Toronto PDAC Report
posted on
Mar 20, 2012 03:38PM
Saskatchewan Diamond Exploration
FREEZING-COLD DIAMONDS IN TORONTO |
08 March 2012 |
The ultimate places to get to know tomorrow's diamond producers are at the two major annual conventions of exploration and producer companies, which take place in Africa (Indaba) or in Canada (PDAC). The world's largest convention, PDAC, is taking place this week in Toronto. The mammoth size of this convention almost defies imagination: ignoring the minus 14 degrees Celsius temperature outdoors, some 30,000 visitors interact with an estimated 7,000 participants from some 120 countries. [The PDAC event provides around US$80 million added value just to the Toronto economy - especially the hotel industry.] For the mining community, PDAC provides an opportunity for producers to find investors willing to finance the various stages of developments, which range from finding diamond deposits to taking them through feasibility studies and to getting the projects through the permitting, development and operational stages. The diamond miners of tomorrow are some of the world's most stubborn, perennially optimistic, sometimes foolhardy, virtually always highly professional geologists in the world. When they run out of money, they may slow down, but they will seldom "give up." They never seem to disappear - but always come back in one way or another. Shore Gold's Star-Orion Project A typical illustration of this is Shore Gold Inc., where its Star-Orion diamond project is set to become a world-class diamond mine in central Saskatchewan, near Fort à la Corne, on the southern border between Canada and the United States. Exploration on this project started around 1995, almost 20 years ago. By now, its feasibility study has been completed, and the mine, when fully established and operational, will produce some 34.4 million carats at an average value of some US$242 per carat for a life of mine of 20 years. At this very moment, the project is still in its permitting and development stage. As is distinctive for Canadian diamond mines, the deposit comes from a cluster of diamond-bearing kimberlite pipes - six pipes in this instance - each having different production profiles, average diamond values and profit ratios. It's going to be a fantastic mine and the frequency distribution of the expected output suggests that many large diamonds of over 100 carats each will be mined. The project's vice president, George Read, stresses that a significant portion of the output, more than a quarter of all stones, will be Type IIa diamond over 2.7 carats, comparable to Lesotho's Letšeng production. George Read believes that more resources will be found and that the mine will produce even beyond a 20-year horizon. At this stage, however, he and his colleagues come to the PDAC to look for investors - including investors from the diamond-cutting centers where, in return for financing, the diamantaire can enter into a variety of arrangements, including possible off-take agreements. After securing the financing, two years are needed to remove overburden, and then the mine can be quickly brought into production. It may be as early as 2014-2015. During my three days of crisscrossing the huge convention halls I found at least half a dozen very promising diamond projects at various stages of developments, all with different expectations and financial needs. While George Read will need some US$2 billion just to develop his mine, on the extreme opposite side of exploration is a small company called Talmora Diamond Inc., located in the Lena West area of Canada's Northwest Territories (NWT). Talmora Diamond Inc. - Early Phase Ray Davies, a colorful seasoned geologist who reconnoitered the area by helicopter already way back in 1976, gains his confidence from the fact that all around his exploration areas many diamond-bearing kimberlite pipes have already been found. At this point, Talmora has merely completed extensive airborne magnetic surveys and has done considerable sampling. If successful, the company might be decades away from production. But this is the way many producers have started out. Ray Davies needs just US$1 million to finance the drilling of a hole - to continue on the lengthy road towards discovering and confirming the presence of diamonds. The veteran geologist is also a virtual human mine of exciting stories - and he told me at length about a meeting in the early 1990's in a garage in Yellowknife, NWT, where Nicky Oppenheimer told the then (female) premier that "they will never find any diamonds in the NWT." Others did. Snap Lake and Victor Mines On the other side of the spectrum, there are fantastic properties almost ready to produce. De Beers entered the Canadian diamond scene mostly by teaming up with juniors (small exploration companies that will find the resource and leave the development to large diamond companies) or by the outright purchasing of a deposit - as it did with Snap Lake (in NWT) and the Victor Mine (in Ontario). Snap Lake was discovered in 1997 by Randy Turner's Winspear Resources, and the deposit was bought by De Beers Canada in 2000 for some C$205 million after a seven-week hostile takeover struggle. This De Beers purchase became its very first diamond property in Canada. [In retrospect, it was probably one of De Beers' most serious financial mistakes. The company spent more money purchasing Aber's share in Winspear and then spent an additional US$1.5 billion in further prospecting and mine development.] Snap Lake mine will probably produce 1.2 million carats this year, while Victor would likely be more in the 800,000-900,000 carat range. The development of Victor costs well over US$1 billion, but its output is phenomenal with average values of above US$550 p/c. Victor commenced production in 2008 and has a 10-year-plus life of mine. But let's concentrate on the new mines of tomorrow. Mountain Province's Gahcho Kué Probably one of the hottest games on the diamond scene is Mountain Province's Gahcho Kué project, a joint venture with De Beers Canada, also in the NWT. Its President and CEO, Patrick Evans, believes that he holds "the world's largest and richest new diamond mine, with a 49 million carats reserve at an average (current) price of well over $185 per carat." Gahcho Kué (miners refer to it mostly by its old name, Kennady Lake) will start producing diamonds in 2015. It's an amazing story - some 20 years of exploration, development and permitting, for a project that will have a life of mine of merely 11 years. The Kennady Lake project contains four kimberlite pipes. The most promising is the Tuzo pipe, which will produce diamonds at an average of US$315 per carat, followed by the 5034-Centre/East Lobe pipe, which will produce at US$210 per carat at current prices. The 5034-West Lobe and Hearne Pipe will yield diamonds in the US$93-US$108 per carat range. At Tuzo, a 23.13-carat stone of US$20,000 per carat has already been found in a drill core - something which is highly unusual. What is exciting for the cutting centers is that Patrick Evans has renegotiated his deal with De Beers Canada and now has the right to sell independently his 49 percent share of the production. What counts for Shore Gold's George Read counts for Patrick Evans as well: The project needs money, and he is ready to talk business with investors, with diamantaires and with jewelers. All options are on the table. Peregrine Diamonds Ltd. - Bye, Bye BHP Billiton.. Peregrine Diamonds Ltd. is primarily focused on diamond exploration and development in Canada. Since 2007, the company has discovered two new Canadian diamond districts, Chidliak and Qilaq on southern Baffin Island, and Nanuq in the eastern Arctic region. In addition, Peregrine has established an independent NI 43-101-qualified indicated mineral resource of 18.2 million carats in the DO-27 kimberlite in the NWT and has early-stage exploration projects in the NWT, Nunavut and Manitoba. With exploration companies, where investors pay money for blue skies, one looks first and foremost at the strength of management. Peregrine Diamonds Ltd. is chaired by its founder Eric Friedland, who is also the company's CEO. His track record is both in gold, copper and in diamonds. One remembers that Eric Friedland's DiamondWorks Ltd. developed years ago two producing diamond mines in Angola and Sierra Leone. Another old-timer is Peregrine President Brooke Clements, whom I personally still remember from his days at what was Ashton Mining of Canada Inc. At that time, he led the exploration team that discovered the enormous diamondiferous Renard kimberlite cluster in Quebec in 2001 and the subsequent initiation of a pre-feasibility evaluation of four of the kimberlites. [Renard is now in the hands of Stornoway, which purchased Ashton.] Peregrine's Chidliak property was held in a joint venture with BHP Billiton, which had a majority stake. As BHP Billiton is now in the process of exiting from the diamond business, Peregrine purchased BHP Billiton's 51 percent share a few weeks ago and now owns 100 percent of the project. It also obtained from BHP Billiton a massive 10-year volume of historical exploration and sampling data - as BHP Billiton doesn't need these anymore. Under the terms of the purchase agreement, Peregrine now has full ownership and 100 percent of the diamond-marketing rights, though it must pay BHP Billiton a 2 percent royalty on Chidliak's diamond production. Chidliak is a world-class exploration project where some 59 kimberlites have already been discovered to date, in which at least seven kimberlites have economic potential. Additional kimberlite discoveries in the area are anticipated in 2012. BHP Billiton's Exit The exit of BHP Billiton from diamonds is, of course, one of the subjects discussed widely among the diamond people at PDAC. Who will buy the Ekati mine? Ekati still may have a mine life of five to seven years - though production is already slowing down. The lips of the Yellowknife-based NWT government officials present at the convention, who clearly know best what is going on, were sealed on the subject. The bet is still on Rio Tinto, on Harry Winston, on the Russians and, maybe, also on Tiffany's. Acquisition prices quoted range from US$500 million to well over US$1 billion. It also depends on one's views on future diamond prices. As it is not clear why, if at all, BHP Billiton needs money, it may end up not selling Ekati at all. But the intention is there - as the sale of its shares in Chidliak underscores. Stornoway Diamonds - Excitement Building around Renard Stornoway's President and CEO, Matt Manson, is another "old hand" who many of us remember from his days at Aber Resources, where it was involved in both Winspear and the Diavik projects. Typical for the really exceptional situations in Quebec, the speed of development of a mine, says Matt Manson, "depends on the Ministry of Transportation which needs to construct the road to the flagship Renard project." Thus, in December 2011, a milestone was reached when construction activities commenced on the 243-kilometer road-building project that will provide year-round road access to Stornoway's (wholly owned) Renard Project. Renard is located approximately 250 km north of the Cree community of Mistissini and 350 km north of Chibougamau in the James Bay region of North-Central Québec. Matt says that a Feasibility Study has now been completed, which "highlighted the potential of the project to become a significant producer of high value rough diamonds over a long mine life. [Probable Mineral Reserves stand at 18.0 million carats, with a further 17.5 million carats classified as Inferred Mineral Resources, and 23.5 to 48.5 million carats classified as non-resource exploration upside.] Pre-production capital cost stands at C$802 million, with a life of mine operating cost of C$54.71/tonne giving a 68% operating margin over an initial 11 year mine life." Thus, by any standards Renard is going to very profitable. From a diamantaire's perspective, what is important is that production start-up is scheduled for 2015. Matt has no desires to go downstream and most likely will end up selling the output. Renard is firmly on track to becoming Québec's first diamond mine. But Stornoway is mostly known for its fast exploration programs throughout Canada. Jericho: Born Again... One of the most convincing evidences of the fact that geologists never give up is the Jericho Diamond mine saga. One will remember that Jericho was discovered in 1995. Located some 420 km northeast of Yellowknife, NWT, and accessible by air all year and by winter road from Yellowknife, it was once Nunavut's first and only diamond mine. The project was mined by Tahera Diamond Corporation from 2006 to 2008, and produced 780,000 carats of diamonds, selling, apparently, at around US$100-US$150 per carat at today's prices. In 2008, Tahera went bankrupt and suspended operations. "Over $200 million was invested in the development of the Jericho operations including the construction of a 2,000 tons per day diamond recovery plant, maintenance facility, fuel farm, and offices and accommodation for 225 personnel," says Shear Minerals Ltd president and CEO Julie Lassonde, who bought the bankrupt Jericho Diamond Mine "for only $6 million in late 2010." Julie Lassonde says that she will reopen the mine in late 2013. As a first step, Shear will be processing the existing recovery reject pile during 2012, providing the company with cash-flow. Jericho is presently a relatively small mine with an inferred resource of 1.13 million carats - but Julie and her team strongly believe that there is considerable "resource upside potential." Shear also holds its wholly owned Churchill property, and the Great Bear project as a joint venture with De Beers and Rio Tinto. Both projects are in Nunavut. The Footprint of Tiffany & Co. There are several Canadian diamond players that are active in other countries. Diamcor Mining Inc., for example, is a publically traded Canadian company with "a proven history of supplying rough diamonds to the world market." Last year it purchased from De Beers the Krone-Endora exploration project, located near the Venetia mine in South Africa. At the same time of that purchase, Diamcor established a long-term strategic alliance with Tiffany's and is now in the final stages of developing the mining project. It would be disrespectful to talk about "Venetia left-overs," but it is a fact that the project's near-surface deposits have been identified as being the direct result of the shift and erosion of an estimated one vertical kilometer of material from the higher grounds of the adjacent Venetia kimberlites, giving Diamcor the rare potential to provide low-cost, near-term, sustained rough diamond production from a known source. Diamcor is targeting production levels of between 120,000-240,000 carats per year for the next +/- 10 years at Krone-Endora. At PDAC, Diamcor CEO Dean Taylor announced the initial recovery of rough diamonds from Krone-Endora - "some 1,877 individual rough diamonds with a total weight of approximately 143.96 carats. Of the diamonds recovered, six of the individual stones were 1.0 carat or larger in size, with the two largest being recorded at approximately 3.93 carats and 2.09 carats respectively." The deal with Tiffany is interesting: the luxury retailer has "first right of refusal to purchase up to 100% of the future production of rough diamonds from the Krone-Endora mine at then current prices to be determined by the parties on an ongoing basis." Needless to say that in conjunction with this first right of refusal, Tiffany provided the substantial financing to advance the project as quickly as possible. Fewer Visible Diamond Players Well over 80 percent of PDAC activity focused on gold, followed by other metals, rare earth and a range of other products. The diamond "footprint" at the convention this year was clearly smaller - but very significant. De Beers didn't have its own exhibition booth, and senior management wasn't visible. In the past, many junior companies would meet with De Beers to see whether joint-venturing was possible. If De Beers is still interested in widening its presence in Canada, it wasn't visible at the PDAC. There was also no visible Anglo-American activity. As the convention is also a center for gossip, conjecture and the exchanges of real and imaginary scenarios, this may mean nothing. After all, with 30,000 visitors, one is bound to overlook some.... The PDAC remains a center of limitless opportunities - also for the diamantaires downstream. |
http://www.diamondintelligence.com/magazine/magazine.aspx?id=10325