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Surface mining at Dominion Diamond Corporation's Misery extension at the Ekati diamond mine. The company has completed a positive prefeasibility assessment of the Jay pipe extension which, if approved, could extend mine life 11 years past Ekati's expected closure in 2020. - photo courtesy of Dominion Diamond Corporation

Ekati pipe proves viable
Extra years on mine life could hinge on review board decision

Walter Strong
Northern News Services
Published Monday, February 2, 2015

Dominion Diamond Corporation (TSX:DDC) has tabled positive results upon the completion of its Ekati diamond mine Jay pipe expansion prefeasibility study.

The Jay is a large undeveloped kimberlite deposit directly under Lac du Sauvage approximately 30 km southeast of Ekati.

The prefeasibility study, released last week, promoted 84.6 million carats to economically viable mineral reserves. This reflects growing - but cautious - confidence that mining the Jay is a project DDC wants to back.

"The positive prefeasibility study means the project has an approved economic model at a prefeasibility level of certainty, that is, on the basis of preliminary engineering," said a company spokesperson who asked not to be identified.

"DDC will need to complete feasibility-level engineering and review the economics of the project at that time in order to be confident that construction can begin (assuming regulatory approvals)."

Grade recovery is pegged at a 1.9 carats per tonne in 45.6 million tonnes of ore. Indicated and inferred resources at Jay amount to an additional 14.6 million carats that may or may not be included in a future updated resource statement.

It will cost USD $690 million over the next five years to bring Jay into production by the end of 2019, just in time to replace ore expected to run out at Ekati by 2020.

The study was completed on the assumption of a $0.90 Canadian dollar, higher than what the dollar is sitting at now. If the dollar stays weak compared to the U.S. greenback, this would improve the project's economics.

"If the current weakness in the Canadian dollar persists, that would be favourable to the project," the spokesperson said.

"DDC's diamond sales are primarily in U.S. dollars while capital and operating costs are primarily in Canadian dollars, for example employee wages, payments to local suppliers, and purchase of Canadian made goods. Equipment costs are an exception given that most heavy mining equipment manufacturers are located in the U.S."

The reserve estimate means DDC is now able to forecast at least an 11-year extended mine life, up slightly from the 10-year extension described in previous documents.

More than half the construction cost will go toward building a dyke to push and hold back the waters of Lac du Sauvage so DDC can build its open pit mine.

Construction timing is critical for the company, and for the economies of anyone directly or indirectly employed in the day-to-day operations of the Ekati mine.

Dominion Diamond recently filed a request with the Mackenzie Valley Review Board to have project regulatory proceedings ramped up a notch and concluded by early December 2015. According to the existing review schedule, the review board's Report of Environmental Assessment is expected to be complete in February 2016.

Those three months could mean the difference between starting construction in the summer of 2015, or delaying construction start.

"(T)he loss of these months from the environmental assessment schedule could put at risk Dominion Diamond's ability to begin construction in summer 2016," stated DDC vice president of projects and business development Elliot Holland in a letter to the board.

"The late start for construction may mean the project could not begin production in late 2019 possibly resulting in the need to lay off workers as Ekati runs out of ore to process and unnecessarily jeopardize the overall economic viability of the project."

Dominion Diamond has not attached a dollar value to the cost of a potential shutdown and restart of the mill, but such an event could be "substantial both to the company and its employees."

The company suggests the process could be sped up without affecting its integrity by holding a public hearing in August that is currently scheduled for September, and by reducing somewhat the five months post-hearing delay before the final board report is released.

Dominion Diamond points out that their application is for a mine extension, and not for a new mine. The board has yet to respond in writing to DDC's request.

According to a DDC Developer's Assessment Report, approximately 635 direct and indirect jobs would be created with the Jay project, while increasing the NWT's GDP by CA$225 million during construction alone.

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