Rio Tinto Moves To Take Majority Interest in Huge Canadian Mining Project

Mining and Exploration
18/11/2019 11:25

Canadian junior miner Star Diamond Corporation on November 15 announced it has received notice from Rio Tinto Exploration Canada Inc. (RTEC) indicating that it intends to exercise all four options under an Option to Joint Venture Agreement entered into in 2017. According to diamond analyst Paul Zimnisky, writing on Twitter, this includes Rio Tinto committing to spend C$70.5M (US$53M) to take Star-Orion South through feasibility for a 60% stake in the project. Star Diamonds owns the 60 Fort a la Corne kimberlites in central Saskatchewan. Rio Tinto excercised its options several year earlier than expected.

Rio Tinto had to clear several investment hurdles before exercising the four options it held at the project. The first option entailed RTEC conducting a ten-hole bulk sampling program on the project, including processing and diamond recovery, or incurring C$18.5-million of direct and indirect expenses relating to mineral prospecting, exploration, development, mining, and associated expenses. Completing the first option did not earn RTEC any interest in the project. The second option provides that RTEC must complete the first option, after which it can earn a 51% stake in the project by conducting a ten-hole bulk sampling program, or incurring expenditure of C$18.5-million. Further bulk sampling and investment unlocks the third and fourth options. 

RTEC in June 2019 completed the drilling of the first bulk sample hole on employing a massive 'trench cutter sampling rig'. They drilled first of 10 bulk sampling to a depth of over 228 metres and intercepted a total of 117 metres of kimberlite on Star Diamond’s Star-Orion South site at Fort à la Corne. A total of 704 bulk bags (photo) of kimberlite were extracted and stored for analysis, along with the rest of the large samples to be drilled in the coming months. The trench cutter sampling rig they employed is normally used in civil engineering projects but was adapted for use at the project.

Star Diamond brought in Rio Tinto after consolidating the mineral properties at Fort à la Corne, which includes the Star - Orion South Diamond Project. Star felt that Rio Tinto is one of the few companies in the world with the resources and expertise to move forward with a project of its magnitude. To give an idea, the positive results of the 2018 Preliminary Economic Assessment (PEA) showed that the project can be economically developed and operated while providing direct employment for hundreds of people throughout the construction phase and hundreds of people continuously over its estimated 38 year mine life. The PEA estimates that 66 million carats of diamonds could be recovered in a surface mine, with a Net Present Value (“NPV”) (7%) of $2.0 billion after tax, an Internal Rate of Return (“IRR”) of 19% and an after-tax payback period of 3.4 years after the commencement of diamond production. 

In March of this year, Star Diamond released the results of a study conducted on the project. They concluded that while of a very low grade, the kimberlites are known to host a significant proportion of high-value, Type IIa diamonds. Senior Vice President Exploration & Development, George Read, stated at the time: “The presence of a significant proportion of Type IIa diamonds in the Star and Orion South Kimberlites greatly increases the potential for the recovery of large (plus 100 carat), high-value diamonds, some of which are top white in color." The largest Type IIa diamonds identified include a 49.09 carat stone from Star and a 32.35 carat stone from Orion South. The most valuable of the Type IIa diamonds from Star is the 11.96 carat diamond valued at US$11,333 per carat and the most valuable of the Type IIa diamonds from Orion South is the 15.88 carat diamond valued at US$2,800 per carat.

Star Diamond Corp's share price surged nearly 50% after the announcement.

Photo courtesy of Star Diamond Corp.