New Look for a New Phase

The young Canadian diamond industry is already evolving. The first two mines to open–BHP Billiton’s Ekati mine in 1998 and the Diavik mine belonging to Rio Tinto and Aber in 2003–are large, long-life mines in the Archean Slave Province in the Northwest Territories, with annual production of about 3 million and 8 million carats, respectively. The third–Tahera’s Jericho mine north of Ekati but in Nunavut–which opened in August this year, is much smaller with a shorter life.

Now the company with the longest history of exploring for and finding diamonds in Canada–De Beers–is actively developing its own two mines that will be Canada’s fourth and fifth diamond producers when they open in 2007 and 2008–Snap Lake southeast of Diavik in the NWT, and Victor in the James Bay Lowlands of northern Ontario. These mines won’t have as large a capacity as Ekati or Diavik, although Snap Lake will have long life

Another project in the wings (51% owned by De Beers Canada) is Gahcho Ku 80 km southeast of Snap Lake, which may eventually produce 3 million carats of diamonds per year.

There is a new look at the De Beers Canada head office in Don Mills, Ont., north of Toronto, where the president and CEO Richard Molyneux (who retired in April) has been replaced by Jim Gowans. The latter is a Canadian mining engineer with three decades of experience building mines in northern Canada and Alaska for Cominco (now Teck Cominco) and Placer Dome. He most recently worked in Indonesia for PT Inco.

CMJ was privileged to visit the Snap Lake and Victor projects in August for articles in this issue, as well as to interview managers in the Yellowknife office and Gowans in Don Mills. Following is part of the Gowans interview.

CMJ: What is your excitement in taking on this job?

JG: Probably the biggest hook is coming back to Canada, and at the same time building a company from the bottom up. All that entails being in the Arctic, dealing with native communities; I have a real tug at my heartstrings when I’m in that part of Canada.

CMJ: How do the rising commodity prices affect diamond prices?

They don’t. Diamond prices aren’t driven by that. They’re luxury goods. But the commodity prices affect us in a couple of ways. One is that they still keep us strong in the retail market. But they’re impacting us on the costs side.

CMJ: Where are diamonds in the price cycle?

JG: If you look at the diamond price this year, it’s probably the toughest year in over five years. This year we’ve got lots of challenges. In India, they’ve had flooding in Gujarat and train bombs in Mumbai [Bombay], and that impacted diamonds. Seventy to 80% of the diamond cutting in the world is done in India.

The biggest impact right now on rough diamond prices is the financial strength of the diamantaires and cutters. Because of the large price increases over the last couple of years, a lot of diamantaires bought a lot of diamonds about a year ago expecting the price to continue up. Because the price has gone flat, of course they ended up holding higher than normal levels of inventory. Their credits were at the limit and then they had these disasters. All the sudden they are overextended financially so they can’t afford to buy more diamonds.

We can be philosophical: the last five years have been the best five years of our last 30. Over the long term it’s still a robust market and the fundamentals are really strong.

CMJ: What is your biggest challenge?

JG: The biggest challenge right now is that we’re finishing the construction of our two projects. Most companies go through 20 years to build maybe one or two mines. We’re building two mines at the same time, at a time when there’s tremendous pressure on the construction industry in Canada; human resources, construction materials, logistics and systems are all stretched to the limits.

Within nine months of each other we’re commissioning two mines. We’re fielding two complete operating teams, so you have to find personnel and train them. There’s not a lot of knowledge in Canada in terms of finding engineers and management staff who understand the peculiarities of diamonds. The needs are more in the tail end–the expertise in the processing and commissioning, and setting up our systems for handling the diamonds afterwards.

CMJ: Was it necessary to build both mines at the same time?

JG: No, it was just a freak of opportunity. I’m sure we could have put one off. But when you look at forecasts for production, there is actually a relative shortage of the higher end gem quality diamonds coming up. And you’ve got growing demand in markets like China and India.

CMJ: Are De Beers’ Canadian projects all experiencing special challenges? Are there some “easier” projects in the pipeline in Canada?

JG: I’ve built mines in crazy places. Snap and Victor are not unique. They all have challenges. We are building two mines in the hinterlands at the most robust construction time country-wide. The challenge at Snap is unique, because it’s the only non-kimberlite pipe to be mined underground. That’s the challenge–mining under a lake. But Snap Lake has better grade and a value of US$300-$350 per tonne of ore. This is a phenomenally high value mine, like mining 0.75 oz/t of gold ore. Then there’s the large size of the orebody, open at depth and laterally, if we can find a way to mine it. That’s why we hired Gil Lawson [as Snap Lake mine manager] from Musselwhite. He understands and doesn’t flinch.

CMJ: What is De Beers’ ultimate goal in Canada?

JG: Our goal is growth, and there’s lots of potential. De Beers has been doing exploration in Canada for 40 years, and has a tremendous database of information. In the Slave Province we knew the diamond mines were there but we believed the cost to develop mines in the North was too high–possibly because of the South African paradigm.

Diamond mining in Canada is still in its infancy. With the prospects that we have and others, there is no reason why there won’t be more diamond mines in Canada. The challenge is to develop a pipeline of opportunities. The trick is to be selective in which properties will be cost-effective.

Victor has 12 years of mine life, but there are 18 more pipes in the area, 16 of which are diamondiferous, so the chances of finding more ore are great. We’ve started flying a De Beers/Anglo proprietary technology EM that picks up pipes pretty easily. So we’re trying to shorten the pipeline; our cost of exploration is half what the rest of the exploration industry pays. In the last 10 years our expenditures have gone up and we’ve had lots of discoveries. We’re probably spending close to $30 million this year, which is a huge investment, especially since we have no cash flow yet.

De Beers is evolving into a more decentralized company. In growth areas like Canada and Botswana, the cash flow will self-fund exploration, at a rate of about $15 million per year.

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