A New Diavik Digs Deeper

The Diavik diamond deposit is one of the most fabled in modern mining history.

It was first staked in 1991 by the Aber Resources father/ daughter team of Gren and Eira Thomas, and attracted Rio Tinto’s Canadian exploration arm, Kennecott Canada, the following year. Their discovery of four big pipes followed in 1994.

Less than a decade, and more than a billion dollars later, it recovered its first rough stones.

It produced 9.2 million carats in 2008 alone (surpassing 50 million carats since 2003) from two open pits carved into the richest of the 70 known kimberlite pipes scattered about its lease 210 km south of the Arctic Circle.

Considering its remote location, it remains an almost astonishing feat of engineering, daring, and deep, deep pockets.

Now, as it enters its eighth year of production, and at least one of the pits exceeds depths of 250 meters, the property is making the enormous transition to underground methods. It will take another two years to complete.

A MAJOR TRANSFORMATION

“It actually is a complete business transformation,” says Diavik Diamond Mines Inc. President Kim Truter in the company’s compact, two-storey office in downtown Yellowknife. Virtually everything about the way Diavik does business, even its corporate culture, will evolve.

Just one example: the whole mining equipment fleet is changing out.

“Typically, underground equipment is five times smaller than for surface, so to get the same tonnage, you need five times as much equipment.”

Add in what Truter says are among the most complex underground mining processes in the world (like replacing every tonne of ore with a tonne of backfill paste rock) “and it’s often ten times more complicated than running a surface mine.”

And way more expensive too. Diavik’s cost per tonne will jump from about $80 open pit to $120 underground, while grades will drop from as high as 5.8 carats per tonne to 3.1 c/t.

“We have to be innovative in finding ways to running the business in a leaner fashion.”

Further driving home the point is this meat’n’potatos observation from Bob Gannicott, chairman and CEO of Harry Winston Diamond Corporation, which owns 40 per cent of Diavik.

“We’ve already had the T-bone steak and we’ve already had the prime rib roast… we now have to move on to the hamburger and the chuck steak,” he said in an April 2010 Globe and Mail article.

PUSHING THE INNOVATION BOUNDARIES

The $800 million move to mine some 20 million underground tonnes of kimberlite ore is part of the mine’s original plan and will see it operate beyond 2020. The first underground stones were recovered in February 2010.

Diavik had to built some 20 kilometres of tunnel, raises, shops and venting systems to start the program, and plans 80 kilometres more. On surface, new crusher and paste fill plants, more accommodation, and a doubling of water treatment (to 90,000 cubic meters every day) and diesel power generation (to installed capacity of 40 megawatts)are included.

Truter says his team is “trying to push the boundaries” to find better ways to mine in one of the world’s harshest, costliest environments.

For instance, three automated scoop trams will be deployed as soon as the stopes are ready for them, run by an operator sitting at a desk with a joy stick and multiple screens and monitors.

Radar will track movement in the pits and elsewhere, instantly alerting staff by email and cell phone. Ventilation and dewatering systems, power generation and the cavernous process plants are also highly automated, increasing safety, reducing labour, and cutting energy expense.

Suppliers are key to making it work. Major players include Atlas Copco for the underground fleet, Finning Canada and Caterpillar for diesel power, Komatsu and Caterpillar for heavy surface vehicles, and Petro Canada for its annual 60 million litres of fuel.

He also credits Northern-based sub-contractors with helping bridge the change among their employees. They include Kitikmeot Cementation Mining Development (a Nunavut-based company) , and I&D Management and Tli Cho Logistics (both Dene-owned).

SEARCH RESUMES FOR NEW KIMBERLITES

Diavik hit the brakes hard when the global recession curbed luxury spending in 2008/09. It imposed a six-week production shutdown last summer, and halted exploration for the whole year, but the search is back to its normal level of “several million dollars” a year, says Truter.

“Around the world, there are no new discoveries and there’s a real race to find something. The [Slave Craton] region does remain prospective,” he says. None of the three big miners has added anything substantive since their initial finds in the early 1990s.

Diavik wasn’t the only miner to slash exploration spending. There was a stunning retreat from the NWT –from $148 million in 2008 to a mere $29 million in 2009. (The NWT and Nunavut Chamber of Mines anticipates virtually no change in pure grass roots exploration spending for 2010.)

LEGACY GOES BEYOND GDP

Few jurisdictions rely as much on mining, let alone one product, as the NWT does on diamonds.

In 2009, it accounted for $806 million of the NWT’s total GDP of $2.8 billion, says the NWT Bureau of Statistics. Truter recons it’s half the overall economy and he’s arguably right if other sectors’ diamond-related activity is factored in.

All mines have met their northern hiring targets (Diavik logs about 70 per cent resident and of that 34 per cent aboriginal) but Truter laments the North’s massive gap in skilled trades and technical workers, estimating that 500 such jobs in all sectors are now filled by flying in southern workers.

Truter says the company stands apart from other miners in another venue: by helping to grow new Northern and aboriginal businesses to be competitive, stand-alone enterprises that are not mine-dependent.

Diavik has also seized on opportunities at the community level, lending its considerable project management strength and influence to works ranging from a fish ladder in Kugluktuk and the airstrip in Behchoko, to multi-million dollar projects like the Lutsel k’e arena, and Yellowknife’s Bailey House and the Territorial Dementia Facility.

Gordon Van Tighem, now in his eighth year as Yellowknife’s mayor, points to the relatively new requirement that mines have to set up Participation Agreements with First Nations which may be impacted by their operations.

“The neat part about Rio Tinto/Diavik is that they’ve extended their reach beyond the defined impacted areas. It’s been a ‘How do we improve things where we live?’ approach” says Van Tighem.

ENERGY DISAPPOINTMENT

All three diamond miners import small oceans of diesel fuel every year, and make the most of that energy with heat recovery as well as electrical power. But it’s expensive and environmentally unfriendly.

An elusive answer has always been hydro power. The NWT Government ‘s energy corporation wants to expand its Taltson River site near the NWT-Alberta border and build a transmission line to the mines, a project estimated at $700 million.

The hurdles facing any major development in the North –unresolved aboriginal land claims, snarled regulatory process, lack of capacity to envision and manage, and the absence of Northern resource and revenue control –are the chronic barriers.

As each year passes, the viability of a big power investment erodes, and for Truter, it’s a disappointment that this perhaps biggest legacy of the diamond industry may not be realized, at least in time for his mine to tap.

“Regardless, we believe that the NWT desperately needs cleaner energy, and we’d be quite happy to be a vehicle to help support that project along the way.”

The energy opportunity is indicative of the NWT’s failure to grasp the big picture and vision of the future. Truter is not the only business leader who sees the vast potential, but is frustrated with the prickly realities.

“The NWT i
s at a crossroads. The NWT needs to figure out whether it’s open for development or closed for development. Are they going to create a landscape that makes businesses want to invest… and create a pipeline of opportunities that the communities and the government can choose from.”

Taking stock of the mine’s progress to date, Truter says the safety record stands out as among the best in Canada (the John T Ryan National Award for Select Mines in 2009) and one that any mine executive would be proud of.

Among this and other pluses, though, it’s the contribution to business development in the North that ranks as Diavik’s strongest legacy so far. (Business with Aboriginal enterprise alone to date is pegged at $1.98 billion.) The advances made by Northern enterprise to expand their own leadership and financial capacity are big factors in the NWT’s record as, per capita, one of Canada’s wealthiest economies.

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