September 12, 2016
By Paul Zimnisky
With the industry’s largest new project Gahcho Kué now in initial production, and Rio giving up on it’s Bunder project in India, there are only a few remaining diamond development projects significant enough to have a meaningful impact on future global production figures.
In Canada, Gahcho Kué (51% De Beers/49% Mountain Province Diamonds, TSX: MPV), the world’s largest new diamond mine, is on pace to reach commercial production in Q1 of next year. First diamonds were recovered in June, and as of August commissioning has been completed. Two notable diamonds were recovered during commissioning, a 24 and 12 carat, which are indicative of the quality of stones the mine is expected to produce over the 12-year life of mine.
Note worthy Gahcho Kué diamonds recovered during commissioning. Source: Mountain Province Diamonds
The Gahcho Kué mine consists of 3 primary kimberlites with a reserve of 55M carats, and a production profile of 4.5M carats annually at an estimated $150/carat, according to a May 2014 feasibility study. Diamond prices have since declined 13%, according to the Zimnisky Global Rough Diamond Price Index. If production forecasts are reached, the mine should be one of the 10 largest diamond mines in the world by volume and value produced on an annual basis over most of the life of mine.
Gahcho Kué will be De Beers’ second producing mine in Canada after the company put its Northwest Territory Snap Lake mine on care and maintenance last December after 7 years of not turning a profit. De Beers also owns and operates the Victor mine in Ontario. The mine is Mountain Provinces’ sole asset, after the company spun-off its exploration portfolio into Kennady Diamonds in 2012 (TSX-V: KDI).
Outside of Anglo American (via De Beers, LSE: AAL), Rio Tinto (LSE: RIO) was the only major diversified miner with a significant stake in a large-scale diamond development project. Rio’s Bunder project in India was an estimated $500M capex project, with the potential to produce 27M carats over an estimated mine life of 30+ years. Rio had spend almost $100M on development over the last 14 years and was in the process of procuring environmental permits when it decided to walk away from the project in July. India has a reputation for being notoriously slow in granting mining approval, an item that Prime Minister Modi has explicitly stated he wants to improve.
Rio noted that the decision to move on from the project was part of a company-wide cash conservation strategy, but the difficult permitting process certainly played a role, and the economics of the project may have simply not been attractive enough for Rio to justify future capital spending as the high volume project only hosts low-to-medium-quality diamonds averaging <$100/carat.
Rio’s presence in the diamond space now consists of its 100% owned Arglye mine in Australia and its 60% stake in Canada’s Diavik mine which it operates with partner Dominion Diamond (TSX: DDC).
Looking at future new sources of diamond production, Angola has potentially the most exciting new project in the world. In March, state-run miner Endiama said that it’s new Luachi project could host as much as 350M carats with an annual production of 12M carats. 12M carats of annual production would put the mine on scale with Rio’s Argyle mine, the world’s largest producing diamond mine by volume. Initial production at Luachi could commence as early as 2018 according to Endiama, which could coincidently coincide with the conclusion of mining at Argyle, which is nearing the end of its mine life.
Endiama is an experienced player in the diamond space, currently operating the Catoca mine, which is located in the same Angolan province as Luachi, and is one of the richest diamond mines in the world estimated to produce 6.5M carats this year worth $550M. Endiama noted that it plans to spend $300M of capex on phase-1 of the Luachi project, with the potential to spend as much as $800M over six years, although very few official details on the project have been formally released.
Chidliak camp in 2015, Baffin Island, Nunavut, Canada. Source: Peregrine Diamonds Ltd
Outside of Angola, Canada and Russia are home to the only remaining new diamond projects with the potential to produce a million+ carats annually.
The Canadian province of Quebec’s first diamond mine, Renanrd, 100% owned an operated by Canadian-listed Stornoway diamonds (TSX-SWY) is on schedule to begin commercial production in Q2 2017. With a 14 year mine-life and an estimated annual production of 1.8M carats worth $155/carat as of March 2016, Stornoway will be the only other independent diamond miner in Canada outside of Dominion.
Shoregold’s (TSX-V: SGF) Star-Orian project in Saskatchewan has an indicated resource of over 55 million carats estimated to be worth in excess of $200/ct. An updated feasibility study for Star-Orian is expected by the end of the year. Peregrine Diamond’s (TSX-V: PGD) Chidliak project in Nunavut, has the potential to produce 1.2 million carats annually for 10 years at $140/ct according to a preliminary economic assessment released this past July. The company plans to further expand the resource to depth at the primarily kimerlite CH-6 and expand the resource to other nearby pipes that show economic potential. Both projects are at a pre-production decision stage.
Russian diamond major ALROSA (RTS: ALRS) has two projects of note in development phase. Verkhne-Munskoye is a deposit consisting of 3 kimberlites in the Repubublic of Sakha. The $1billion project has the potential to produce a million carats a year for 25 years starting as early as 2019. ALROSA is also developing the Zarya project which is estimated to produce a quarter-of-a-million carats annually for 13 years starting in 2021.
De Beers is 85% owned by Anglo American plc (LSE: AAL) and 15% owned by the Government of the Republic of Botswana.
At the time of writing Paul Zimnisky held a long position in Dominion Diamond Corp. Please read full disclosure below.
This article was written as an exclusive for the London Mining Journal.