De Beers Canada Mining has filed for a water licence and land-use permit to develop an underground diamond mine at Snap Lake in the Northwest Territories.
The move came just days after the Canadian subsidiary of
“This is a major milestone for De Beers in Canada, and we are committed to working diligently to move the project through the permitting process as quickly as is practical,” states Richard Molyneux, president of De Beers Canada. The permit and licence applications were made for a 3,000-tonne-per day underground operation with a mine life of more than 20 years.
De Beers will begin to draw up detailed construction and mine plans this month. Permit approvals are expected in the third quarter of 2002, which should enable full production in 2004.
In late summer of last year, De Beers acquired an initial 67.76% interest in Snap Lake through the $305-million takeover of Winspear Diamonds. The Snap Lake project is 220 km northeast of Yellowknife and centres on the highly diamondiferous NW dyke, a gently dipping, narrow body of mainly hypabyssal kimberlite that extends beneath the lake.
During this past year, Winspear and Aber embarked on a $50-million program of advanced exploration and underground development in support of a bankable feasibility study. The 2000 program included the extraction of an underground bulk sample aimed at determining a definitive grade and value for the NW dyke downdip of previous sub-surface bulk-sample pits.
In 1999, Winspear excavated 5,996 tonnes of kimberlite from two surface pits on the northwestern peninsula of Snap Lake, where the NW dyke subcrops. A 10,708-carat parcel of diamonds recovered from the bulk sample suggested a grade of 1.79 carats per tonne, for stones above 1.18 mm in size. The parcel, initially valued at US$105 per carat, was later re-evaluated in early 2000 at US$118 per carat.
A 1.2-km-long production-sized decline was collared on the NW arm and driven under the lake. The objective was to collect up to 20,000 tonnes of kimberlite from 600 metres of development drift along the downdip extension of the dyke. Of that total, three widely spaced, 2,000-tonne samples were to be processed on-site in a dense-media-separation test plant.
Molyneux told The Northern Miner that the underground bulk sampling program indicates a diamond value of about US$100 per carat, down somewhat from previous figures. The drop in value is partly due to better recoveries in the finer fractions, which has the effect of depressing the overall carat value.
The grade is pretty much in line with a minable grade of around 1.6 carats per tonne, said Molyneux. “The models, which had been setup before, and the micro-macro correlation all appear to have been valid.”
Data collection
In addition, the underground program provided De Beers with geotechnical and hydrology information pertaining to mining conditions in the kimberlite dyke and surrounding country rock. De Beers plans to extend the decline to slightly greater depths this year so as to obtain further data on the different country rock conditions.
MRDI Canada, a consultant to Winspear, had extrapolated the microdiamond results from 189 contiguous kimberlite drill intersections completed to the summer of 1999 using detailed and carefully derived micro-macro ratios developed in the bulk-sample pit areas. MRDI estimated a global resource of 21.3 million tonnes grading 1.97 carats per tonne, equivalent to 42 million carats. Comparisons of the kimberlite’s appearance and morphology between the drill holes and surface pits supported the inference by Winspear of a single kimberlite pulse.
An April 2000 prefeasibility study by MRDI called for a 3,000-tonne-per-day underground operation with a mine life of 12 years. The scenario was based on a 12.6-million-tonne minable resource averaging a grade of 1.75 carats per tonne to a depth of 350 metres. MRDI envisioned a small open-pit on the northwestern peninsula during the mine’s early days. The capital cost of the proposed 1.8-million-carat-per-year operation was forecast at $269 million, with operating costs estimated at $94 per tonne.
In an effort to keep the footprint as small as possible, De Beers has decided to forego the open-pit, which represented less than 2% of the minable resource, and proceed solely with an underground mine. Molyneux says the environmental impact of an open pit negates any economic benefits.
Potential to expand
De Beers’ mine application is based on the previously inferred resource estimate of 21.3 million tonnes. Molyneux acknowledges there is significant potential to expand resources, but the immediate focus of De Beers will be to firm up the mining design.
When De Beers first announced that it was making a takeover bid for Winspear, the junior immediately launched a value recognition program designed to ensure that shareholders understood the full potential of the Snap Lake project. The program included an updated scoping study and an aggressive drilling program.
MRDI prepared the July 2000 scoping study, incorporating 35 kimberlite intersections drilled since June 1999, plus other drill results outside of the minable tonnage identified in the prefeasibility study. The resource was recalculated to a depth of 750 metres below surface and estimated at 39.5 million tonnes grading 1.7 carats per tonne, equivalent to 67 million recoverable carats.
A dozen stepout and infill holes were completed on the NW dyke, which was extended 3.2 km in a north-south strike direction and 3.1 km east-west. The depth of the dyke approaches 1,000 metres to the north and to the east, where the eastern margin of the structure appears to have narrowed to 1.3 metres. Winspear estimated a total indicated and inferred resource for the NW and SE dykes of 45.6 million tonnes grading 1.9 carats per tonne, equal to 86.4 million carats, based on a minimum thickness of 1 metre.
One of the northern holes intersected a 3.4-metre interval of kimberlite (including 0.63 metre of internal waste) within 400 metres of the King property boundary of
Seismic survey
Following a recent financing, Diamondex has more than $10 million to play with. The company has allocated $2.7 million for a major program at the wholly owned King property, including a seismic survey, airborne geophysics and drilling. The program, expected to start in mid-February, and will test the potential downdip extension of the Snap Lake dyke.
The two-dimensional reflection seismic survey is a joint venture with De Beers Canada and the Department of Earth and Ocean Sciences at the University of British Columbia. Separately, an aeromagnetic geophysical survey comprising 3,200 line km will be flown. Approximately 6,900 metres of drilling, utilizing two rigs, are planned during the first half of the year.
Elsewhere in the neighbourhood,
Its first hole was completed to a depth of 1,600 metres and intersected two narrow intervals of kimberlite totalling 20 cm at a depth of 1,316 metres. A second hole was collared a further 800 metres to the east and was at 1,080 metres when drilling was temporarily halted in early December. The hole will be completed to a total depth of 1,600 metres. The MacKay Lake property is held 70% by SouthernEra and 30% by
A consortium comprising the Oppenheimer family-run Central Holdings,
The proposal could involve an offer for all of the De Beers linked units and the subsequent distribution of the 144.3 million Anglo American shares held by De Beers to the linked unit-holders. De Beers owns a 35.4% stake in Anglo American, which in turn holds 32.3% of De Beers.
On the Nasdaq, De Beers traded up US$5.50 to more than US$38 per linked unit following the Feb. 1 announcement. Anglo American was up US$2 to US$64 per share. De Beers has a 52-week range of US$39.00-18.19, whereas Anglo American trades in a 52-week range of US$66.75-36.75.
The offer being discussed is reported to be worth US$40 per linked unit. Based on a US$62 share price of Anglo American, a De Beers linked unit-holder could expect to receive 0.36 of an Anglo American share, worth roughly US$22, for each unit held, as well as about US$18 cash.
The proposed takeover offer would effectively resolve the cross-shareholding between De Beers and Anglo American, which Roger Chaplin of Canaccord Capital says is viewed negatively by institutional fund managers, partly because it removes any possibility of a bid for either company and also because it makes management less accountable to shareholders.
“The cross holding structure between Anglo American and De Beers is an anachronism and is not suited to Anglo American’s international ambitions in particular,” Chaplin states.
He has speculated, in previous research reports, that although it made sense for Anglo American, one of the world’s largest resource based companies, to hold a large position in De Beers, it made less sense for De Beers to hold Anglo American, given that it is a major non-diamond investment. De Beers used its stake in Anglo American as a buffer against downturns in the diamond market, when it was forced to build up major stockpiles of diamonds to maintain an orderly market, and in particular to maintain diamond prices.
This cross-holding dates back to the 1920s, when the Oppenheimer family took control of the De Beers-Anglo American empire in South Africa. The Oppenheimers now hold less than 10% of each company directly.
Last year, De Beers unveiled a new strategy whereby it would no longer be the “buyer of last resort”; instead, it would shift its focus to working with its leading clients as the “supplier of choice,” so as to market diamonds more efficiently and increase demand through such avenues as branding.
The two main components of the De Beers group are De Beers Consolidated Mines (DBCM) and De Beers Centenary. DBCM operates and administers the South African mining operations, and, together with its subsidiaries, handles all investments in South Africa, including companies comprising the South African elements of the Diamond Trading Co. and the manufacture of synthetic industrial diamonds. De Beers Centenary is based in Lucerne, Switzerland, and oversees all activities and investments outside of South Africa.
The primary listing of De Beers is the Johannesburg Stock Exchange. A De Beers linked unit comprises one deferred share of DBCM and one depositary receipt issued by Centenary Depositary, a wholly owned subsidiary of De Beers Centenary. There are approximately 400 million linked units outstanding.
If a takeover bid is tabled by the consortium, both the Oppenheimer family and Anglo American will have a 45% stake in the operations of De Beers. Debswana Diamond, a 50-50 joint venture between De Beers and the Botswana government, will hold 10%. A successful bid means De Beers will be delisted.
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