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Canadian Diamonds
Carol Besler
06/01/2005
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Diavik Are Forever
Eira Thomas, a soft-spoken but commanding woman,
was only 29 in 1994 when she led a team of geologists and a dog named Thor
across the tundra and found kimberlite at a site 18 miles from Ekati. At that
time, she was head of geology for a junior called Aber Resources (now Aber
Diamond), founded by her father, Grenville. According to industry lore, Thomas
slept with the stone under her pillow, not even daring to call her father in
case a competitor intercepted her news. Her discovery turned out to be the
highest-grade cluster of diamond pipes ever found, and launched Canada’s second
diamond mine.
Rio Tinto backs Thomas’s Diavik mine, where production began in
2003. Diavik and Ekati together generate 13 percent of the world’s diamonds,
making Canada the third-largest source behind Botswana, where De Beers controls
the mining interests, and Russia, where the state owns the mines. Because Canada
has no similar monopolies or near-monopolies, many see it as having the best
opportunities for individual investors. (Click image to enlarge)
Soon after the discovery, Thomas
launched an exploration company called Stornoway Diamond, which is now sampling
deposits on 20 million acres in Nunavut, the Northwest Territories and Quebec.
Aber Diamond, meanwhile, has evolved from an exploration company to a diamond
producer. It is responsible for marketing 40 percent of the rough diamonds from
Diavik and owns 51 percent of legendary U.S. retailer Harry Winston.
Inspired by the success of these first two mines, new juniors have sprouted
up, hoping to be the next Fipke or Thomas. Shore Gold, which is drilling for
diamonds in the Fort à la Corne area of northern Saskatchewan, has sunk $23
million into collecting, sorting and valuing the kimberlite deposits there since
its management acquired the rights to the venture, which it calls the Star
Diamond project, in 1993. The company recently reported preliminary results from
what is called a bulk sample—a costly and crucial stage of exploration that
determines grade. Out of 22,000 tons of ore processed, Shore Gold recovered
3,092 carats that appear to be high grade.
The company is now assessing the
economic feasibility of building a mine. To do that, it must obtain an average
per-carat price (through a third-party valuation in Antwerp), then weigh the
value of the ore against the costs of operating the mine. Shore Gold’s vice
president of exploration, George Read, speculates the appraised value will be a
healthy $135 per carat; meanwhile, he, his colleagues and their backers
anxiously await confirmation.
The feasibility study will take at least two
years; Shore Gold must also apply to various Canadian government agencies for
water and land licenses and seek environmental approvals. The next stage will be
to establish impact and benefit agreements with local aboriginal groups, a
process that can be costly and unpredictable. After that, the company faces
deve/opment costs of more than $410 million.
Read hopes to operate the Star
Diamond project at a cost of $10 per ton, a bargain compared to most. The Ekati
mine, located above the frost line, operates at $35 per ton; Diavik at $66 per
ton. By comparison, De Beers’ Venetia mine in South Africa operates at $15 per
ton.
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