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.
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.