QUARRYING at Gahcho Kue in northern Canada, laying the foundations for De Beers’ largest mine in Canada. The mine is co-owned by Toronto-listed Mountain Province, backed by Irish financier Dermot Desmond. Credit: Mountain Province

QUARRYING at Gahcho Kue in northern Canada, laying the foundations for De Beers’ largest mine in Canada. The mine is co-owned by Toronto-listed Mountain Province, backed by Irish financier Dermot Desmond. Credit: Mountain Province

De Beers Boss Drops Down
Rabbit Hole

Issue 79, March 2014

Gahcho Kue in northern Canada, the world’s largest diamond mine under construction, is on track for first production in 2016 despite a week of befuddled messages from co-owner, De Beers.

On Thursday, De Beers’ chief executive Philippe Mellier, a former autos boss, was quoted by Reuters as saying that the mine had been delayed from 2015 until early 2017, having missed this year’s shipment window.

Toronto-listed Mountain Province, which discovered the mine in Canada’s diamond rush of the 1990s and owns 49 per cent, responded on Monday by saying the schedule was unchanged, with first output in the third quarter of 2016. De Beers also issued a statement saying the schedule was “complex” and “constantly under review”, but that “both partners are happy with progress to date.”

Gahcho Kue, meaning land of the big rabbits, is seen as De Beers’ “next big play”, according to one of its former chief executives, with analysts touting Mountain Province as a likely takeover target for De Beers. Last month Mellier said he expected De Beers’ share of the mine to lift the group’s global per carat marketshare from 35 to 40 per cent.

Gahcho Kue is due to produce a whopping 4.5m carats per annum for a minimum of 11 years, making it the fifth largest diamond mine outside of state control and the second largest in Canada, behind Rio Tinto’s Diavik. It is also more than four times larger than De Beers’ existing mines in the country, Victor and Snap Lake.

The mix-up by Mellier highlights however the challenges associated with building a mine 400km from the Arctic Circle, with haulage restricted by permits and weather in equal measure. Diavik is restocked with heavy supplies from cement to fuel only once each year, using a 600km ice road that hops from island to island on ice over frozen lakes. The route is usually open for 10 weeks each year.

Backed by Irish billionaire Dermot Desmond, an underwriter who has owned shares in the company for 17 years, Mountain Province plans to raise $400m this year for its share of capital costs, less than the projected value of its share of output each year. Prices are forecast at $185 per carat, with operating margins of over 80 per cent.

Shares last traded at C$5.22.

“Both partners are happy with progress to date.”

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