MINING NEWS: Volatile markets bedevil diamond mines
De Beers writes down value of Northwest Territories’ Snap Lake, while Tahera struggles to keep troubled Jericho in Nunavut afloat
By Rose Ragsdale
De Beers has written down the value of its Snap Lake diamond mine in the Northwest Territories by US$965 million in what management called a “prudent” move given the increased value of the Canadian dollar and higher costs and construction challenges at Canada’s newest diamond mine.
The South African company is the second diamond miner to report financial problems in Canada, with Tahera Diamond Corp. seeking bankruptcy-court protection in January after a failure to raise money for its Jericho Diamond Mine in Nunavut.
De Beers, the world’s biggest diamond producer, started production at the mine in late 2007 and Feb. 8 said it expects full production of 1.6 million carats annually to be achieved by this year. Snap Lake is located 220 kilometers, or about 136 miles, northeast of Yellowknife.
De Beers also said the company’s overall outlook for 2008 “is tempered by a high level of uncertainty over world market conditions.”
“The economic conditions in the U.S. could continue to impact consumer diamond jewelry sales through the first half (of 2008), particularly at the lower end,” the company said.
“Nevertheless, we expect strong demand from China, India and the Middle East to sustain pricing for larger and better-quality diamonds.”
Canada’s dollar has been fluctuating around parity with the U.S. dollar in recent weeks and briefly hit a historical high of just over US$1.10 in mid-November. That’s up dramatically compared with its value of about 85 cents in early 2007.
De Beers also noted that its South African operations are being challenged by energy shortages and that its Canadian management is focused on bringing Snap Lake and the new Victor mine in northern Ontario into full production this year.
Snap Lake mine is Canada’s first completely underground diamond mine and De Beers’ first mine outside Africa.
For 2007, De Beers posted sales of US$6.8 billion, down from US$7 billion in 2006. It also reported a net loss of US$521 million, including the impact of the impairment at its Canadian operations. Excluding special items such as the charge for Snap Lake, De Beers said it would have had earnings of US$436 million.
Analysts say higher costs for fuel and equipment as well as volatility in the financial markets is harrying all sectors of the mining industry, not just diamond mining. However, mining and recovery problems at Snap Lake and Jericho have exacerbated difficulties for both operations, they say.
More time for JerichoOperators of the smaller Jericho mine suspended operations Feb. 6. Tahera said Feb. 12 that it secured from the bankruptcy court an extension until June 30 of its period of protection from creditors, and the company will use the additional time to continue to pursue financing alternatives and possible corporate transactions.
Tahera has struggled for months with operating and financing problems at Jericho as well as mounting costs. The company had been trying to raise cash so it could take supplies to the remote mine, which is located about 400 kilometers, or 250 miles, northeast of Yellowknife, via a winter road.
Tahera suspended mining at Jericho to conserve cash and fuel inventory while restructuring efforts are ongoing.
The Toronto-based company said processing of ore will continue for another two months or until stockpiles are depleted. The future operations at the Jericho mine will continue to be assessed in the context of the overall corporate restructuring, the company added.
Diavik, Ekati updateCanada is the world’s third-largest diamond producer by value, with four mines in the Far North – three in Northwest Territories and one in Nunavut. The Ekati Mine is owned by BHP Billiton, one of the world’s biggest miners. The Diavik Diamond Mine is a joint venture of Rio Tinto and Toronto-based Harry Winston Diamond Corp., formerly Aber Diamond Corp.
Diavik Diamond Mines Inc., operator of Diavik, announced fourth-quarter results Jan. 29, including production from the A154 South pipe of 2.9 million carats, bringing total 2007 diamond production at the mine to 11.9 million carats. The company also said it employed 814 workers, of whom more than 30 percent were aboriginal.
Ekati, meanwhile, was coping with complaints from two women employees about working conditions at the mine. The women trainees claimed they were harassed and even assaulted by male co-workers, and the company failed to provide proper bathroom facilities for its underground work force.