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Gem Diamonds to Double Letseng Production

By Rapaport
RAPAPORT... Gem Diamonds is doubling production at its Letseng mine in Lesotho. The mine is expected to be at full capacity by the end of the first quarter of 2008, according to a Reuters report. With production doubled, it will produce 5 million tons of ore per year.

Clifford Elphick, chief executive officer (CEO) of Gem Diamonds, described the expansion as an effort to draw larger stones from the mine, which previously yielded three of the 20 largest to date. Elphick would like to see the mine produce more diamonds weighing over 100 carats. In Elphick’s view, a growing base of super-wealthy consumers, benefiting from the commodities and oil boom, as well as the emerging markets, fuels the demand for large diamonds.

Prior to the announcement, Gem Diamonds sold the 493-carat “Letseng Legacy” in a transaction that netted $10.4 million, or $21,000 per carat.

Gem Diamonds has agreed to buy 50.01 percent of Kabongo Development Company for $56.2 million from Almesta Holdings Limited, spokespersons for Gem Diamonds announced. Gem Diamonds will have full control of Kabongo upon closing the deal. It already owns 49.9 percent of the company and its two main assets – the Mbelenge mine and the Lubembe dredging project – in the Democratic Republic of the Congo (DRC). Under the agreement, Gem Diamonds will pay an additional amount if a diamondiferous kimberlite is discovered on a Kabongo concession. That additional amount will be 5 percent of the asset’s attributable value, up to $100 million.

Gem spokespersons stated that the acquisition solidifies the company’s position in the DRC while increasing its diamond resources there by 53.5 percent to 9.46 million carats. Elphick remarked that the ownership and development of Kabongo have been crucial to Gem Diamonds’ strategy since its first pre-Initial Public Offering (IPO), equity capital raising.

Diavik Underground
The owners of the Diavik mine, Rio Tinto and the Harry Winston Diamond Corporation (formerly Aber Diamond), will invest an additional $563 million in the mine by 2009, Rio Tinto spokespersons announced. The new funds will facilitate the start of underground operations by 2009. The spokespersons said that the funds will be spent over the next two years, for the purpose of enabling the underground operation to commence diamond production from 2009 through 2020. In 2012, when pit operations end, Diavik is expected to become an all-underground mine. The new funding follows a $224 million investment in 2006-2007 for underground feasibility studies and related capital projects.

Underground mining at Diavik requires a number of preconditions, Rio Tinto spokespersons explained. These include the construction of new surface works such as a crusher and paste backfill plant, expansion of Diavik’s water treatment and power generating plants, and the construction of ancillary facilities including fuel and cement storage facilities. About 20 kilometers of underground development works will also be established to start underground production.

Diavik Diamond Mines Inc., achieved an output of 3.1 million carats from its Diavik Diamond Mine during its third quarter, according to company spokespersons. Diamond production for the year to date stands at 9 million carats.

Canada’s federal government approved the renewal of the Diavik water license for eight years, effective November 1, 2007. The decision is contingent upon significantly increased environmental monitoring, reporting and management controls, revised discharge limits and higher numbers and types of ongoing yearly approvals.

Apart from these issues, the mine’s safety performance for the quarter was mixed. Although there were 88 consecutive days with no medical or lost-time incidents, two lost-time injuries occurred at the end of the quarter, resulting in a lost-time injury frequency rate of 0.52 and a year-to-date injury frequency rate of 0.96.

The mine’s management has decided to delay the development of the A21 pipe pending further engineering studies and economic assessments. Meanwhile, feasibility studies have been completed for underground development of the A418 and A154 pipes. Those studies will be subject to review for internal funding...

DiamonEx Purchases Kimberlite Project
Australia-based DiamonEx has acquired the Sloan 1 and 2 kimberlite pipes located in northern Colorado. DiamonEx’s project in the United States is now potentially even bigger than its successful development of areas of Botswana, according to Dan O’Neill, managing director of DiamonEx. O’Neill stated that the acquisition was a stage in the company’s acquisition and development of advanced diamond exploration projects on a global basis.

In addition to acquiring more than 1,000 acres of prospective diamond properties in the State Line region of northern Colorado, DiamonEx has identified more than 150 possible kimberlite sites there.

DiamonEx spokespersons also announced that the company is preparing to begin mining in its Lerala diamond mine in Botswana, with production and selling expected early next year.

Tahera Diamond Corporation Losses Soar
Tahera Diamond Corporation, a Canada-based mining and exploration company, reported a ten-fold increase in its net losses in the third quarter of 2007. The losses reached $111.34 million (CAD 111.44 million) according to the December 3 exchange rate.

Yet the company’s revenues for the three months ended September 30, 2007, rose 318 percent to $5.34 million (CAD 5.35 million). Spokespersons attributed the “significantly higher” loss in the third quarter to a $73.01 million (CAD 73 million) asset impairment charge against the Jericho Diamond Mine assets and write downs of deferred exploration and development balances of $21.4 million (CAD 21.4 million).

The company extracted 47,000 carats of diamonds at Jericho in October alone. That is Tahera’s highest monthly total since operations started in August 2006. In the third quarter of 2007, production at the mine rose 34 percent to 99,300 carats worth $8.59 million (CAD 8.6 million), by the exchange rate prevailing at valuation. Spokespersons for the company stated that the total cash operating cost involved in the production of these goods was approximately $17.88 million (CAD 17.9 million).

For the first nine months of 2007, Tahera’s net loss rose 17-fold to $142.9 million (CAD 143.11 million) despite a 15-fold surge in revenues to $20.5 million (CAD 20.6 million).

Tahera plans to raise new equity through a share purchase rights offering to its common shareholders, closing before the end of this year. Besides the Jericho mine, Tahera is actively pursuing further exploration projects in Nunavut.

De Beers Forecasts Earlier Victor Mine Production

De Beers Canada determined that production at its Victor mine could begin six months earlier than expected. Located in Canada’s Northwest Territories, the Victor mine, according to the new forecast, may produce its first diamonds as early as the first quarter of 2008, rather than in the third quarter. When full production commences at Victor, De Beers anticipates delivering 600,000 carats per year.

De Beers Agrees to Sell Cullinan Mine to Petra Consortium
De Beers Consolidated Mines has agreed to sell its Cullinan Diamond Mine to a consortium led by Petra Diamonds for $149 million (ZAR 1 billion). The buyers, known as the Petra Diamond Cullinan Consortium, consist of Petra Diamonds, with a 37 percent share; the company’s black empowerment partner, Thembinkosi Mining Investments, with a 26 percent share; and a Saudi Arabia-based investment company, Al Rajhi Holdings, which holds the remaining 37 percent.

The company will run the mine on behalf of the consortium, improving operations to push production past 1 million carats per year, according to Petra spokespersons. In 2006, production at Petra fell 13 percent to 1.15 million carats, as noted in a De Beers production report for that year. But Petra spokespersons believe that the company can maintain production levels above 1 million carats per year for at least the next 20 years.

Petra spokespersons expect the deal to close by June 2008. Adonis Pouroulis, chairman of Petra, said that the mine would add to Petra’s revenues from the 2009-2010 fiscal year onward.

In addition to the operating mine, Cullinan is also the site of the unexplored “Centenary Cut,” which spokespersons claim contains approximately 133 million carats of resources, as well as a tailings resource, that will further enhance production. Pouroulis stated that Petra’s first priority would be production from the operating mine, and that tapping into the “Centenary Cut” resources would come at another stage.

Ekati Mine Workers Reach Contract Agreement

Workers at the BHP Billiton-owned Ekati Diamond Mine, Canada’s only unionized diamond mine, reached a collective agreement – their second one – with the mine’s management for the next four-year period. After the end of negotiations in November, the Public Service Alliance of Canada (PSAC) North recommended that the workers, whose interests it had represented, vote in favor of the agreement. Highlighting the importance of the agreement is the fact that Ekati produces 6 percent of the world’s diamond supply by value, yielding 3 million to 5 million carats per year.

Jean-François Des Lauriers, regional executive vice president of PSAC North, explained that the new contract contained provisions beneficial to the diamond workers. These include a good incentive pay plan, improved layoff and seniority protection, annual indexed wage increases above the inflation rate, an improved Short Term Disability program and other benefits.

Des Lauriers was not alone in his praise of the new deal. Todd Parsons, president of the Union of Northern Workers (UNW), commented that his organization was pleased that BHP Billiton had worked in cooperation with negotiators to reach the new agreement without generating labor problems and strife in the process.

Article from the Rapaport Magazine - December 2007. To subscribe click here.

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