For a number of years, Canada was seen as the great white hope of the diamond industry. Discoveries seemed to come thick and fast. But has the frozen tundra of the Arctic fallen behind African countries, especially Zimbabwe, in the race to provide the next diamond mines? Diamond mining expert Martin Iriving doesn’t think so. 

 

The Canadian diamond sector continues to improve as the world slowly recovers from the global financial crisis. Globally, Canada remains one of the top three producers of rough diamonds. In 2009, the Canadian government estimate rough diamond production of almost 11 million carats, worth Cdn$1.7 billion ($1.7 billion), down from the 2008 figures of 14.5 million carats valued at Cdn$2.3 billion ($2.3 billion). Production continues from three mines in the Northwest Territories (NWT) and one in Ontario, representing the top tier of producers of rough diamonds: De Beers, BHP-Billiton, Rio Tinto and Harry Winston.

 

At the same time, with all of the activity and excitement in the exploration sector, Canada’s position as one of the world major producers of rough diamonds is under no threat. Companies who could be producers of rough diamonds in Canada within the next 10 years include Shear Diamonds, Shore Gold, Stornoway Diamonds, Dianor Resources and Peregrine Diamonds.

 

In the exploration sector, the Chidliak project heads a strong list of potential future producers. The Chidliak project is on Baffin Island, in Nunavut, and is 51 percent-owned by BHP Billiton and 49 percent by Peregrine Diamonds (the operator of the project), and consists of at least 50 known kimberlites, 27 of which have undergone preliminary drilling and testing. Twenty-six are diamondiferous, and seven are considered to have economic potential. The fact that this project continues to provide such positive results in an area that five years ago had little to none diamond exploration interest, confirms the huge potential for diamonds all across Canada. There are now a number of significant diamond exploration projects on Baffin Island.

 

Exploration in Nunavut and the NWT remains strong with diamond exploration projects active across the whole of northern Canada. Projects of interest include Diamonds North’s Amaruk property, Stornoway Diamond’s Aviat property, Shear Diamond’s Churchill West Property and Peregrine Diamond’s Nanuq property. The exploration activity that continues across Canada, in the NWT, Nunavut, Ontario, and Quebec, with less activity in Saskatchewan and Manitoba, confirms that Canada will remain a significant producer of rough diamonds far into the future.

 

Yet even with all the on going exploration, it was an older diamond property in Canada that made the news in 2010. The saga of the Jericho diamond mine in Nunavut took a surprise turn when Shear Minerals purchased the property out of bankruptcy in the fall of 2010.

 

Jericho, owned at the time by Tahera Diamonds, opened in 2006 as Canada’s third diamond mine. However Tahera Diamonds went into bankruptcy in 2008 and the mine officially closed early in 2010. More than $200 million had been invested in the operation, located in Canada’s premier diamond producing area, in the central Northwest Territories.

 

When it closed the Jericho mine had produced a total of 780,000 carats, and had a 1.88 million carats indicated resource valued around $90 per carat (p/c). However from the moment it opened the doors there were considerable problems in almost all aspects of the operations from mining, to processing and marketing. So the question is this: while the property has potential, can it be operated economically?

 

For Shear, an experienced diamond exploration company, with its major property, the Churchill West project, in eastern Nunavut, this significant move was a company-transforming move. Within a few months, they had moved from an exploration company to a potential producer. Late in 2010, Shear Minerals changed its name to Shear Diamonds to reflect the change in status.

 

The mine infrastructure is licensed and completed. The open pit is developed, and mining equipment in place. A 2,000-ton-per-day diamond processing facility, maintenance offices and other support facilities, including a fuel farm, are complete, and accommodation and office facilities for 225 workers ready for use.

 

In addition to the assets on the ground at Jericho, a key component of the transaction was the series of reports and studies that assessed the Jericho operation. These assessments looked at all aspects of the mine, and identified numerous opportunities to improve the operation and the economics of the project. Shear believes that the necessary adjustments and changes can be made, and subject to positive test results in the coming year, and an estimated investment of $30 to $50 million, the Jericho mine could be producing again by 2013.

 

There are four advanced diamond projects in Canada that have made steady progress over the past few years. The Renard project in Quebec moved into the full permitting and review process. Stornoway Diamonds has had an active few years, as it has increased the size of the proposed Renard mine to a 25-year mine life, with an annual production of between 1.1 and 1.6 million carats valued at $117 p/c. It also announced the purchase of 50 percent of the Renard property from its joint venture partners SOQUEM (owned by the Quebec government). Subject to shareholder approval, SOQUEM, through its subsidiary Diaquem, would receive 37 percent ownership of Stornoway (25 percent votable), and a 2 percent gross revenue royalty. Stornoway also would receive $100 million credit facility to use for development of the Renard property.

 

The permitting process with the Quebec government is underway, and Stornoway is working on the mine feasibility study and the social impact and environmental assessment. A separate feasibility study and environmental assessment for the power line linking the project to the Hydro-Quebec hydroelectric network is also underway. The government of Quebec is undertaking a feasibility study and economic assessment of the extension of Highway 167 that would link the Renard project (and a number of other mineral properties) to the all weather highway system in Quebec. Subject to the studies, construction is scheduled to start on the road in the spring of 2012 and diamond production at Renard is likely by 2015.

 

Shore Gold continues to advance the Star-Orion South project through the permitting process. The project is located in the Fort a la Corne area of central Saskatchewan. The property can be driven to, and is within a few miles of power and other infrastructure requirements. The project contains an estimated 35 million carats with an average value of $192 p/c.

 

The kimberlites are low grade, at approximately 12.5 carats per hundred tons, and so the mine will need to process an estimated 40,000 tons of kimberlite a day, in order to reach the 1.8 to 2 million carats a year projected production. However the exploration potential in the Fort a la Corne area is significant with some 70 kimberlites already identified on the various Shore Gold properties. Subject to successful permitting, construction is anticipated to begin in 2012. Due to the thick overburden (up to 100 meters) that will have to be removed before the mining of the kimberlite can begin, diamond production is expected in 2016.

 

The Gahcho Kue project in the NWT is a joint venture between De Beers Canada (51 percent) and Mountain Province (49 percent). The joint venture submitted the Environmental Impact Statement in December 2010, beginning the estimated 24-27 month permitting process. Construction is estimated to take two years, so production is anticipated to begin in 2015. The proposed mine would produce between 2.5 and 4 million carats a year valued at $75 p/c over its 11-year mine life.

 

Dianor Resources’ Leadbetter property is in northern Ontario. However, unlike the Victor mine, it is located close to infrastructure, within 30 minutes of the city of Wawa. This unique diamond project is a large, low-grade deposit that includes diamonds, rubies, sapphires and gold. Dianor is advancing a large bulk-sampling program (50,000 tons) that will test the economic viability of the property. Permits have been received, and construction ready to begin, and the bulk sampling program results are anticipated in 2013.

 

Rough diamonds continue to be produced from four mines in Canada: Ekati (BHP Billiton), Diavik (Rio Tinto and Harry Winston), Snap Lake and Victor (both owned by De Beers Canada).

 

Ekati, the first diamond mine in Canada that opened in 1998, is approaching the end of its projected mine life, with an estimated eight years of production remaining. Victor has about the same remaining mine life.

 

De Beers is exploring and testing a number of kimberlite pipes in the area of the Victor mine, and it remains optimistic that additional reserves can be identified. Diavik and Snap Lake both have more than 10 years of reserves remaining.

 

The diamond cutting and processing sector in Canada remains small and specialized. Both of the current rough diamond mining jurisdictions in Canada, the NWT and Ontario, support the local cutting and polishing of a minimum of 10 percent of the rough diamonds mined within their respective jurisdictions. In Ontario this has led to the establishment of one cutting factory, located in Sudbury processing high value rough from the Victor mine. Over the past five years, the cutting and polishing factories in the NWT have encountered numerous problems as they faced higher operational costs. Only one factory is currently working, while a second is going through bankruptcy procedures and a third sits empty.

 

In 2010, Quebec announced its updated Mineral Strategy, which included the commitment to support the local cutting and polishing of 10 percent of the production from any diamond mine in Quebec. However the strategy did not provide specifics on how this would be achieved. It is clear however, that the government would like to see at least 10 percent of the production from Renard made available for cutting to factories located in Quebec. When diamonds were mined at Jericho, in Nunavut, the Nunavut government did not take a position on local allocation of rough diamonds, while the other prospective diamond-producing jurisdiction, Saskatchewan has not yet taken a public position on the issue. However there is a small cutting factory already operating in Prince Albert, the closest community to the prospective diamond mine in Saskatchewan, producing high quality specialized cuts.

 

The future for Canada as a producer of rough diamonds remains bright, with a number of strong projects vying to be the country’s next diamond mine in the next two to five years. The exploration sector has numerous projects in the pipeline with the potential to be producers in the next five to 10 years, all indications of Canada’s strength, now and into the future.