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By: Matthew Hill

14th June 2011

Updated 5 hours ago

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TORONTO (miningweekly.com) – Gahcho Kué, vying to be Canada’s newest diamond mine, has received the green light from its owners, diamond Giant De Beers and TSX-listed Mountain Province Diamonds, for development.

The partners have approved the feasibility study completed late last year, and have made a positive development decision, Mountain Province CEO Patrick Evans said on Tuesday.

“Today we crossed the Rubicon,” he told Mining Weekly Online.

The joint-venture partners will likely complete the permitting process by the end of 2012, at which time they will plug updated diamond prices, oil prices and exchange rates into the feasibility study and make the final investment decision.

Evans said this was effectively fait accompli, as the agreement between De Beers and Mountain Province states that if the project's internal rate of return (IRR) equals or exceeds 15% then partners are obligated to support the development.

The feasibility study pegged Gahcho Kué’s IRR at 33%.

“It’s no longer a question whether we will build the mine, the real question is just fine-tuning the economics,” Evans said in a telephone interview.

De Beers owns 51% of the project, located in the Northwest Territories, and is the operator, while Mountain Province owns the remaining 49%.

The mine, which will cost around C$600-million to build, is set to start producing in 2014.

According to the feasibility study, the mine could produce an average of 4.5-million carats a year for about 11 years.

FUNDING

Evans said Mountain Province would likely fund its C$300-million share half through debt and half through equity.

“We have an open mind on what that structure would be,” he commented, adding that the company would also consider offtake facilities with major jewellery companies, whereby they would provide a loan in return for a portion of Mountain Province’s production.

The debt financing would take from eight to 12 months to finalise, said Evans.

Mountain Province was trading flat on the TSX at C$5.76 apiece in thin trading by 10:33.

De Beers also operates the Victor and Snap Lake mines in Canada.

In May, Mountain Province said that an independent evaluator had valued a sample of diamonds from Gahcho Kué at an average $122/carat, a 41% increase on a valuation the previous year.

Diamond prices have touched new records in recent weeks on soaring demand from China and India.

Last week, TSX-listed Harry Winston CEO and chairperson Bob Gannicott said the world's diamond mines could not keep pace with demand.

Stornoway Diamonds, also listed on the TSX, aims to start producing from its Renard project in Quebec around 2014.