We all know that there are some similarities between Snap Lake and Mud Lake....... The bulk sample will tell us how similare these 2 deposits are ...

Considering the location of Mud Lake, the economics would be totaly defernt though... No difficult cut and past mining of the sill, no remote camp and isolation of employees...

The remote diamond mines have significant additional cost when compared to the year around access SNO would have. This one factor will play a major role in the viability of SNO becoming a diamond mine.\

Good read on Snap Lake.... also reference to latest mini bulk sample.... hope we find a nice large pink or Yellow!

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Winspear's old play nears completion

2007-10-15 19:27 ET - Street Wire

by Will Purcell

De Beers Canada Inc. is wrapping up construction at its Snap Lake diamond mine in the Northwest Territories and expects to be in production later this year, but cost overruns and the strong Canadian dollar are squeezing the bottom line. Estimates available on the De Beers Canada website suggest the diamond giant will have a tough time recouping all the money it spent to buy and develop the Snap Lake deposit. Cathie Bolstad, the company's Yellowknife-based spokesperson, said the website data were accurate and current, but she referred Stockwatch to the De Beers's Toronto office for further comment.

The changing economics

Randy Turner's Winspear Resources Ltd. discovered the deposit in the mid-1990s and a 2000 scoping study indicated the big dike would support a 3,000-tonne-per-day mine. Results from a 6,000-tonne bulk sample prompted De Beers to acquire the project through a takeover of Winspear late in 2000 and the purchase of a minority interest held by Aber Diamond Corp. the following year. Those deals cost De Beers $500-million.

Meanwhile, the capital costs continue to rise. Winspear's scoping study pegged the expected capital cost at $520-million and normal inflationary pressures increased De Beers's projected expense to a bit over $600-million by 2005. Since then, the projected full cost has grown dramatically. De Beers spent $862.9-million building the Snap Lake mine by mid-August and it expects the full cost will be $975-million. That would put the company's total expenditure to acquire and build the Snap Lake mine at nearly $1.5-billion.

Recouping that investment will be a challenge. De Beers values the Snap Lake diamonds at $144 (U.S.) per carat, higher than the $118 (U.S.) per carat used in Winspear's scoping study. Although the diamond value now appears nearly 25 per cent higher, the strengthening Canadian dollar is chewing up revenues at a faster clip. Winspear's study projected an average value of $171 per carat in Canadian currency, while the De Beers number currently works out to $140 per carat. The net result is a drop of nearly 20 per cent in terms of Canadian dollars. That is key, as the mine will pay its expenses primarily in Canadian dollars.

De Beers is also using a lower diamond grade than the 1.7 carats per tonne used by Winspear in its scoping study. The diamond giant dropped its expectation to 1.4 carats per tonne several years ago and now says it expects a mining grade of 1.2 carats per tonne. That suggests Snap Lake will run with a rock value of $168 per tonne.

Further, the operating expense projections continue to rise and will eat up most of the revenues. Winspear's scoping study anticipated the mine would extract and process the kimberlite for about $88 per tonne. Seven years later, De Beers now anticipates costs of $156 per tonne. That value is currently just $12 below the expected revenues. The company says it will process only 16 million tonnes of kimberlite, suggesting it is unlikely to recoup anything close to its full investment.

Silver linings

The situation is unlikely to be that bleak, as the De Beers numbers appear overly conservative. Snap lake continues to yield large and valuable diamonds as the company commissions its processing plant. The recent finds include an eight-carat white gem and a 41-carat yellow stone, and De Beers said both were of exceptional quality. Such stones are expected to give the production value a hefty boost.

Further, the stated grade of 1.2 carats per tonne is conservative. The calculation includes significant quantities of granite being sent to the plant along with the kimberlite, therefore the amount of material should be well above 16 million tonnes. Winspear's work suggested there might be over 40 million tonnes of kimberlite present, and De Beers will mine all the economic rock it can find.

As a result, the bottom line at Snap Lake is likely to be rosier than the math suggested by its website numbers, but recouping the full investment will be a challenge. A return to a more traditional exchange rate would clearly help. Calls to De Beers's Toronto office went unreturned.