TORONTO – The owners of the Diavik diamond mine, in Canada's Northwest Territories, are studying possible changes to underground mining methods which have the potential to lower costs and could result in a future extension of the mineral resource estimate, according to Harry Winston CEO Robert Gannicott.
Shares in Harry Winston, which reported second quarter profit of $16,5-million, jumped 18% on Thursday morning, to C$12,68 apiece by 11:13 in Toronto.
The company owns 40% of the mine and diversified miner Rio Tinto holds the balance. Rio Tinto is the operator of the asset. Harry Winston, which markets its own share of rough production from Diavik, also sells high-end jewellery and watches in a separate business unit.
The company saw “stable” and strong demand for its rough diamonds in its second quarter – the three months ended July 31 – as demand from China and Asia offset ongoing weakness in the US, Gannicott said.
“Following a sharp recovery in rough diamond demand and pricing in the first quarter of this year, the second quarter was characterised by more stable conditions, as renewed stocks of polished diamonds work their way through the retail businesses of a diamond world changed by aggressive demand from the Far East and, to a lesser extent, India.”
However, the US, which consumed half of the world's diamonds before the recession, “is still struggling to regain its retail confidence”, he added.
Diavik, which began as an openpit mine in 2003, started underground production in March this year and the operation will transition to a solely underground mine by 2012.
Like other mines around the world, Diavik's production was curtailed in late 2008 and 2009, in response to a sharp drop in prices and demand for rough diamonds.
But the market has since come back strongly, and Harry Winston reported an 89% increase in rough diamond sales for the three months ended July 31, thanks to 62% higher prices and a 17% increase in the volume of carats sold.
Rough diamond sales by volume will likely be even higher in the second half of the company's financial year, Gannicott said on Thursday.
He told analysts that prices for the type of stones produced from Diavik have surpassed the peak experienced in 2008, before the financial crisis hit rough-diamond demand, “by a measurable margin”.
Gannicott noted that the price growth for smaller, cheaper stones in the market has been slowed by large volumes of production coming from Zimbabwe.
“But for our average production, we have gone past peak.”
NEW MINING TECHNIQUES
Gannicott said that Rio Tinto will likely have a clearer picture by the end of 2010 regarding the new underground mining methods being considered.
The mine plan is based on cut and fill mining, which is especially expensive because cement to be added to produce backfill must be trucked long distances over the northern ice road to the mine site.
As the underground mining areas are being dewatered, it allows operators to get a better idea of the rock stability conditions and assess whether other mining methods would be viable, Gannicott said.
“My expectation would be that two of the three pipes we are going to be able to use cheaper mining methods on,” he commented.
“And if we can mine at lower cost then we can actually get deeper into those other identified areas of mineralised kimberlite that are not part of the resources or reserves at the moment.”
The Diavik mine is expected to produce 7,8-million carats this year.
He confirmed that there had been discussions on the possibility of running electric power from around the Great Slave lake, where a hydropower facility is located. The power project was built to feed a now-closed mine.
But the significant investment involved would require the owners of diamond mines in the area to commit to a long-term 'take or pay' contract for the power, which they are not prepared to do.
“So in my view it [the electricity proposal] is pretty much dead at this point.”
Source: miningweekly