Dominion Diamond Corporation (TSX:DDC, NYSE:DDC) (the “Company”
or “Dominion”) is pleased to announce that the Board of Directors
of the Company has given its approval to proceed with the
development of the Jay Project based on the positive results of a
feasibility study (“FS”) and subsequent revised project schedule
and life-of-mine plan.
The Jay Project is located within the Buffer Zone Joint Venture
Property, and is the most significant undeveloped kimberlite pipe
deposit at Dominion’s majority-owned Ekati mine in Canada’s
Northwest Territories.
Highlights:
- Positive project economics. Base
case post-tax NPV at 100% share of US $398 million and IRR of
15.6%. At Dominion’s share of both the Buffer Zone and Core Zone
joint ventures, the project base case post tax NPV is US $278
million and IRR is 16.7%. Jay will utilize existing Ekati mine
infrastructure and has total development capital cost of US $647
million.
- Self-funding. Development is
expected to be funded from existing cash and internal cash
flow.
- Platform for future growth at
Ekati. Mine life extension to calendar 2033 opens up further
development opportunities.
- Development schedule aligned with
positive market outlook. Processing commences in calendar 2022
which positions the project well to take advantage of favorable
supply-demand dynamics in the diamond market, particularly in the
lower price segment.
Brendan Bell, Chief Executive Officer, stated: “The Jay
Feasibility Study has confirmed the economic and technical
viability of the large-scale, high grade Jay Project, which is the
most significant undeveloped deposit at the Ekati mine. With a
revised project schedule and updated mine plan, this positive
feasibility study sets out a clear long-term plan for Ekati. We are
very confident in the outlook for the diamond market and believe
the mine life extension provided by Jay positions us well for the
future. While work remains in order to complete project permitting,
and to identify optimization and cost reduction opportunities as we
build Jay, we are very pleased with the results.”
Jay is the most significant undeveloped deposit at the Ekati
Diamond Mine due to its large size and high grade. Jay is located
beneath Lac du Sauvage, a moderate sized lake north of Lac de Gras,
and is approximately 1.2 km from the shoreline. The Jay pipe is
approximately 7 km to the northeast of the Misery Pit and related
infrastructure, and 30 km to the southeast of the main Ekati mine
infrastructure.
The Jay FS updates certain key economic and technical
assumptions regarding the Jay Project from the pre-feasibility
study (“PFS”) disclosed in January 2015. As was the case for the
Jay PFS, the Jay FS evaluated the open pit mining of the Jay pipe
as an incremental development opportunity of the Ekati Mine,
separate and in addition to all other mineral reserves at the Ekati
Mine (including the Sable pipe). The economic analysis in the Jay
FS assumed the mining of Sable and Jay concurrently from calendar
2021 to 2023, followed by mining at Jay only from 2024 to 2032,
with the completion of Jay processing and the end of Ekati
operations in 2033. Compared to the Jay PFS, the expected mine life
is extended by two years in order to accommodate concurrent
processing of Sable ore at the Ekati processing plant.
“Our strategy for the Ekati Mine is to develop new deposits in
tandem with existing mining operations in order to increase the
total value of the property. The decision to proceed with Jay,
combined with our earlier decision to proceed with the Sable
project where construction of infrastructure has begun, are major
steps towards the execution of this strategy,” added Mr. Bell.
“Together these projects will add significant value to Ekati and
will enable us to pursue other incremental growth opportunities
near our existing operations.”
Dominion compiled and prepared the Jay FS with the assistance of
its consultants Peter Ravenscroft, FAusIMM, of Burgundy Mining
Advisors Ltd., Danny Tolmer, P.Eng., of Golder Associates Ltd., who
supervised the probable mineral reserve estimate, and John Cunning,
P.Eng., of Golder Associates Ltd., who supervised the capital
development cost estimates for the construction of the dike and its
associated infrastructure, including roads and pumping
infrastructure. Kleingeld, Young and Partners (“KYP”) provided
diamond price estimates at 1.0 millimeter and 0.5 millimeter slot
screen bottom cut-offs.
The key financial and project highlights of the Jay FS are as
follows:
Mined Waste 136.0 million tonnes Mined Kimberlite 44.7
million tonnes Strip Ratio 3.0 Recovered Carats 78.6 million carats
Recovered Grade 1.8 carats per tonne1 Initial Development Capital
US$647 million2 Pre-Stripping Capital US$33 million2 Sustaining
Capital US$183 million2 Life-of-Mine Exchange Rate 1.33 CAD per USD
Life-of-Mine Operating Costs US$2,676 million Base Case Diamond
Price US$53 per carat Base Case Diamond Price Book November 2015
Post-tax NPV (incremental) US$398 million3 Real Discount Rate 7%
Mine Operational Life 13 years Post-tax IRR 15.6%3
Note: US$ figures for Jay FS refer to unescalated 2015 United
States dollars. All figures are on a 100% basis. All tonne totals
refer to dry metric tonnes.
1. Reported at a 1.0 mm cut-off (based upon
diamonds that would be recovered by the Ekati bulk sample plant
using 1.0 mm slot de-grit screens) and includes the contribution of
additional carats recovered after commissioning of a Fine Dense
Media Separator (“Fine DMS”) unit in the Ekati processing plant.
The recovered grade in the Jay PFS was reported at a 0.5 mm cut-off
(based upon diamonds that would be recovered by the Ekati bulk
sample plant using 0.5 mm slot de-grit screens). As detailed in the
February 23, 2016 news release issued by the Company, during the
Jay FS review the 1996 and 2006 bulk sample results were
reinterpreted and it was determined that they were processed at
smaller slot screen cut-offs than was originally assumed for the
Jay PFS.2. At an assumed exchange rate of 1.33 CA$/US$ in calendar
2016 and thereafter, and includes a US$75 million contingency.3.
After taxes/royalties and unleveraged. Key applicable taxes assumed
include a 13% Northwest Territories royalty rate and 26.5%
statutory income tax rate.
Diamond Price Assumptions
Using the average prices from the Company’s November 2015
diamond sales, and diamond valuation data from the 1996, 2006, and
2015 drilling program parcels, KYP has now modeled the diamond
price for Jay at a 1.0 millimeter bottom slot screen cut-off to be
between US$53-US$58 per carat (in 2015 USD), depending on the rock
type. Based on the Company’s modeling, inclusion of incremental
recovery of small diamonds after commissioning of the Fine DMS unit
in the Ekati processing plant results in an overall average diamond
price of approximately US$53 per carat (in 2015 USD).
Price forecasts for the Jay FS are inclusive of a real 2.5%
annual escalation from the November 2015 price over the life of the
mine. The 2.5% escalation price forecast is based on the Company’s
analysis of long term supply-demand trends in the diamond market,
which indicate an increase in demand from emerging markets,
particularly for lower price diamonds, and a decrease in the supply
of those same goods.
Capex Assumptions
The primary capital development cost will be the construction of
a water retention dike and its associated infrastructure, including
crushing, roads and pumping infrastructure, which amounts to US$329
million. Engineering, design, crusher quality control, and quality
assurance costs are estimated at an additional US$42 million.
Equipment costs are estimated to be US$86 million, which
includes the purchase of eight haul trucks, one hydraulic shovel,
four front-end loaders, three production drills, two dozers, and
other support equipment. The maximum fleet required for
construction would be 19 haul trucks, but the capital cost estimate
is based on renting 11 additional smaller haul trucks that would
not be used during mine operations. Other smaller pieces of mining
equipment and specialized dike construction equipment will also be
rented during the construction phase.
To support a large truck fleet remote from the main Ekati Mine
site infrastructure, new maintenance facilities and upgrades to
existing facilities would be required at a cost of US$15
million.
Blending options are available during the initial processing
stages of Jay kimberlite which will offset the expected high clay
content in the upper portion of the Jay pipe. In addition, plant
upgrade studies will be undertaken to identify material handling
upgrades required to be able to efficiently process Jay material at
a throughput rate of 4.35 Mdmt (million dry metric tonnes) per
year. These studies are at an early stage, but an allowance of
US$40 million has been allocated based on the cost of similar-scale
projects in the Ekati processing plant. Blending with Sable ore and
stockpiling upper bench ore to blend with lower, less clay-rich ore
may reduce the scope of processing plant investment.
Other capital costs include US$22 million in project team labour
and expenses to support the construction activities, US$13 million
for a power connection between the Misery camp and the Jay site,
US$13 million to expand the Misery camp to accommodate the
construction workforce, US$9 million in environmental/permitting
costs including fish salvage and offsetting, and US$4 million in
road upgrades.
An overall contingency of 13% has been allocated based on the
remaining uncertainty associated with each project component, for a
total of US$75 million in contingency. The total initial capital
cost to develop the Jay pipe is US$647 million.
Cost allocations to development capital are expected to total
US$52 million in mine and support overhead costs, and US$33 million
in cross-charges from the Lynx Project for waste rock used as a
construction material. Since these costs are expected to be
incurred regardless of whether the Company proceeds with the
development of Jay, they are not included in the initial
development capital cost estimate.
The estimated pre-stripping cost for the first phase of mining
is US$33 million.
Economic Sensitivities
Sensitizing the key inputs in the Jay FS results in the
following changes to the base case post-tax internal rate of return
(IRR):
Sensitivity range
Base case inputs
Low IRR (Percent)
Base IRR (Percent)
High IRR (Percent)
Real price growth (percent per annum) 0 to 3.5% p.a. 2.5%
p.a. 6% 16% 19%
Life-of-mine exchange rate (CAD per USD)
-20% to +20% 1.33 10% 16% 22%
Initial price (US$ per carat)
-15% to +15% US$53/carat 11% 16% 20%
Life-of-mine operating
costs (Millions of US$) +20% to -10% US$2,676 M 12% 16% 18%
Initial capital (Millions of US$) +20% to -10% US$680 M 13%
16% 17%
Project Schedule
As updated in its May 31, 2016 news release, the Company intends
to complete construction of the all-season access road to the
shoreline of Lac du Sauvage in Fiscal Year 2018, followed by
construction of the water retention dike and associated
infrastructure in Fiscal Years 2019 to 2021, with dike
instrumentation, dewatering and the start of pre-stripping in
Fiscal Year 2022, and mining and processing of Jay kimberlite by
Fiscal Year 2023.
The following table sets out the estimated capital expenditures
for the Jay Project by fiscal year, based on the construction
schedule in the Jay FS:
Fiscal Year 20171
2018
2019 2020 2021
2022 2023
Initial DevelopmentCapital (in
Millions of US$)
38 41 122 158 129 159 -
Pre-stripping Capital(in
Millions of US$)
- - - - - 8 25
Capital Allocations (in Millions
of US$)2
12 18 17 15 10 13 -
1. Capital expenditures for Fiscal Year 2017
are inclusive of the previously announced program.2. Inclusive of
capitalized depreciation
Reclamation Assumptions
The Jay Project would delay a substantial portion of the
required reclamation activities at the Ekati Diamond Mine until
project completion. This has a significant positive effect on the
economics of the Jay Project, and approximately offsets the
additional reclamation obligations that the Jay Project is expected
to create.
Life of Mine Plan
The Jay FS is based on a revised operating case mine plan for
the Ekati mine. The revised mine plan reflects a number of updates
including approval of the Sable Project, changes to the Jay
development schedule, the commissioning of a fine dense media
separation unit at the end of fiscal year 2017, and changes made to
the Ekati process plant to improve diamond liberation. The details
of the mine plan can be found in the tables below.
Tonnage processed – Ekati Diamond Mine (100% basis, millions of
dry metric tonnes):
Ore Reserves Processed
Base Case
Mill FeedProcessed
Operating Case
Fiscal Year Koala Pigeon
Misery Main Lynx Jay
Sable Total Misery South Misery SW
Ext Total 2018 0.8 1.4 0.7 0.3 - -
3.1 0.1
0.6
3.7 2019 0.6 2.1 0.9 0.4 - 0.0
3.9 - 0.2
4.1 2020 0.2 0.2 0.8 0.3 - 1.5
3.1 - -
3.1 2021 - 1.6 0.1 0.1 - 1.5
3.3 - -
3.3 2022 - 0.8 - - - 3.5
4.3 - -
4.3
2023 - - - - 1.6 2.7
4.3 - -
4.3 2024 -
- - - 3.1 1.2
4.4 - -
4.4 2025 - - - - 3.1 1.2
4.4 - -
4.4 2026 - - - - 4.2 0.2
4.4 -
-
4.4 2027 - - - - 4.4 -
4.4 - -
4.4
2028 - - - - 4.4 -
4.4 - -
4.4 2029 - -
- - 4.4 -
4.4 - -
4.4 2030 - - - - 4.4 -
4.4 - -
4.4 2031 - - - - 4.4 -
4.4 - -
4.4 2032 - - - - 4.4 -
4.4 - -
4.4
2033 - - - - 4.4 -
4.4 - -
4.4 2034 - -
- - 2.2 -
2.2 - -
2.2 Total
1.6
6.0
2.5
1.0
44.7
12.0
67.8
0.1
0.8
68.6
Misery Deep, Fox Deep, and the coarse processed kimberlite
represent future plant feed upside potential, and some or all of
this mineralization may be able to be incorporated in the
life-of-mine plan once sufficient additional work has been
undertaken.
Carats recovered – Ekati Diamond Mine (100% basis, millions of
carats):
Reserve Carats Recovered
BaseCase
Mill Feed
CaratsRecovered
OperatingCase
Fiscal Year Koala Pigeon
Misery Main Lynx Jay
Sable Total Misery South Misery SW
Ext Total 2018 0.4 0.6 3.8 0.2 - -
5.0 0.1
1.6
6.8 2019 0.4 1.0 4.9 0.3 - 0.0
6.5 - 0.6
7.1 2020 0.2 0.1 5.5 0.2 - 1.0
7.1 - -
7.1 2021 - 0.8 0.7 0.1 - 1.1
2.7 - -
2.7 2022 - 0.4 - - - 3.2
3.5 - -
3.5
2023 - - - - 1.8 2.6
4.4 - -
4.4 2024 -
- - - 4.6 1.1
5.7 - -
5.7 2025 - - - - 4.3 1.0
5.4 - -
5.4 2026 - - - - 5.5 0.2
5.7 -
-
5.7 2027 - - - - 6.1 -
6.1 - -
6.1
2028 - - - - 7.2 -
7.2 - -
7.2 2029 - -
- - 8.2 -
8.2 - -
8.2 2030 - - - - 9.0 -
9.0 - -
9.0 2031 - - - - 9.5 -
9.5 - -
9.5 2032 - - - - 9.7 -
9.7 - -
9.7
2033 - - - - 9.4 -
9.4 - -
9.4 2034 - -
- - 3.2 -
3.2 - -
3.2 Total
1.0
2.9
14.8
0.8
78.6
10.1
108.4
0.1
2.3
110.7
Both the Base and Operating Cases do not include any impact of
the diamond liberation initiative on the reserve and mill feed
grades, but do include the impact of the fine dense media
separation unit beginning in Fiscal 2018 which is expected to
result in incremental carat recoveries of a smaller average size
and lower average price than the current recovery profile.
Misery South and Southwest are currently inferred mineral
resources. 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 mine plan will be realized.
Capital and Operating costs – Ekati Diamond Mine (100% basis,
millions of United States dollars):
Capital Costs Operating Costs
Fiscal Year Initial Development
Sustaining Total Total 2018 114
33 147 292
2019 138 33 170 306
2020 158 27 185 272
2021 129 21 150 240
2022 159 25 184 238
2023 -
30 30 235
2024 - 23 23 244
2025 - 19 19 213
2026 - 19 19 207
2027 - 19 19 191
2028 - 19 19
185
2029 - 19 19 186
2030 - 15 15 186
2031 - 8
8 182
2032 - 4 4 179
2033 - 2 2 169
2034 - 1 1
87
Total
698
314
1,011
3,612
The operating costs in the table above do not include the costs
of marketing, reclamation activities, royalties or taxes. Initial
development capital is exclusive of pre-stripping capital and
capital allocations, which are included in operating costs for the
purposes of life-of-mine planning. Capital costs are also exclusive
of changes in working capital.
Mineral Resource and Mineral Reserve
Estimate
Dominion is also pleased to report an updated mineral resource
and mineral reserve estimate for the Jay pipe. The table below
summarizes the mineral resources and mineral reserves expressed in
millions of tonnes, carats per tonne and millions of carats.
Jay Mineral Resources at Ekati Diamond Mine (100%
basis)
Kimberlite pipes
MEASURED RESOURCES
INDICATED RESOURCES INFERRED RESOURCES Zone
location Type M t Ct/t M ct M t Ct/t
M ct M t Ct/t M ct Jay Buffer OP
- - - 48.1 1.9 89.8 4.2 2.1 8.7
Jay Mineral Reserves at Ekati Diamond Mine (100%
basis)
Kimberlite pipes
PROVEN
RESERVES
PROBABLERESERVES PROVEN AND
PROBABLE Zone location Type M t Ct/t M ct
M t Ct/t M ct M t Ct/t M ct Jay
Buffer OP - - - 44.7 1.8 78.6 44.7 1.8 78.6
Notes:
1. Mineral reserves and mineral resources
have an effective date of March 31, 2016. The mineral resources
were prepared under the supervision of Peter Ravenscroft, FAusIMM,
of Burgundy Mining Advisors Ltd., an independent mining
consultancy. The mineral reserves were prepared under the
supervision of Danny Tolmer, P.Eng., of Golder Associates Ltd. Mr.
Ravenscroft and Mr. Tolmer are both Qualified Persons within the
meaning of National Instrument 43-101.2. Mineral reserves and
mineral resources are reported on a 100% basis. Mineral resources
are inclusive of mineral reserves. Mineral resources that are not
mineral reserves do not have demonstrated economic viability.3.
Mineral reserves and mineral resources are reported in accordance
with CIM Definition Standards.4. The reference point for the
definition of Mineral reserves is at the point of delivery to the
process plant.5. Mineral resources are reported at a +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 a +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 and inclusive of the Fine DMS
circuit). Overall estimated Process Plant diamond recovery relative
to resource grade is 96-98%, depending on the rock type.7. Mineral
reserves will be mined using open pit methods. The Jay mineral
reserve estimate assumes an overall dilution of 2% and mining
recovery of 98%.8. Tonnes are reported as millions of dry metric
tonnes, diamond grades as carats per tonne, and contained diamond
carats as millions of contained carats.9. Tables may not sum as
totals have been rounded in accordance with reporting
guidelines.10. Dominion is the operator of the Ekati Diamond Mine
and has a majority interest in the Buffer Zone Joint Venture
area.
Next steps
The completion of the feasibility study establishes a clear path
to production for Jay and a long-term plan for Ekati. The Company
is focused on advancing Jay to production and intends to complete
the preparatory work in the previously announced Jay capital
program for Fiscal Year 2017. These activities remain on budget and
on schedule.
Dominion will also continue detailed engineering and procurement
work on major construction works, which are scheduled to begin in
Fiscal Year 2018, and will seek out optimization and improvement
opportunities as the project advances towards construction.
Dominion has delivered the Jay Feasibility Study to its joint
venture partner, Archon Minerals Ltd. The Buffer Zone Joint Venture
management committee will consider the results of the study
shortly.
The Company has filed land use permit and water licence
applications with the Wek’eezhii Land and Water Board, following
ministerial approval of the Jay Environmental Assessment. The
Company expects receipt of final permits for the Jay Project in
early calendar year 2017.
Conference Call and WebcastThe Company will host a
conference call today at 1:30PM (ET) for analysts, investors and
other interested parties. Listeners may access a live broadcast of
the conference call on the Company's web site at www.ddcorp.ca or
by dialing 844-249-9383 within North America or 270-823-1531 from
international locations and entering passcode 41899750.
An online archive of the broadcast will be available by
accessing the Company's web site at www.ddcorp.ca. A telephone
replay of the call will be available two hours after the call
through 11:00PM (ET), Wednesday, July 20, 2016, by dialing
855-859-2056 within North America or 404-537-3406 from
international locations and entering passcode 41899750.
Qualified PersonThe scientific and technical information
contained in this press release has been prepared and verified by
Dominion, operator of the Ekati Diamond Mine, under the supervision
of Peter Ravenscroft, FAusIMM, of Burgundy Mining Advisors Ltd., an
independent mining consultant, and a Qualified Person within the
meaning of National Instrument 43-101 of the Canadian Securities
Administrators. Dominion was assisted by Danny Tolmer, P.Eng., of
Golder Associates Ltd., who supervised the probable mineral reserve
estimate, and John Cunning, P.Eng., of Golder Associates Ltd., who
supervised the capital development cost estimates for the
construction of the dike and its associated infrastructure,
including roads and pumping infrastructure, each of whom is a
Qualified Person within the meaning of National Instrument 43-101.
Each Qualified Person has reviewed and approved the information in
this press release relevant to the portion of the Jay FS for which
they are responsible.
Forward-Looking InformationCertain information included
herein that is not current or historical factual information,
including information about estimated mine life and other
development plans regarding mining activities at the Ekati Diamond
Mine, estimated economics of the Jay pipe, estimated mineral
reserves and mineral resources, projected capital and operating
costs, future diamond price and future exchange rates constitute
forward-looking information or statements within the meaning of
applicable securities laws. Forward-looking information can
generally be identified by the use of terms such as “may”, “will”,
“should”, “could”, “expect”, “plan”, “anticipate”, “foresee”,
“appears”, “believe”, “estimate”, “predict”, “continue”, “modeled”,
“hope”, “forecast” or other similar expressions concerning matters
that are not historical facts. Forward-looking information is based
on certain factors and assumptions including, among other things,
the current mine plan for the Ekati Diamond Mine; mining,
production, construction and exploration activities at the Ekati
Diamond Mine; the timely receipt of required regulatory approvals;
mining methods; currency exchange rates; estimates related to the
capital expenditures related to bring the Jay pipe into production,
required operating and capitals costs; labour and fuel costs; world
and US economic conditions; future diamond prices; and the level of
worldwide diamond production. These assumptions may prove to be
incorrect. 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 Ekati Diamond Mine, risks
resulting from the Eurozone financial crisis, risks associated with
regulatory requirements, 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 CorporationDominion Diamond
Corporation is the world’s third largest producer of rough diamonds
by value. Both of its production assets are located in the low
political risk environment of the Northwest Territories in Canada
where the Company also has its head office. The Company is well
capitalized and has a strong balance sheet.
The Company operates the Ekati Diamond Mine and also owns 40% of
the Diavik Diamond Mine. Between the two mining operations,
diamonds are currently produced from a number of separate
kimberlite pipes providing a diversity of diamond supply as well as
reduced operational risk. It supplies premium rough diamond
assortments to the global market through its sorting and selling
operations in Canada, Belgium and India.
For more information, please visit
www.ddcorp.ca
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version on businesswire.com: http://www.businesswire.com/news/home/20160706005642/en/
Dominion Diamond CorporationInvestor RelationsMs. Kelley Stamm,
416-205-4380Manager, Investor
Relationskstamm@ddcorp.caorMedia
RelationsMs. Laura Worsley-Brown, 867-669-6105Senior
Advisor, External Relationslaura.worsley-brown@ekati.ddcorp.ca