Questions remain on De Beers Snap Lake mine 23/03/03
Even as technical problems and environmental concerns are raising questions about the economics of developing Snap Lake in the Northwest Territories into a profitable mine, De Beers remains publicly committed to what could be its first diamond mine outside Africa, said a report by Canada's National Post on Friday.
Behind closed doors, however, the initial optimism about the project has become bogged down in what is turning out to be a technical horror story, it said.
According to the report, experts estimate a return on investment from the mine of nine years,compared to a figure of less than three years for BHP Billiton's Ekati mine, due to dilution problems and the costs the company will have to bear to answer concerns over the mine's environmental impact.
"The kimberlite (diamond bearing rock) itself is quite high grade, but it occurs as a contorted layer within barren granite. It is impossible to mine just the ore without significant dilution from the barren waste rock, which could be as much as 40% of the total mined. This means that out of every tonne of rock that goes through the processing plant, 40% is worthless," a geologist familiar with the mine who asked not to be named, told the National Post.
In addition, De Beers is having to satisfy demands of aboriginal groups in the NWT who want the company to supply rough diamonds for local cutting - something that runs counter to its ingrained policy of only selling from a single mix of all its productions sourced from London (the so-called London mix). "Apart from the technical problems, which, given De Beers diamond
mining expertise seem manageable, the agreements with the aboriginal groups appear to be a major problem," said the geologist source.
Last year, the company approached more than one producer to buy the Snap Lake project. It now faces the difficult task of having to weigh the economics of developing the mine against loss of face following its expensive hostile takeover of Winspear Diamonds Inc., Snap Lake's majority owner, two years ago, the report said.
De Beers made its surprise offer for all outstanding common shares of Winspear in a cash transaction valued at around $259-million, a 77% premium on the shares. Subsequently, De Beers paid an even higher premium to Aber Diamond Corporation for the 33% balance in the project to get full control. Analysts at the time considered the takeover an excellent move by De Beers, which would put the world's largest supplier of rough diamonds on the Canadian map, it said.
A key sticking point in De Beers negotiations with local groups is the aboriginals' demand to offer local rough for local cutting. De Beers has always refused to compromise on this issue. So when Richard Molyneux, head of De Beers Canada, during a series of torrid public hearings on the social benefit agreements for aboriginal groups in the Northwest Territories, made a gesture towards supplying local rough for local processing, his statement received considerable publicity.
But De Beers may be back-tracking on the views expressed by Mr. Molyneux.
Immediately after his remarks, De Beers sales director in London, Gareth Penny, said: "There is no intention at this stage to change our sales strategies, unless it becomes a requirement by law." News that John Hughes, head of producer relations in Johannesburg is moving to Canada to oversee these issues has strengthened this view, said the report.
Although it is not required by law, BHP Billiton set the precedent, followed by Rio Tinto and Aber, by agreeing to supply up to 10% rough diamonds by value from the mine to local cutting factories. Currently only about 40% of this availability is being taken up by the local factories.
Most agree that the fact local groups were in favour of the projects helped the producers get permitting approval. De Beers Snap Lake can count on less enthusiasm."There is full employment, we don't get royalties, people working at the mine will be from Ekati or Diavik, or fly in and out, so what is in there for us if they don't supply local rough?", one of the local groups said, according to the report.
"The permitting requirements include a whole range of things, such as a possible 10% equity interest, and training programs. Snap Lake does not have the scale of an Ekati, so the question is, given the technical problems and the regulatory process, whether the project is robust enough," said the geologist.
During the release of their annual report on March 20, De Beers said it was confident that the Snap Lake diamond project in Canada would be in full production by 2007. Much if this will depend on the way they will handle the socio economic issues that are still outstanding. This also counts for the Victor mine at Attawapiskat in the James Bay Lowlands in Ontario, said the report.
Here too it will have to agree to local demands and as one local official said: "They
are facing the same problem, even though Ontario's economy does not necessarily need them the way the NWT needed a mine when Ekati was discovered."
Emma Muller |
