De Beers: Cana­dian mine now com­mer­cial

Gah­cho Kué in Canada is where De Beers is in­volved in a joint venue to con­struct that coun­try’s first new di­a­mond mine in more than eight years.

Finweek English Edition - - THE WEEK - Edi­to­rial@fin­week.co.za By David McKay

about 280km north­east of Yel­lowknife, the largest town of Canada’s North­west Ter­ri­to­ries (NWT), is Gah­cho Kué – a Chipewyan name for “place of the big rab­bit” – al­though cari­bou are also na­tive to the re­gion. So are di­a­monds. It’s here, above the tree line and only 400km south of the Arc­tic Cir­cle, that De Beers, in a joint ven­ture with Moun­tain Prov­ince Min­ing, sank C$1bn (R9.5bn) into build­ing Canada’s first new di­a­mond mine for about eight years.

It’s a hos­tile en­vi­ron­ment and un­der­lines the dif­fi­culty of find­ing fresh sources of di­a­monds. The of­ten-quoted data still has the power to amaze: of some 7 000 kim­ber­lite pipes that have been sam­pled through time, only 60 have con­tained enough di­a­monds to jus­tify a mine – about 1% of the to­tal.

For Gah­cho Kué, pro­duc­tion of about 54m carats is fore­cast over its 12-year life from now un­til 2028. But there are hopes for an ex­ten­sion project: “There’s some work that may come to fruition, to see if we can get be­yond the cur­rent 12 years,” says Tom Ormsby, head of ex­ter­nal and cor­po­rate affairs for De Beers Canada, in an in­ter­view with fin­week.

Pro­duc­tion be­gan in Au­gust, but this month rep­re­sented the first in which com­mer­cial out­put was reg­is­tered. Op­er­a­tions are around the clock un­less a snow storm is fierce enough to ob­scure any of three open-cut pits where the part­ners op­er­ate.

Con­di­tions are dif­fi­cult. “It’s re­ally the edge of the Arc­tic Cir­cle,” says Ormsby. “The tem­per­a­ture can fall to -40º [Cel­sius] in the deep­est part of win­ter and there is wa­ter ev­ery­where in sum­mer. Un­der­foot the earth is tun­dra and peat land, if you can call it that,” he adds.

Work at the mine is con­ducted on a two weeks on, two weeks off ba­sis. Em­ploy­ees don’t board the out­ward­bound plane (which lands on an ice run­way dur­ing win­ter; gravel in sum­mer) un­less they are ap­pro­pri­ately suited up CEO of De Beers for the weather, said Ormsby.

The amount of time em­ploy­ees are al­lowed out­side is re­stricted, but the mine it­self never comes to a halt. “We’ve been min­ing in this re­gion of Canada for more than 10 years, so we’ve learnt over time how to op­er­ate: the qual­ity of holes and the machin­ery needed for it,” he said.

And the ben­e­fits are high. Gah­cho Kué was es­ti­mated to con­trib­ute C$440M to the NWT econ­omy in 2015 and a fur­ther C$5.3bn in gross added value now that it has reached com­mer­cial pro­duc­tion, ac­cord­ing to a so­cioe­co­nomic im­pact re­port by EY.

It also comes at a time when De Beers has closed the un­prof­itable Snap Lake – al­though it has 12 years of ore that is still vi­able at a cer­tain di­a­mond price – while its other NWT mine, Vic­tor, is nearly mined out, al­though it will be able to process sur­face ma­te­rial for time to come. Hopes that it too could be ex­tended have not yet been re­alised.

Gah­cho Kué comes at a time when the di­a­mond mar­ket is in tran­si­tion. In the longer term, the out­look is pos­i­tive given the scarcity of new di­a­mond dis­cov­er­ies and grow­ing con­sump­tion met­rics in places such as China.

On the shorter term, how­ever, there is some mar­ket pres­sure. De Beers’s sec­ond sales cy­cle this year to­talled $545m, some 25% lower than the first one in Jan­uary, al­though there was an un­usu­ally large re­stock in the first cy­cle. “Sen­ti­ment re­mains pos­i­tive,” said Bruce Cleaver, CEO of De Beers, fol­low­ing the sec­ond cy­cle, but there is cau­tion among an­a­lysts.

Said Mac­quarie in a re­cent note: “We re­main fairly cau­tious on the near-term out­look for di­a­monds given the im­pact of slower De­cem­ber US jew­ellery sales on pipeline re­plen­ish­ment, the neg­a­tive im­pact on rough de­mand from In­dian de­mon­eti­sa­tion, and fur­ther rough sup­ply ad­di­tions this year.”

The Gah­cho Kué di­a­mond mine in the North­west Ter­ri­to­ries of Canada.

Bruce Cleaver

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