TORONTO (miningweekly.com) – TSX-listed Mountain Province Diamonds, which owns 49% of the Gahcho Kue diamond project in Canada, has seen “inevitable” interest from other diamond market players, but is not out looking for a buyer for itself or its stake in the project, CEO Patrick Evans said in an interview.

The Gahcho Kue project has a probable mineral reserve of 31,3-million tons, at a 1,57 ct/t grade, for a total diamond content of 49-million carats. De Beers Canada owns the other 51% of the asset and is the operator of the project.

“Gahcho Kue is the largest, highest grade, most economically robust diamond development project anywhere in the world and it's in Canada, which is the most stable diamond producing region in the world,” Evans said.

“We are not seeking to sell the company, we are not soliciting interest in the company.

“But given that we are in this unique position... it is inevitable that there is interest in the company on the part of other participants in the diamond industry.”

The fact that about 50% of the company is controlled by three individual, long-term shareholders and their affiliates means that a hostile offer would also be difficult to pull off, Evans commented. (One of the major shareholders is Dermot Desmond, who also controls the Celtic football club.)

De Beers spokesperson Cathie Bolstad was not available to comment on Friday.

EIS SUBMITTED

The partners have published a full feasibility study for Gahcho Kue, estimating annual production at an average of 4,45-million carats a year, and announced on Thursday they have submitted the environmental-impact statement for review.

Depending on how long the permitting process takes, mining could start at the project in 2013, making 2014 the first full year of operations, Evans told Mining Weekly Online on Friday.

He compared Mountain Province's situation to that of Harry Winston Diamonds (previously Aber Diamond) which owns 40% of the Diavik mine, also in northern Canada, while Rio Tinto owns the balance and is the operator.

Both firms discovered the respective deposits and then brought in a major as joint venture partner and operator.

While Aber Diamond's shares were trading in the single digits its project was in the feasibility stage, they jumped sharply once production began, Evans commented.

“And beyond that, there will be a very strong cash flow from the mine and consequently a very strong dividend stream from Mountain Province to shareholders.”

The company is hoping the environmental review could be wrapped up in 12 months, but does not have a clear timeline because it will depend on how many submissions or queries are received on the information in the EIS.

“We think we have identified all the risks and we think we have appropriate mitigation measures in to address all the risks to ensure that it is permitted, but because it's an open process, we don't know how long it's going to take.”

The EIS itself, which weighs 800 lb, is an “extraordinary volume of work” that has taken almost four years to put together, Evans said.

FINANCING

The project is expected to require about C$600-million including working capital, which will be financed through a combination of debt and equity, Evans said.

De Beers and Mountain Province have agreed to cooperate on their respective contributions for the debt element, likely around 50% of the total, or C$300-million.

“So we will work with the same consortium of project lenders to arrange that project debt, and then each of us will need to come up with C$150-million in equity, if the debt-equity split is on that basis.”

INVESTMENT DECISION

With the permitting process under way, De Beers and Mountain Province are also relooking at some of the inputs for the feasibility study.

For example, the current document was based on rough diamond prices from April this year, and prices had risen some 20% between then and December 1.

The final review will be completed by the end of the first quarter, followed by a project plan and budget by mid-year and, if all goes to plan, a final investment decision should follow, Evans said.

The company also expects to have a better idea of the timing on the permitting process by the second half of next year.

If it looks likely that the the necessary approvals will be granted during 2012, the partners could start building the winter road to Gahcho Kue in the winter of 2011/12, and then moving equipment and supplies to the site to be ready to break ground and begin construction as soon as the permits are granted.

Once project development is allowed to begin, the feasibility study estimates an 18-month construction period before production gets under way.

There have been five mines built in Canada to date - BHP Billiton's Ekati mine, the Diavik mine owned by Rio Tinto and Harry Winston, the now-closed Jericho mine, owned by Tahera Diamonds, and De Beers' own two operations – Snap Lake and Victor.

TSX-listed Stornoway Diamond Corp has also said it expects to complete a feasibility study next year on its Renard diamond project in Quebec, and could make a production decision by the end of the year.

That operation could produce around 1,6-million carats a year, based on a March 2010 preliminary economic assessment.

Shares in Mountain Province Diamonds rose 6,35% on Friday, to C$6,20 apiece by 12:55 in Toronto.