March 12, 2008

Canada’s North Hits Diamond Jackpot

Canada's far north region, once known for its gold mining, is now pulling diamonds from the ground, and unearthing some of the purest diamond deposits ever found.

At the Diavik mine, 130 miles south of the Arctic Circle, a 650-foot deep crater can be seen among the ice-covered tundra where pipes containing vertical columns of diamond-bearing rock are among the most valuable in the world.  

Kimberlite pipes spokesman Tom Hoefer said, "They're among the three best pipes in the world, by value per ton," speaking of the pipes. He went on to relate a true story of a drill pulled from the ground with a large diamond stuck right on the bit.

The Diavik mine is located in the Northwest Territories on an island in icy pure Lac de Gras, which has been diked and partially drained to open access to the ore below.  It is operated by a subsidiary of Rio Tinto, which markets 60 percent of the take, while Harry Winston Diamond, a 40-percent stakeholder, markets the rest.

The mine generates its own power and an ice road that's open only 10 weeks  a year is used to truck in supplies. Temperatures in the area are so low that truck axles can swiftly become brittle and snap.

But the outcome is worth the practical challenges and costs of running the mine,  which produces clear, white stones rather than industrial quality diamonds and yields over three times the industry average.

Last year, the mine produced 11.9 million carats, nearly 10 percent of worldwide output and over a third of the annual production of Rio's Argyle mine in Australia, the world's highest volume producer.

Total capital and operational spending on the mine has reached $3.2 billion, including $563 million for an underground expansion to keep the mine operational past 2020. A second pit is expected to start producing diamonds soon.

A casual observer might be surprised at the presence of diamonds at the mine. The kimberlite has barely one part per million of actual diamond, and the final stages of the processing plant are kept top secret, with guards accompanying the few workers allowed inside.  Both visitors and workers are subjected to airport-style security and checked for smuggled drugs and alcohol on the way in, and errant diamonds on the way out.

However, once past security the site has many comforts, including individual rooms for the miners, a gym with indoor running track, and a host of extracurricular activities for miners who spend weeks at a time living onsite.

"It's like being on a cruise ship," Marion Evans told Reuters. Evans works at the mine's adult education facility, designed to give workers an advantage in training for better positions.

But a simple glance out the window at the surrounding ice fog, combined with the -37 degree temperature, quickly dispels the cruise ship analogy.

Along with BHP's nearby Ekati mine, BHP's mineral claim brushes up against the side of the Diavik site, Diavik has been a crown jewel of the Canadian industry.

The initial discovery of diamonds around the lake during the early 1990s triggered a claiming rush in the region that has resulted in four mines being opened, including Tahera Diamond's small Jericho mine and De Beers Canada's Snap Lake mine.  The growth, led by Rio and BHP, has helped dampen the dominance of industry leader De Beers.

But troubles began recently, following an uncharacteristically warm winter in 2006 that shortened the time the supply road remained open.  This led to fuel and equipment shortages, which combined with the rising Canadian dollar has boosted expenses at a time when rough diamond prices have not kept up.

Diamond prices have risen, but not nearly as fast as those of other traded commodities like gold.

After becoming insolvent, Jericho was forced to seek protection from creditors in January, and has since halted mining operations. Meanwhile, De Beer took a $1 billion write down on its Canadian mining assets.

However, Diavik plans to continue its underground mine, and even mine a fourth ore body that sits in water too deep to utilize the dike system.  

"It's tough to find diamonds," Hoefer acknowledges. "You've got to throw a lot of money at it."

For all its success, Canada's northern region is still a far cry from the Klondike gold rush in neighboring Yukon territory, which drew tens of thousands of prospectors from 1896 to 1899.


On the Net:

Diavik Diamond Mines Inc.

Rio Tinto

Harry Winston Diamond

BHP Ekati

Tahera Diamond Jericho

De Beers Canada Snap Lake