The move came just days after London-based
The Diavik project lies 300 km northeast of Yellowknife and 30 km southeast of the producing Ekati diamond mine.
DDMI, which tabled a partially completed construction schedule for 2001 and 2002, intends to advance commercial production into early 2003, months ahead of the original targeted startup date. The most critical component of advancing the production schedule is the completion of the A-154 dyke in 2001, followed by the de-watering of the A-154 pool in mid-2002 in preparation for mining of the A-154 South kimberlite pipe.
A complete construction schedule, including commissioning and startup plans, is expected in the first quarter of 2001.
Aber is responsible for funding its 40% share of the Diavik project, which works out to $520 million. Robert Gannicott, president and chief executive officer of Aber, says the company has already contributed $100 million toward capital expenditures.
By selling its stake in the Snap Lake underground diamond project, Aber will boost its cash reserves to $311 million, based on third-quarter figures.
“We believe this puts Aber on a sound financial footing,” says the company’s chairman, John Lamacraft. “Aber now has the capacity to fund over 70% of its share of the Diavik project out of equity, which is a basis for a realistic debt-equity ratio. We believe we’ll be able to access conventional debt markets for the balance of our financial requirements.
“Aber has been working on the financing package for Diavik for some time, but the prolonged regulatory process has worked against us. We really couldn’t talk seriously with lenders until we had all the permits in hand and a production decision, and that has only happened in the last couple of weeks.”
Lamacraft says it was not feasible for Aber to go forward with both Diavik and Snap Lake. “We would have had a very unbalanced debt-equity ratio . . . in the order of 20% equity and 80% debt,” he explains. “We were faced with some form of equity dilution, which was not palatable to us . . . nor to many of our shareholders.”
As a result of selling its minority interest in Snap Lake, Aber expects to be able to finance the balance of its requirements for Diavik. Lamacraft estimates the company will need to raise US$150 million, including some US$40 million in working capital. Aber currently has 54.5 million shares outstanding, or 56.4 million fully diluted.
In May 2000, an independent bankable feasibility study by SNC-Lavalin Engineers & Contractors showed the Diavik project to be robust, with a projected 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 study incorporates a reserve estimate prepared independently by AGRA-Simons MRDI, which, in turn, was based on a January 2000 diamond valuation obtained by WWW Diamond Consultants in the Antwerp market. The study focuses on the development of four pipes — A-154 South, A-154 North, A-418 and A-21 — that together contain proven and probable reserves of 25.7 million tonnes grading 4.2 carats per tonne, equivalent to 106.7 million recoverable carats at a value of US$74 per carat. The largest of the pipes and the first to be mined is A-154 South, which hosts 11.7 million tonnes grading 5.2 carats for a total of 61 million carats. This pipe has a diamond value of US$79 per carat, or US$412 per tonne (C$606 per tonne).
Total resources are pegged at 37.4 million tonnes grading 3.7 carats, to a depth of 420 metres. This is equivalent to 138.1 million carats.
In the past eight years, 53 kimberlites have been discovered on the Diavik area properties, where Aber holds varying interests of 10% to 44.4% in 10 separate property blocks that cover 3,088 sq. km. Of this total, 26 are diamondiferous.
The Diavik mine is expected to produce an average of 7.1 million carats per year for the first 10 years of the project’s 20-year life, based on an annual production rate of 1.5 million tonnes. Average mine operating costs are expected to be $89 per tonne during the initial 10-year open-pit mining phase and $101 per tonne for the life of the mine.
The four kimberlite pipes lie immediately offshore of East Island in Lac de Gras. DDMI will dam off the pipes with water retention dykes, then mine the pipes from three open pits. One pit will be constructed for both pipes A-154 South and A-154 North, which are only 100 metres apart. As the pits deepen, mining will move underground on A-154 South and A-418.
The A-154 pit will have a 10-year life. Production from the A-418 is scheduled to begin in 2010 and continue to 2022. Pipe A-21 will be mined between 2013 and 2019. Underground production from A-154 is slated for 2015-2019.
All facilities, including a kimberlite processing plant, accommodation buildings, maintenance shop and fuel containers, will be built on East Island.
During this past year, DDMI focused on establishing site infrastructure, including construction camp facilities, permanent fuel storage and partial completion of the permanent airstrip.
DDMI and its contractors are preparing to ship 4,000 truckloads of fuel, equipment and construction materials to the project on the seasonal winter road, which typically opens in late January.
Aber retains the right to market its 40% share of the run-of-mine production and has entered into an arrangement with upscale jeweler
Aber plans to operate a diamond-sorting plant in conjunction with its Toronto head office. The plant will perform functions normally carried out in Belgium and will allow the direct sale of sorted diamonds to the U.S. and other markets.
Snap Lake
Aber’s sale of its minority interest in the Snap Lake underground project will provide De Beers Canada Mining with full ownership. Earlier this year, De Beers acquired an initial 67.76% stake through a $305-million takeover of Winspear Diamonds.
The Snap Lake deposit, while still at the prefeasibility stage, represents a potential long-term supply of Canadian diamonds for De Beers and could contribute to development of the Kennady Lake project, 120 km southeast of Lac de Gras, in terms of shared infrastructure. De Beers holds a 51% interest in Kennady Lake and intends to proceed with a $10-million bulk-sampling program on two pipes there.
The $173-million price tag for the remaining 32.24% of Snap Lake was established by the earlier Winspear bid. “It was a difficult decision to sell such a good project at such an advanced stage,” says Gannicott. “The project does require additional work to upgrade the existing mineralization to the ore reserve confidence level.”
In 2000, Winspear and Aber embarked on a $50-million program of exploration and underground development, to be followed by bulk sampling and a bankable feasibility study. 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.
A 1.2-km-long decline was driven below the lake 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 10-tonne-per-hour dense-media-separation recovery plant.
The underground program was designed to confirm the grade and value of the diamonds downdip of surface bulk sampling, and to establish mining conditions.
Gannicott says the early grades from the bulk sample were “broadly consistent” with the surface results.
An April 2000 prefeasibility study of the Snap Lake project by MRDI Canada called for a 3,000-tonne-per-day underground operation with a mine life of 12 years. The projection was based on a 12.6-million-tonne resource averaging a diluted grade of 1.75 carats per tonne to a depth of 350 metres. The minable resource is equivalent to 22 million recoverable carats valued at US$118 per carat, or US$206 per tonne.
With capital costs pegged at $269 million and operating costs at $94 per tonne, the proposed 1.8-million-carat-per-year operation would provide a 37.6% rate of return and a payback period of 2.1 years.
An updated scoping study, tabled in July, recalculated the minable resource to a depth of 750 metres below surface at 39.5 million tonnes averaging a grade of 1.75 carats per tonne, for a total of 67 million recoverable carats. Total indicated and inferred resources were estimated at 45.6 million tonnes grading 1.9 carats, equal to 86.4 million carats.
Last summer, Winspear completed a dozen stepout and infill holes on the NW dyke as part of a “value recognition” program in response to De Beers’ initial bid. The NW dyke was extended 3.2 km in a north-south 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.
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 property boundary with
Outmanoeuvred
In the wake of the Winspear takeover, De Beers took an unsuccessful run at Australian producer
The takeover of Ashton would have served not only to broaden the range of diamonds De Beers offers to its clients; it would also have broadened its geographic diversity of supply.
Buoyed by strong U.S. demand, the Diamond Trading Company, which is the marketing arm of De Beers, sold a record US$5.67 billion worth of uncut stones in 2000, an 8% increase over 1999. Second-half sales of US$2.15 billion, while well below the record first half of $3.52 billion, are seen as a normal seasonal pattern against the background of build-up of stocks in the consumer centres.
Sales have been solidly underpinned by good retail diamond jewelry demand, particularly in the U.S., which accounts for nearly half of the global sales. Managing Director Gary Ralfe says retail diamond jewelry sales, to the end of the third quarter, were up by an estimated 7% worldwide, and that the U.S. alone was up 8%. The exception has been Japan, “where consumer sales continue to be disappointing and . . . where they are trending negative growth in the fourth quarter.”
Ralfe adds: “The real diamond jewelry buying season in the U.S. is between Thanksgiving and Christmas, when something like 40% of all U.S. purchases are made. It is an important barometer of the market, and also an important weathervane of how the market will be in the early part of next year.”
The initial report of retail activity since Thanksgiving has been positive, Ralfe says, but not quite as positive as the first three-quarters of 2000. Sales in the U.S. market appear to be around 5% better than in the fourth quarter of 1999.
Global diamond jewelry sales for 2000 are expected to be 6% better than in 1999.
Ralfe says De Beers hopes to sustain sales into 2001 at the current level of US$5.6-billion but that the company is waiting until February, when the final Christmas sales volume will be known, before making any predictions.
Dia Met
The company retained Credit Suisse First Boston to aid in a full auction process.
Dia Met’s primary asset is its 29% stake in Ekati, Canada’s first and (to date) only diamond mine. Situated 300 km northeast of Yellowknife, Ekati is 51%-owned and operated by
In the 9-month period ended Oct. 31, Ekati produced 2 million carats (2% more than a year earlier) and sold 1.94 million carats at US$169 per carat — some 30% higher than originally predicted. Dia Met had net earnings of $37.5 million (or $1.22 per share) for the first nine months of fiscal 2001 on revenue of $90.8 million, versus $26.4 million (88 per share) earned on revenue of 78.2 million in the year-ago period.
Dia Met is applying 90% of its share of cash flow to repaying its debt obligations, which, at the end of October 2000, totalled $133.8 million, down from $204.8 million at Jan. 31 of the same year.
A summer program of exploration drilling at the Ekati mine property resulted in the discovery of 11 additional kimberlite pipes, bringing the total number of confirmed kimberlites to 136.
Nine of the discoveries were made in the Core group of claims, where 97 pipes have been discovered. Two new pipes were found on the outlying Buffer zone claims, where the total now stands at 39. The Buffer claims are held 51% by BHP, 31.2% by
Three of the recent kimberlite finds — Kodiak, Pegasus and Wildebeest — returned significant microdiamond results. The Kodiak pipe occurs in the Core zone, whereas Pegasus and Wildebeest are in the Buffer zone, 22 km east of the Ekati plant site.
A 300.8-kg core sample of the Kodiak pipe returned 74 micros and 17 macros, weighing a total of 0.087 carat (a macro is defined here as measuring more than 0.5 mm in at least one dimension). The Pegasus pipe yielded 291 micros and 62 macros weighing 0.33 carat from a 295.3-kg core sample of kimberlite, and Wildebeest returned 41 micros and 11 macros weighing 0.032 carat from a 35-kg sample.
In August, BHP entered into an agreement with DHK Diamonds, with respect to the DHK, WI and WO claim blocks, which cover 720 sq. km in the Lac de Gras area. DHK Diamonds is a private company, equally owned by
The agreement allowed BHP to conduct an airborne gravity survey with its proprietary Falcon gravity system over the WI block and the northern part of the DHK property. The survey was flown in late summer. Results were expected to be tabled by year-end.
Kettle River reports that several interesting anomalies were defined by this survey and these will be drilled. BHP can earn an initial 35% interest in any discovery made as a result of its airborne survey and can earn a further 16% by bulk-sampling any new pipe discoveries.
Of the five Falcon gravity targets tested last summer on the Ekati property, two were confirmed as kimberlites.
Tahera
Meanwhile,
The junior’s core asset is the Jericho project, 420 km northeast of Yellowknife, in Nunavut. In June, a feasibility study by SRK Consulting indicated that a small open-pit and underground operation on the land-based JD-1 pipe could produce a total of 3 million carats over a mine life of eight years. Estimated capital costs of $44.5 million include construction of a 50-tonne-per-hour processing plant, 1 km from the Jericho pipe. Operating costs are pegged at $52.17 per carat.
The feasibility study is based on a minable reserve of 2.5 million tonnes grading 1.19 carats per tonne at a value of US$75 per carat. The study projects a pretax internal rate of return of 34.3% and a payback period of 2.7 years. Using a carat value of US$88 assigned by WWW International Diamond Consultants, the pretax internal rate of return jumps to 50.7%, with a payback of 2.1 years.
SRK proposes an open-pit operation capable of mining 1.9 million tonnes of kimberlite, equivalent to 2.4 million carats, over the first four years at an overall stripping ratio of 8.4-to-1. This would be followed by the underground extraction of a diluted 614,000 tonnes grading 0.99 carat per tonne, equal to 610,000 carats.
Capital expenditures related to going underground are estimated at $7.9 million, which would be funded from cash flow.
The total resource of the Jericho pipe stands at 7.1 million tonnes grading 0.84 carat per tonne, equivalent to almost 6 million carats. Tahera is preparing for a winter program of ground geophysics and drilling in the Jericho area.
The company submitted a water permit application in September, followed by a revised environmental impact study in November.
Tahera holds varying interests in some 6,740 sq. km. of ground in the Northwest Territories and Nunavut, where 12 kimberlite bodies have been discovered to date. Earlier this year, Kennecott discovered two new kimberlites on ground held through a joint venture with Tahera.
During the spring drilling campaign, Kennecott made its first discovery on the Hood River property, 110 km north of the Jericho project. The so-called Tenacity kimberlite was found to have a surface expression measuring 80 by 100 metres. A 558-kg core sample yielded 211 microdiamonds and seven macros.
The other new kimberlite, Nanurjuk, was intersected at the southern end of the Rockinghorse property, 100 km west of Hood River. The kimberlite occurs as a series of stacked lenses up to 3 metres thick. A 7.2-kg sample of material returned no diamonds.
Kennecott can earn a half-interest in the Ice, Rockinghorse and Hood River properties by spending $50 million by 2008. Kennecott has spent $17 million to date.
Elsewhere in the Nunavut, De Beers Canada Exploration discovered the Knife kimberlite pipe on
Twenty core samples representing an aggregate of 397 kg yielded 208 micros and nine macros weighing a total of 0.1275 carat. De Beers can earn a 70% interest in the 10.2-sq.-km property by spending $10 million on exploration.
In July,
During a fall program, Darnley Bay completed a 17,000-line-km airborne magnetic survey and drilled 10 targets. Nine of the 10 holes intersected kimberlite.
Preliminary analysis by Lakefield Research indicates that three of the kimberlites are diamondiferous. A 50.2-kg sample from kimberlite 105 yielded three micros. Kimberlite 100 returned nine micros from 57 kg of core, and the 101 kimberlite yielded three micros from 11.51 kg. The bulk of the samples are being analyzed by De Beers at its lab in South Africa.
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