Dominion Diamond Announces Positive Results of Misery Deep Pre-Feasibility Study and Provides Update on Fox Deep Project at Ekati Mine
Dominion Diamond Corporation (TSX:DDC, NYSE:DDC) (the “Company” or
“Dominion”) is pleased to report the positive results of a
pre-feasibility study (Misery Deep PFS) on the development of an
underground operation below the Misery open pit at the Ekati Diamond
Mine (“Ekati mine”) in the Northwest Territories of Canada. The Company
is also providing an update on the Fox Deep project below the mined-out
Fox open pit at the Ekati mine. The Misery and Fox kimberlite pipes are
located in the Core Zone Joint Venture in which the Company has an 88.9%
participating interest. Unless otherwise indicated, all amounts are
presented on a 100% basis, and all financial information is presented in
US dollars.
Highlights
-
Inaugural probable mineral reserve of 1.8 million tonnes and 8.7
million carats at Misery Deep
-
Positive pre-feasibility study on Misery Deep project, based on
underground sublevel retreat mining method, with incremental post-tax
net present value of $92 million (Dominion’s share) and internal rate
of return of 40%
-
Misery Deep enhances production profile at Ekati mine from fiscal 2020
to 2023, with initial capital development of $94 million, 8.7 million
carats recovered, and a construction decision expected June 2017
-
Ekati mine life extended from fiscal 2034 to fiscal 2035
-
Misery pipe continues to produce outstanding large fancy yellow
diamonds, providing upside to modelled diamond prices
-
Recently recovered “Arctic Sun” diamond is largest fancy yellow stone
recovered to date in North America at 65.93 rough carats, with
estimated polished value of $5 million
-
Preliminary economic assessment (PEA) on Fox Deep project expected in
third quarter of fiscal 2018, and pre-feasibility study scheduled for
late fiscal 2018
“Our exciting high-return Misery Deep project, with a post-tax IRR of
40%, is advancing towards development and is expected to enhance our
production profile at Ekati over the medium term,” said Jim Gowans,
Chairman of the Board. “The new mineral reserve at Misery Deep
reflects the addition of high grade ore close to our existing mining
operation and demonstrates the near- to longer-term upside potential at
known kimberlites in the Lac de Gras district.”
Misery Deep Project – Positive
Pre-Feasibility Study
The Misery Main pipe is currently in production as an open pit
operation, and is expected to account for approximately 20% of tonnes
processed and approximately 60% of carats recovered at the Ekati mine in
fiscal 2018. The Misery Deep PFS evaluated the underground development
of the Misery Main pipe as an incremental development opportunity to the
existing mine plan. The net present value (NPV) calculation for Misery
Deep represents the Company’s share of the incremental NPV. This
analysis includes the positive cash flow effects of the Misery Deep
project and incorporates a deferral of the processing of lower value ore
from the Pigeon pipe until the end of the Jay project in fiscal 2034.
Inclusion of high value ore from Misery Deep enhances the production
profile at the Ekati mine from fiscal 2020 to fiscal 2023 relative to
the life of mine plan in the most recent technical report, entitled
“Ekati Diamond Mine, Northwest Territories, Canada, NI 43-101 Technical
Report” which has an effective date of July 31, 2016. It also extends
the mine life at the Ekati mine from fiscal 2034 to fiscal 2035.
In 2016, Dominion completed a pre-feasibility study on the Sable project
and a feasibility study on the Jay project. These studies demonstrated
that the Ekati mine life will extend beyond 2030, and that a substantial
opportunity existed at the Misery pit after the completion of open pit
mining and before the use of the pit as a water management facility for
the Jay project.
A concept study was completed in the summer of 2016, which resulted in
the mobilization of an exploration drill rig to the Misery pit in
September 2016. A 15-hole core drilling program was conducted between
October 2016 and January 2017 and totaled more than 2,200 metres. The
results confirmed the modelled pipe size at depth, and significantly
improved grade data coverage based on historical results from reverse
circulation (RC) drilling bulk samples and 2016/2017 micro-diamond
analysis. Potential exists for further conversion of inferred mineral
resources to indicated mineral resources at depth and would require
additional drilling to improve the understanding of grade, and
geotechnical and hydrogeological conditions.
The pre-feasibility study is based on the mining of Misery Deep from
calendar 2018 to mid-calendar 2022. The mine plan includes the
extraction of 1.8 million tonnes of kimberlite on five underground
production levels, using a sublevel retreat method similar to that
employed at the Koala North pipe. A total of 8.7 million carats are
expected to be recovered from Misery Deep.
Dominion expects to file permit applications for the Misery Deep project
in the third quarter of calendar 2017.
The Company compiled and prepared the Misery Deep PFS with the
assistance of its consultant Peter Ravenscroft, FAusIMM, of Burgundy
Mining Advisors Ltd. The chart below shows the incremental production,
and capital and operating costs at the Misery Deep project:
Misery Deep Pre-Feasibility Study Key Financial and Project Highlights
Mining Method
|
|
|
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Sublevel retreat (SLR)
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Mined Kimberlite
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1.8 million tonnes
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Recovered Carats
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8.7 million carats
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Recovered Grade
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4.8 carats per tonne1
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Diamond Recovery
|
|
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89%2
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Initial Development Capital
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|
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$94 million3
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Sustaining Capital
|
|
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$9 million3
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Unit Operating Cost
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$71 per tonne mined3
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Base Case Diamond Price
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|
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$59 per carat4
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First Production Date
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Calendar 2019
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Mine Operational Life
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4 years
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Post-tax NPV (incremental)
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$92 million5
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Real Discount Rate
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7%
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Post-tax IRR (incremental)
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40%5
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Note: All dollar figures refer to real 2017 dollars and, except for
NPV and IRR, are on a 100% basis. Tonnes refer to dry metric tonnes.
|
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(1)
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The recovered grade is at 1.0 mm cut-off and includes contribution
of additional carats from the fines dense media separation (“Fines
DMS”) unit in the Ekati processing plant.
|
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(2)
|
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Recovery relative to mineral resource reported at +0.5 mm cut-off
(based upon diamonds that would be recovered by the Ekati bulk
sample plant using 0.5 mm width slot de-grit screens).
|
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(3)
|
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Assumes an exchange rate of 1.33 CAD/USD in calendar 2017 and
thereafter. Initial development capital includes a $15 million
contingency. Sustaining capital excludes an amount of $12 million
associated with processing of deferred Pigeon ore at the end of the
mine life. Unit operating cost refers to average unit direct mining
cost.
|
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(4)
|
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Based on the Company’s December 2016 Price Book. The rough diamond
price forecasts for the Misery Deep PFS include 2.5% per annum real
price growth during the life of the mine; real price growth of nil
and 3.5% would result in a post-tax NPV of $71 million and $101
million, respectively (Dominion’s share).
|
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(5)
|
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Company’s share of unlevered NPV and project IRR are after taxes and
royalties.
|
Diamond Price Assumptions
The base case diamond price is approximately $59 per carat (in 2017
dollars) in the Misery Deep PFS. Pricing is based on the December 2016
Price Book and 89% recovery relative to the mineral resource. The Misery
Deep PFS includes additional diamond recovery in the lower value smaller
size categories as a result of the Company’s previously-announced
commissioning of the Fines DMS unit in the Ekati processing plant, which
lowers the average recovered price, but increases total project revenue.
Capital Expenditure Assumptions
The Misery Deep project will require the addition of infrastructure
including expansion of the existing Misery camp, additional compressed
air supply, refurbishment of the existing shotcrete plant, a fresh air
raise ventilation system from surface, tie in of the electrical
distribution system to the Misery substation and expansion of the
existing water management system. The following chart sets out the
estimated capital expenditures by fiscal year for the Misery Deep project:
Fiscal Year
|
|
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2018
|
|
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2019
|
|
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2020
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Initial Development Capital ($ Millions)
|
|
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6
|
|
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69
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|
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19
|
The initial capital development will be required for the additional
infrastructure, mobilization of a mining contractor, and pre-production
development mining.
Production Assumptions
The Misery Deep PFS is based on the following production assumptions:
Fiscal year
|
|
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2020
|
|
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2021
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2022
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2023
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Tonnes Processed (Millions)
|
|
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0.4
|
|
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0.6
|
|
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0.6
|
|
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0.2
|
Grade (Carats per Tonne)
|
|
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4.5
|
|
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4.8
|
|
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4.0
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|
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4.9
|
Carats Recovered (Millions)
|
|
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1.7
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3.0
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2.9
|
|
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1.1
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Note: Totals may not add up due to rounding.
|
|
To accommodate the processing of Misery Deep ore in fiscal years 2020 to
2022, the study assumed that approximately 1.6 million tonnes of Pigeon
ore, with an associated 0.8 million recovered carats, will be mined
according to the existing life of mine plan, stockpiled and deferred
from the processing plan until fiscal years 2034 and 2035. The Pigeon
pipe is currently in production, and is located in the Core Zone. The
following chart sets out the expected deferrals by fiscal year from the
Pigeon pipe:
Fiscal Year
|
|
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2020
|
|
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2021
|
|
|
2022
|
Ore Feed (Million Tonnes)
|
|
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0.4
|
|
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0.6
|
|
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0.6
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Carats Recovered (Million Carats)
|
|
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0.2
|
|
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0.3
|
|
|
0.3
|
The Misery Deep PFS shows the potential for an increase in total carats
produced at the Ekati mine in fiscal 2020 to a level similar to that
expected in fiscal years 2018 and 2019. Current guidance for carats
produced on a 100% basis in the Operating Case1 at the Ekati
mine is 6.3 to 7.0 million carats in fiscal 2018, 6.4 to 7.1 million
carats in fiscal 2019 and 5.0 to 5.6 million carats in fiscal 2020.
There is also potential for production in the 5 million carats per annum
range, on a 100% basis in the Operating Case, in fiscal years 2021 to
2023.
(1)
|
|
Operating Case at the Ekati mine includes the recovery of between
1.3 and 1.4 million carats in fiscal 2018, and between 1.4 and 1.5
million carats in fiscal 2019, from the Misery Southwest pipe which
is currently an inferred mineral resource. Mineral resources that
are not mineral reserves do not have demonstrated economic
viability. Inferred mineral resources are considered too speculative
geologically to have economic considerations applied to them that
would enable them to be categorized as mineral reserves. There is no
certainty that the Operating Case will be realized.
|
|
|
|
Mineral Reserve and Mineral Resource Estimates
The Misery Deep project has probable mineral reserves of 1.8 million
tonnes and 8.7 million carats, included in indicated mineral resources
of 2.6 million tonnes and 13.7 million carats. The tables below
summarize the mineral reserves and mineral resources, expressed in
millions of tonnes (Mt), carats per tonne (cpt) and millions of carats
(Mct).
Misery Deep Mineral Reserves as of May 23, 2017 (100% basis)
Zone
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Type
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|
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Proven Mineral Reserve
|
|
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Probable Mineral Reserve
|
|
|
|
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Mt
|
|
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cpt
|
|
|
Mct
|
|
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Mt
|
|
|
cpt
|
|
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Mct
|
Core
|
|
|
UG
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
1.8
|
|
|
4.8
|
|
|
8.7
|
Misery Deep Mineral Resources as of May 23, 2017 (100% basis)
Zone
|
|
|
Type
|
|
|
Measured Mineral Resource
|
|
|
Indicated Mineral Resource
|
|
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Inferred Mineral Resource
|
|
|
|
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Mt
|
|
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cpt
|
|
|
Mct
|
|
|
Mt
|
|
|
cpt
|
|
|
Mct
|
|
|
Mt
|
|
|
cpt
|
|
|
Mct
|
Core
|
|
|
UG
|
|
|
-
|
|
|
-
|
|
|
-
|
|
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2.6
|
|
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5.3
|
|
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13.7
|
|
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0.3
|
|
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4.0
|
|
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1.3
|
Notes:
|
|
(1)
|
|
Mineral resources are inclusive of mineral reserves. Mineral
resources that are not mineral reserves do not have demonstrated
economic viability.
|
|
(2)
|
|
Mineral reserves and mineral resources are reported in accordance
with CIM Definition Standards.
|
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(3)
|
|
Dominion is operator and has an 88.9% participating interest in the
Core Zone Joint Venture area.
|
|
(4)
|
|
The reference point for the definition of mineral reserves is at the
point of delivery to the process plant.
|
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(5)
|
|
Mineral resources are reported at +0.5 mm cut-off (based upon
diamonds that would be recovered by the Ekati bulk sample plant
using 0.5 mm width slot de-grit screens).
|
|
(6)
|
|
Mineral reserves are reported at +1.0 mm cut-off (based upon
diamonds that would be recovered by the Ekati bulk sample plant
utilizing 1.0 mm slot de-grit screens, and equivalent to the current
Ekati process plant recovery, inclusive of the Fines DMS circuit).
Overall estimated process plant diamond recovery for Misery Main
kimberlite relative to resource grade is 89%.
|
|
(7)
|
|
Mineral reserves will be mined using an underground method
assuming initial dilution of 8.4% and mining recovery of 88%
relative to the mineral resource.
|
Next Steps
The Company plans to make a final construction decision on the project
in June. In line with the recommendations in the Misery Deep PFS, in the
third quarter of calendar 2017, the Company will initiate the permitting
process for the project, and begin detailed engineering and procurement
activities. Mobilization of contractors and mining equipment is
anticipated on the calendar 2018 winter road. Development work is
expected to span four years, with initial ore production from
development in fiscal 2020, and with commercial production starting in
fiscal 2021. The Company does not plan to complete a stand-alone
feasibility study for the Misery Deep project.
“Arctic Sun” – Large Fancy Yellow Diamond
The Misery pipe has produced a number of high value fancy yellow and
orange diamonds with valuations ranging from $10,000 to $150,000 per
carat. The “Arctic Sun” is a 65.93 carat fancy yellow diamond recovered
from the Misery Main pipe during the ramp up of production after the
restart of the process plant at the Ekati mine in the fall of 2016. The
Company partnered with a client to create a 30.54 carat fancy vivid
yellow VS1 polished diamond with an estimated value of $5 million. The
“Arctic Sun” is the largest fancy yellow stone recovered to date in
North America, and will be unveiled at the JCK Las Vegas annual trade
show in June. Large fancy diamonds represent potential upside to the
modelled pricing for the Misery pipe.
Fox Deep Project Update
On February 22, 2017, the Company announced the results from an RC
drilling campaign at Fox Deep in the winter/spring of 2016. The resource
model, updated with new data from the 2016 drilling campaign, confirmed
the continuity of the resource at depth and identified a deep higher
grade zone. As disclosed on April 12, 2017, the indicated mineral
resource increased substantially to 45.6 million tonnes and 16.5 million
carats as at January 31, 2017, from the previous estimates of 35.2
million tonnes and 11.6 million carats, respectively.
Based on the positive results of the RC drilling program, a
pre-feasibility study on Fox Deep was initiated. Work on an updated mine
design is now underway based on an incline caving method. Incline caving
has been used successfully at the Koala underground operation at the
Ekati mine. This method has been identified as the most appropriate one
to achieve increased height of draw, a lower extraction level, and
access to the higher-grade zone identified at depth in the 2016 drill
program. The incline cave design is expected to have improved
geotechnical stability compared to block caving, and a potentially
higher production rate due to a larger number of drawpoints. A trade-off
study between shaft and ramp access to Fox Deep is in progress.
Completion of a preliminary economic analysis on the project is expected
in the third quarter of fiscal 2018, and a pre-feasibility study (Fox
Deep PFS) is scheduled for completion by the end of the fiscal year. If
the results of the studies are positive, Fox Deep has the potential to
extend the life of the Ekati mine significantly. Based on the size of
the project, if the Fox Deep PFS is positive, the Company plans to issue
an updated technical report for the Ekati mine after the PFS is
completed. This technical report would also incorporate the Misery Deep
project.
Qualified Person
The mineral reserve and mineral resource estimates for the Misery
Deep project and the mineral resource estimate for the Fox Deep project
were prepared and verified under the supervision of Mr. Peter
Ravenscroft, FAusIMM, of Burgundy Mining Advisors Ltd., an independent
mining consultancy, and a Qualified Person within the meaning of
National Instrument 43-101. The other scientific and technical
information contained in this press release has been prepared and
verified by Dominion, operator of the Ekati mine, under the supervision
of Chantal Lavoie, P. Eng., Chief Operating Officer of Dominion, and
President of Dominion Diamond Ekati Corporation (DDEC), and a Qualified
Person within the meaning of National Instrument 43-101 of the Canadian
Securities Administrators.
Forward-Looking Information
The information included herein that is not current or historical
factual information, including information about estimated mine life and
other development plans at the Ekati mine, estimated economics of the
Misery Deep project, estimated reserves and resources, projected capital
costs, and future diamond prices, constitutes forward-looking
information or statements within the meaning of applicable securities
laws. Forward-looking information is based on certain factors and
assumptions including, among other things, the current mine plan for the
Ekati mine; mining, production, construction and exploration activities
at the Ekati mine; currency exchange rates; world and US economic
conditions; future diamond prices; and the level of worldwide diamond
production. Forward-looking information is subject to certain factors,
including risks and uncertainties, which could cause actual results to
differ materially from what the Company currently expects. These factors
include, among other things, the uncertain nature of mining activities,
including risks associated with underground construction and mining
operations, risks associated with joint venture operations, risks
associated with the remote location of and harsh climate at the
Company’s mining properties, variations in mineral reserve and mineral
resource estimates, grade estimates and expected recovery rates, failure
of plant, equipment or processes to operate as anticipated, risks
associated with regulatory requirements and the ability to obtain all
required permits, the risk of fluctuations in diamond prices and changes
in US and world economic conditions, the risk of fluctuations in the
Canadian/US dollar exchange rate and cash flow and liquidity risks.
Actual results may vary from the forward-looking information. Readers
are cautioned not to place undue importance on forward-looking
information, which speaks only as of the date of this disclosure, and
should not rely upon this information as of any other date. While the
Company may elect to, it is under no obligation and does not undertake
to, update or revise any forward-looking information, whether as a
result of new information, further events or otherwise at any particular
time, except as required by law. Additional information concerning
factors that may cause actual results to materially differ from those in
such forward-looking statements is contained in the Company's filings
with Canadian and United States securities regulatory authorities and
can be found at www.sedar.com
and www.sec.gov,
respectively.
About Dominion Diamond Corporation
Dominion Diamond Corporation is a Canadian mining company and one of
the world’s largest producers and suppliers of premium rough diamond
assortments to the global market. The Company operates the Ekati Diamond
Mine, in which it owns a controlling interest, and owns 40% of the
Diavik Diamond Mine, both of which are located in the low political risk
environment of the Northwest Territories in Canada. It also has
world-class sorting and selling operations in Canada, Belgium and India.
For more information, please visit www.ddcorp.ca.
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