By its very nature, diamond is a finite product. When it’s gone, it’s gone. While the search is on for the discovery of viable new mines, existing diamond mines are plunging underground to extend the mine life of existing projects. It is an expensive and time-consuming process, but one that is necessary to keep supply going. 

 

Think Argyle and you automatically think pink, pink diamonds that is. The Western Australian mine is the world’s largest producer of the very rare and much sought after pink diamonds. The mine produces more than 90 percent of the world’s pink diamonds. But, with production at the Rio Tinto-owned mine currently planned to end in 2019, it is little wonder that the prices commanded by the pink diamonds found at the mine continue to rise and rise and rise.

 

It is their rarity that plays in the dominant role in driving the prices of Argyle pink diamonds to new heights. “The chances of any future mine discovery replicating the unique properties of the Argyle mine is extremely low,” Josephine Archer, business manager, Argyle Pink Diamonds told IDEX Magazine last year. “Currently there are no other pink diamond mines or deposits and even if another deposit of pink diamond-bearing ore is discovered, it takes an average of 10 years for a mine to proceed from discovery to production.”

 

For this reason, it is not hard to see why Rio Tinto decided to take operations at the mine, which also produces a significant amount of champagne, cognac and white diamonds, far underground.

 

Back in 2001, the company realised that the open pit, which began production in 1985, was reaching the end of its life, and decided to look into the feasibility of constructing an underground mine, what it calls “an underground block cave operation,” that would extend the life of the mine by mining not only the ore near the surface but also ore hidden far beneath the depths of the earth. (The company said that in order to create an economically viable underground, it needed to employ the safest and lowest cost underground mining method available – block-caving. This involves undercutting the ore body and allowing it to break-up or “cave” under its own weight, which removes the needs for blasting.)

 

The pre-feasibility study for the underground mine was completed in January 2003 and, after undergoing consultation and a number of formal approval processes, including the formation of a Participation Agreement with Traditional Owners, in 2005 Rio Tinto agreed that the proposed operation was economically feasible.

 

The plan to dig down was moving full speed ahead when the global economic downturn hit in 2008. This led to a decision in 2009 to slow the development of the underground project until the crisis passed.

 

Once the economy got back on track in 2010, the company said it was investing $803 million to ramp up the underground block cave project. According to Rio Tinto, following transition from the current open pit operation, the underground mine will be fully operational in 2013 with the life of mine extended until at least 2019.

 

In a press release, Rio Tinto Diamonds and Minerals chief executive, Harry Kenyon-Slaney said, “A significant supply gap is expected to emerge in the medium- to long-term and the outlook for demand is strong, driven by the growth of emerging markets. Argyle is well positioned to capture the new demand.”  

 

The underground block cave at Argyle will cost a total of A$1.6 billion ($1.58 billion) and will produce some 20-25 million carats per annum.

 

In Canada, the Diavik mine, which is part-owned by Harry Winston Corporation and Rio Tinto, is also making the transition underground.

 

While the Argyle mine in Australia is remote, it has nothing on Diavik. This far-flung mine is located just 220 kilometers south of the Arctic Circle on the bed of Lac de Gras (the underground mine is located under the waters of the lake). Like the other mines in the region, the mine is supplied by the ice road, which is a road built on the ice of the frozen lakes that connects the mines with Yellowknife, the capital of Canada’s Northwest Territories.

 

Unlike the move underground at Argyle, which was merely slowed down, the transition at Diavik was stopped completely as a result of the economic downturn. “These decisions were difficult, but prudent ones, in order to preserve the quality of our assets and ensure we were well positioned for the inevitable recovery in global diamond market conditions,” said Bruce Cox, managing director, Rio Tinto Diamonds.

 

For obvious reasons, underground mining is more complex, and more expensive, than open-pit mining, and mining in Canada’s frozen north is complex to begin with. To make the transition, which is costing the two owners somewhere in the region of $800 million, approximately 20 kilometers of tunnels are being constructed at the Diavik mine. In addition, rescue bays, ventilation systems, water removal, storage areas and washrooms are being built underground.

 

Moving to an underground mine was always part of the mine’s 20-year plan. The open pit mines at Diavik will be depleted by 2012 and the company is ramping up the underground operation to full production capacity by 2013. With the addition of the new underground operation, the mine is expected to continue production until 2022. In terms of production, Diavik’s output from a fully operational underground mine will be some 60 percent of historical highs.

 

However, switching to underground mining necessarily means embarking on a different type of mining operation. Such are the differences between open pit and underground mining that Rio Tinto has called the new developments an “essentially new business,” one that will use different mining methods, skills, equipment and infrastructure. “At both Argyle and Diavik we will need to change our operations to reflect this [change]. Essentially we are developing a new business model at Argyle and Diavik that requires different mining methods, skills, equipment, and additional supporting infrastructure,” said Cox.  

 

“In terms of skills, we require individuals who have experience operating drills, trucks and loaders in an underground mining environment in the polar extremes of the permafrost in the remote northwest territories of Canada and the rugged savannah-like conditions in the east Kimberley region of Western Australia. We are keen to see as many of our current workforce as possible make the transition to the underground operations,” said Cox. At both sites, this will require re-training with the company saying it was putting in place the necessary human resources processes to enable this to occur. “At both the Argyle and Diavik sites we are designing a transition plan to identify as many local employment and advancement options as possible. This is key priority for us,” he said.

 

In terms of staff levels, the Diavik workforce will peak at about 1,100 when the company operates both the open pit and underground mines. That number will drop by 10 percent to 1,000 for several years, before dwindling as the mine approaches the end of its life.

 

At Argyle the number of workers required for the underground mine is about 550, the same number that currently work at the open pit operation.

 

As for what will happen to Rio Tinto’s two existing open pit mines once the company transitions underground, Cox explained that in both locations the company is consulting with the local communities and regulators to submit final closure plans, several years ahead of mine closure. “At Argyle the waste dumps will be reshaped and reseeded such that they eventually appear like the surrounding environment. This will be done in consultation with our indigenous traditional owners,” he said. “At Diavik, once all mining is complete the pits will be slowly flooded and then dikes will be breached to form islands.” There are no plans to reprocess tailings at either of the two sites.

 

The Jwaneng mine in Botswana, is also transitioning underground. The Jwaneng pipe was discovered back in 1972 with the mine officially opening a decade later on August 14 1982. Jwaneng, which means “a place of small stones,” is located some 170 kilometers to the west of Botswana’s capital city, Gaborone, and sits on the edges of the Kgalagadi desert.    

 

The mine, which is owned by Debswana Diamond Company – a joint venture formed between De Beers and the government of Botswana in 2006, is known to be the richest diamond mine in the world. The move underground is expected to extend the life of operation by another 10 to 15 years. Such is its importance that the Jwaneng mine contributes 60 to 70 percent of Debswana’s total earnings.

 

The Cut-8 extension project was officially launched on December 13 2010. According to company estimates, the move could be worth some $15 billion over the mine’s life, which will be a good pay back for Debswana’s total investment of $3 billion over the next 15 years. It is expected to produce approximately 95 million more carats and expand the life of mine considerably to 2025.

 

Debswana, and especially the Jwaneng mine is incredibly important to Botswana. To a large extent, the discovery of diamonds and the mining of this precious resource helped transform Botswana from a largely agrarian economy to probably the best in Africa. Debswana is the largest non-governmental employer in the country and, according to some figures, produces more than 60-70 percent of the country’s export earnings, 30 percent of its GDP and 50 percent of the country’s revenue. Losing the mine would be an incredible blow to the economy and would certainly have a knock down effect on the country as a whole.

 

The move underground, whether engendered by Rio Tinto, De Beers or any of the other producers, and the drying up of supply will inevitably have some effect on the price of rough. Rough prices are driven by global forces of supply and demand. Globally there will be less supply as many of the older mines around the world move to underground production and there are no new major supply sources in sight. However, demand is anticipated to stay strong, which will lead to high prices.

 

“The diamond industry fundamentals are strong – a significant supply gap is expected to emerge and the outlook for demand is strong, driven by the growth of emerging markets,” said Cox. Good news for the producers, but perhaps less so for downstream players.