Hi Bill, & all! Here's more valuable follow-up info from Pres. Boulay:
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Hello Jesse:
Thanks for your follow-up email and the additional questions. Here
goes.
"Some or perhaps a great deal of the overburden may in fact be decayed kimberlite. And if the pipe was diamondiferous the diamonds would remain in the overburden." Good question. This in fact is what makes up the famous "yellow ground" of the Kimberley area pipes in south Africa. However, the overburden in Alberta that we refer to consists almost entirely of glacial till which would not contain any diamond mineralization except for extremely rare transported grains.
One observer remarked on the fact that glacial material could contain kimberlite components and confuse explorers. Also, I believe there was mention that the only legitimate targets were "kimberlite pipes". We employ a biostratigraphic consultant to look at our core. Fossils in our core confirm that our kimberlite component minerals are residual grains in a Cretaceous age (approx 85 million years old) rock, are derived from a nearby source, and are not glacial in origin. What we don't know is that if it is a crater facies rock, a volcanic ash dump, a reworked lag deposit or another type of deposit associated with explosive volcanic activity. The situation to the east where Ashton and Montello are drilling is simpler in that the kimberlites blew out into a shallow sea, maybe 100 to 150 metres deep and the ejecta fell back to form more or less organized beds. The Chinchaga was coastal marsh to sub-areal (i.e., exposed land) and we can expect a more complicated re-depositional picture. As to the "pipe" question, it's still early days. Neither Ashton nor Montello (I believe) have encountered diatreme facies rocks and the current list of known pipes may not really be pipes at all but suspended craters with the underlying pipes having been been destroyed by the inward collapse of marine muds. No one knows at this stage. Also, if the pipes do exist (my guess, just a guess, is that they do exist), they could have crater facies infilling to quite a depth. Or not! We just don't know yet. I have worked in pipes 4,000 feet (over 1,200m) below their original eruptive surfaces where the rock is still dominantly composed of crater facies material. It's still very early days. Additionally, some of the reported Ashton pipes may only be defined, so far, on the basis of drill intercepts into alternating mudstones and layers rich in kimberlite components. Their news releases are not very specific. Investors hold visions of neat pipe structures surrounded by country host rock. It is much, much more complicated than that.
There still seems to be some confusion about our exploration strategy regarding overburden in Alberta and the order in which we choose to measure costs and risks. Some would say that we should not consider these things until a deposit is found. However, all exploration companies do this. You do not need a mine in Angola to decide that you don't want to explore there. It's obviously a dangerous place. Same with the high Arctic. Small companies simply can't afford the initial operating cost levels and the tonnage and grade thresholds which would be required to effectively return something to shareholders in the event of a discovery. That's why almost no companies operate there. Same thing in Alberta, except that it's far easier to precisely quantify the threshold values because we have access to a real time cost database. We have lots of experience financing mines, especially open pit mines and we know overburden is a mine killer. Why waste time and effort looking for deposits in areas we believe to be un-mineable. Again, we are not dictatorial and do not suggest that other companies have to use this methodology. We simply want to inform our shareholders about our strategy. As an aside, the much anticipated Ashton results will be based on a sample from K-14, a pipe with zero to 7 metres of overburden. It's no accident that this pipe was mini-bulk sampled first because of low overburden cover.
Calculating a grade threshold for a pipe/overburden configuration is easy providing you have accurate cost numbers. Our cost numbers are "hardcore" numbers derived directly from the experts that, for example, Ashton's engineers would consult to get a fix on costs if they were to generate a feasibility study. Then, it's a question of geometry to calculate the volume of material to be removed, managed and stored. There are two important considerations here. First, tailings management in Alberta is a big deal. The coal and oilsand operators, during certain times of the year spend more on tailings management than on mining and hauling. Second, removing overburden is "pre-stripping" and must be fully completed before the mine can be excavated. Since the volumes will be large, it will take a long time and IDC, i.e. "interest during construction", costs will be significant.
Examples are always useful.
Ideally both underground and open pit examples would be best. However, the incompetent upper Cretaceous mudstones could not likely be used as a crown pillar (i.e. a mine roof) and the soft rocks would probably lack the integrity to allow underground mining at any grade. We have only performed rudimentary calculations on underground thresholds and they are not worth refining into exploration model thresholds.
As an open pit example, consider a 500 meter diameter pipe under 100 metres of overburden. Nice round numbers. Low-balling all the cost and engineering specs to derive an exploration threshold, as opposed to a more rigourous mining threshold, the mine will require a clear disk, at the bottom of the overburden pit, measuring 750 metres in diametre to allow for waste rock (as opposed to glacial till) removal in order to profile the pit. Actually, a larger, more expensive, setback would be required but this is just an easy exploration model. Then the overburden slope would require a surface level setback of at least 300 metres for a 1:3 ratio (again it is likely that the pit might have to be bigger). This means the disc at ground level will have to be, at minimum, 1,050 metres in diametre. Using geometry, it calculates that about 65 million cubic metres of overburden has to be mined, hauled, stored and dammed up (about 130 million tonnes). Again, using very low estimates for mining, equipment amortization, tailings management, water management, infrastructure and interest during construction, we calculate a cost of about $13.07 per cu meter. This is for an exploration model, the actual mine model costs may well be $5.00 more than that per cu. metre. These are based on today's actual costs being incurred by some of the world's largest and most efficient mines in Alberta. In our example, using low cost estimates, the total pre-stripping bill comes to $854 million. At 40,000 cu. metres per day it will take 4.5 years to complete the prestripping. We can do it faster but the capital and IDC costs then start to override time and mining cost savings. Also, you might end up with a truck and shovel fleet which is oversized for the actual mine.
For the 500 metre diameter pipe, the cost of removing only 50 metres of overburden would be about $358 million and would take 2 years to complete. Then, of course, you have reached the point where you can start to strip waste rock from the pit and build the mine, probably $400 to $500 million, including another $100 million in interest for the 1000 metre overburden example.
I don't want to go into too much detail here and extrapolate these costs into cut-off grades as a function of overburden but it's not hard to take the published figures from, say, the Ekati mine and work in the cost of our example. The Ekati mine cost $900 million, I think. The example pipe mine, under 100 metres of overburden, would cost, maybe $1,400,000,000. Compare this with the Ekati cost and assume a slightly higher mining rate and you get a rough, very rough, minimum grade threshold of about 1.64 times the Ekati grade to get the same rate of return at 100 metres of overburden. Actually, applying mining standards to our model would probably push the cost quite a bit higher. We don't make these numbers up, we just use them to define our exploration strategy.
Our overburden thickness land strategy is based on a fact that is now being realized. Namely, that there really is only a very small amount of explorable land in northern Alberta. We have managed our affairs to combine a large land package with good geological ground and explorable thicknesses of overburden. We think it is a reasonable strategy which will pay off for our shareholders.
For explorers with explorable and mineable land there will be a distinct "Alberta Advantage" due to the relatively easy access and developed infrastructure around the diamond exploration areas. The general perception seems to be that the main advantage over, say, the NWT will be capital cost savings. This is probably true but we suspect that the real advantage will be in being able to buy higher production rates for each dollar spent. Alberta is Canada's most productive mining province in terms of both tonnes mined and value of production. We expect that this will continue and grow as the diamond industry develops and it will all be defined by tailings management cost optimization. This last bit is not what you want to highlight in the company brochures, but informed investors need to know how to sort the reality from the romance. 1999 should be an exciting year in the Alberta Diamond Play.
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