Beers has explored the claims considerably in previous years, Tahera regards the property package as still highly prospective. Tahera intends to complete a technical report over the coming weeks. The exploration plan going forward is to develop high-priority drill targets based on the existing geophysical and kimberlite indicator mineral sampling data. At least 10 kimberlite indicator mineral trains remain unexplained. In addition, the upcoming summer work program will continue to assess the potential of the Muskox kimberlite.
Jericho
The first order of business for the company remains bringing its wholly owned Jericho project into production as Nunavut’s first diamond mine. Tahera proposes developing Jericho as a small open pit and underground mining project that is expected to produce 3.1 million carats of diamonds over a life of at least eight years, and employ between 110 and 175 people.
Situated 420 km northeast of Yellowknife and 26 km north of the Lupin gold mine, the Jericho project reached an important milestone in early June when it received approval from the Minister of Indian and Northern Affairs based on the findings of the Nunavut Impact Review Board (NIRB). After conducting public environmental hearings, the NIRB recommended federal approval subject to some 53 terms and conditions specifically related to areas of monitoring, noise, wildlife, fish and aquatics, environmental management, abandonment and reclamation, and socio-economics. The NIRB did express serious concerns with respect to the project’s impact on wildlife, particularly the migratory habits of the Bathurst caribou herd. Caribou move north through the Jericho area both in May, on their spring migration to calving grounds, and from late June to August, as they disperse to the south.
Tahera is now in a position to proceed with final permitting and regulatory approvals for construction of the project. Once it has received a project certificate, which will be issued by the NIRB in the coming weeks, Tahera will submit applications for water permits, land leases, explosive permits and other associated operating licences. The company is targeting completion of both permitting and project financing initiatives over the remainder of this year, on pace to begin mobilization on the winter road in early 2005.
An impact-benefits agreement-in-principle was reached with the Kitikmeot Inuit Association of Nunavut in December 2003. The agreement ensures that local employment, training and business opportunities arising from construction and operation of the project will be provided to Nunavut Inuit, and outlines the special considerations and compensation that Tahera will provide regarding traditional, social and cultural matters.
The Jericho project is centred on the lone land-based Jericho kimberlite pipe, one of seven kimberlites discovered to date on the 840-sq.-km claim group. The others include the JD-03, Contwoyto-1, JD-02 and TAH-1 pipes, as well as the OD and Bird Lake dykes. The project occupies the Jericho watershed at the northern end of Contwoyto Lake, in the Kitikmeot (western) region of Nunavut, some 60 km south of the Arctic Circle and 170 km northeast of the Ekati and Diavik diamond mines.
Discovered just south of Carat Lake in 1995, the Jericho pipe is a multi-phase elliptical intrusion measuring 300 metres long and up to 100 metres wide. It is defined to a depth of 350 metres below surface by 133 drill holes totalling 28,000 metres. The pipe contains an indicated and inferred kimberlite resource of 7.1 million tonnes averaging 0.84 carat per tonne, for almost 6 million carats. The indicated portion alone contains 3.7 million tonnes grading 1.17 carats per tonne, or 4.3 million carats.
Multiple phases
The Jericho kimberlite is
believed to have formed from multiple eruptive phases or events, including a precursor dyke and three main kimberlite 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 into the kimberlite and used to collect 14,555 tonnes of bulk-sample material. In total, 10,539 carats of diamonds at a bottom-size cutoff of 1 mm were recovered from 9,435 tonnes of processed kimberlite. Several of the 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 June 2003 to reflect current market conditions based on a minable reserve of 2.6 million tonnes grading 1.2 carats per tonne, or 3.1 million carats, at US$81 per carat. Tahera retained WWW International Diamond Consultants to provide a comprehensive analysis and valuation of the Jericho diamonds. Two size frequency distribution models were produced: a combined model for the Centre and JDF2S phase, and a second model for the North lobe. According to the WWW valuation, the model assumes that the better-quality larger stones “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 a US$94-per-carat value for the Central lobes and US$75 per carat for the North lobe.
At SRK’s request, the WWW valuation was reviewed by Metinus Oosterveld, who is considered an authority on diamond pipe evaluation, and an alternative model was proposed. Oosterveld came up with a more conservative estimate of US$72 per carat for the Centre lobes and US$59 per carat for the North lobe. SRK used the average of the two models, US$83 per carat for the Centre lobes and US$67 per carat for the North lobe, in the feasibility study.
The proposed mining plan for Jericho entails three years of seasonal open-pit production (April through December), followed by one-year of underground mine development, then two years of underground production, and finally two years of processing of stockpiled North Lobe ore. The ultimate pit, containing 2 million tonnes of kimberlite grading 1.23 carats per tonne (equivalent to 2.4 million carats) will measure 400 metres long by 350 metres wide and have an overall stripping ratio of 8.1-to-1.
Diversion
A small stream crosses the area that will become the open pit. In order to keep water out of the pit and protect downstream fisheries resources, the stream will be diverted around the northern end of the pit into Carat Lake. Process and potable water will be drawn from that lake.
Crews will gain access to underground reserves via a decline in the open pit. A combination of sub-level caving and open-bench underground mining methods will be used to draw down some 615,000 tonnes of reserves grading 1.09 carats per tonne, or 673,000 carats, from an 80-metre-thick section of the Central lobe.
About 80% of the minable reserve is derived from the higher-grade Central lobe (2.1 million tonnes grading 1.31 carats per tonne). The balance of the reserve is derived from the lower-grade North lobe (520,000 tonnes of 0.75 carat per tonne) and will be processed at the end of the mine life. As part of the mine plan, some 1.6 million tonnes of inferred resource in the South and North lobes will be mined and stockpiled for possible processing.
The kimberlite ore will be processed on-site in a 50-tonne-per-hour (330,000-tonne-per-year) dense-media-separation plant. The facility will be built 1 km from the Jericho kimberlite and operate year-round. Fine tailings, representing about 10-15% of the waste materials generated during kimberlite ore processing, will be pumped to a tailings compound created by damming Long Lake, south of the proposed plant site. The coarse kimberlite rejects account for 85-90% of the processing waste and will be stockpiled adjacent to the plant for future reclamation use.
About 12.9 million tonnes of waste rock will be mined during open-pit operations, as well as 57,000 tonnes during underground development. The waste rocks consist largely of granite, with negligible amounts of carbonate and sulphide. Results of geochemical testing indicate the waste rock is non-acid-generating and unlikely to release soluble metals. The waste rock will be placed in one of two waste rock dumps adjacent to the open pit or used for construction of the tailings dam and haulage roads.
Runoff
Runoff from the processing plant, waste rock, overburden and ore stockpile areas will be collected and retained in settling ponds to remove suspended solids, before being sent to the tailings area. All discharge from the tailings containment area must meet project licence requirements, including being non-toxic to fish.
A wastewater treatment plant will be installed to treat and disinfect grey and sewage water from the accommodation, kitchen and plant. The plant is designed to exceed Northwest Territories guidelines for municipal wastewater plant discharge.
The capital cost of the open-pit operation alone is estimated at $52.7 million, including $4.8 million in contingency. The total project cost, including underground development and sustaining capital, is $65.4 million. Operating costs over the entire mine life are projected at $56 per carat. Assuming an average carat value of US$81, the SRK base case scenario for Jericho generates $365 million in revenue, with an operating cash flow of $191 million. This translates into a pretax internal rate of return of 32.7%.
Tahera is looking at various alternatives to finance construction, including an equity offering sometime in the course of the year. “We are still formulating our plans in that respect,” says Gillin. “We are also talking about possible borrowing arrangements with certain parties that would have the effect of reducing the amount of equity we would otherwise issue.” The company has about $13 million in cash, with 473 million shares outstanding, or 548 million on a fully diluted basis. “We are quite optimistic we are going to be able to finance all of our requirements in a practical way, and we will certainly strive to minimize dilution to the existing shareholders.”
Tahera believes it has not yet exhausted the potential for new discoveries at Jericho; nor has it ruled out the possibility that some of the other Jericho pipes might serve to prolong the mine’s life. Both the JD-03 pipe, 7 km to the west, and the Contwoyto-1 pipe, 35 km to the southeast, have returned preliminary diamond grades of around 0.3 carat per tonne based on early mini-bulk sample work. The JD-03 pipe was discovered in 1996 under a small lake. Delineation drilling has defined a nearly circular body roughly 170 metres in diameter and containing a kimberlite resource of 10.5 million tonnes to a depth of 300 metres.
Mini-bulk sample
An initial mini-bulk HQ-size (6.4 cm in diameter) core drill sample of 10.5 tonnes collected in 1997 yielded 0.59 carat per tonne using a 1-mm bottom cutoff. The largest stone, at 3.63 carats, represented half the weight of the recovered parcel and is an order of magnitude larger than the second-biggest stone at 0.27 carat. To understand the size distribution of the JD-03 diamonds and confirm the grade from the first mini-bulk sample, a second mini-bulk sampling program was done on the pipe in 1998; it used a combination of RC drilling and PQ-size (8.5-cm diameter) core. From the 32.8 tonnes of RC chips and 3.1 tonnes of core processed, Tahera recovered 10.41 carats of diamonds exceeding 1 mm in size, for an implied grade of 0.29 carat per tonne. The two largest stones weighed 1.18 carats and 0.75 carat. Almost 65% of the stones recovered were less than 0.1 carat.
The Contwoyto-1 kimberlite is a small land-based pipe with dimensions of 60 by 80 metres. Discovered in 1997, the multi-phase pipe has been confirmed to a depth of at least 220 metres in delineation drilling. The disc
overy hole yielded 143 microdiamonds larger than 0.1 mm from 90.2 kg of core. Twelve of the larger diamonds exceeded 0.5 mm in two dimensions, and one stone was greater than 1 mm in two directions.
A follow-up mini-bulk core sample, weighing 50.1 tonnes and representing four different phases, delivered 13.6 carats of diamonds for a recovered grade of 0.27 carat per tonne.
With a 2004 exploration budget of $2.5-3 million, Tahera will kick off an aggressive program in July that will run through to September. The focus will be on the Jericho claims, specifically the Bird Lake area, where a new diamondiferous kimberlite dyke was found during drilling last year.
“We’re looking for bigger intersections on this dyke system,” Ewing says.
Last year’s drilling encountered narrow, 0.6-to-1-metre-wide kimberlite intercepts in a confined, 20-metre-long area. A 7.6-kg sample returned five microdiamonds. Other targets in and around the Jericho pipe will be followed up.
The newly acquired Polar project will also be a key focus of the summer program. In addition, Tahera expects to drill targets on both the Anuri and Hood River projects, a further 100 km north of Jericho.
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