The Ekati diamond mine's owners have halted preparatory work on a major expansion, suggesting they doubt its long-term feasibility.
Turning the Jay kimberlite pipe into an open pit was supposed to extend the NWT mine's life by up to a decade. Recent projections suggested it would enter production in 2024.
However, operator Dominion Diamond Mines confirmed to Cabin Radio it is suspending this year's planned preparatory work at the site while it conducts an "optimization study" designed to save money.
"The 2018 work program for the Jay laydown area has been postponed pending completion of the Jay optimization study," read a statement issued on behalf of chief executive Patrick Evans.
A laydown area is a preparatory storage site for materials and components. The Jay deposit lies underwater and requires the construction of a large dike to make it accessible, a technique already used at the neighbouring Diavik mine.
'A huge concern'
Dominion was purchased by US-based Washington Companies for around $1.55 billion in July last year.
"My understanding is when the Washington group purchased the company, the purchase price was somewhat higher than the actual return on investment," Kam Lake MLA Kieron Testart told Cabin Radio. On Tuesday, Testart was due to discuss the announcement with other members of the legislature's standing committee on economic development and environment.
"They were trying to make the economies of scale work for the Jay pipe, and it just didn’t seem to be on the cards," Testart added.
"With the Conference Board of Canada's recent report casting doubt on our economic future, this is bad news.
"The government needs to do whatever it can to continue to support the diamond mines and to keep that industry strong, because we really don’t have a plan after 2030 and that’s a huge concern."
Gary Vivian – president of the NWT and Nunavut Chamber of Mines – characterized the news somewhat differently.
Vivian suggested the suspension of work is disappointing but unsurprising, and said it could eventually lead to a more profitable deposit elsewhere at Ekati being developed instead.
"When Washington group purchased the Ekati mine they knew Jay was a possible delay," said Vivian.
"I don’t think they can mine it and make a profit. Diamond prices have dropped enough that it makes Jay unfeasible at this time. This isn’t alarming to a lot of us on the inside."
'New exploration philosophy'
Vivian said the news is softened by Washington having already refocused its efforts on exploration, actively seeking a more feasible replacement for the Jay project.
Without such a replacement being identified and brought on-stream, production at Ekati will end in 2023.
"Washington has brought a whole new exploration philosophy to Ekati. The old guard at Ekati felt Jay would be feasible but it’s not," said Vivian.
"Washington is being aggressive in its exploration plan to replace Jay in the near future. But they don't want to put any more money into Jay at this point because it would be an unfeasible target."
Tom Hoefer, the chamber's executive director, said Dominion's decision was comparable to halting the building of a new house if you discover you will no longer receive a promised raise at work.
"Rather than pour the foundation and commit, you want to buy a bit of time and analyze things to see if there’s another option," he said.
"These guys are operating on multiple deposits [at Ekati] and they are looking at the long-term opportunities for that project. It’s not over yet."
The diamond market has disappointed for a number of years, which may have led Dominion to reassess assumptions surrounding the profitability of the Jay project, said Hoefer.
In 2015, Hoefer delivered a speech during the expansion project's environmental assessment in which he said the Jay pipe would be "important to the NWT's future."
At the time, Hoefer said: "Optimism has now evaporated in this difficult marketplace. Even if we could wave a magic wand and make [other] advanced projects into mines in the next few years, the total workforce of all those projects doesn’t even add up to one Ekati.
"It will be very important to our economy, to our communities, and to our businesses to see the Ekati mine continue mining for another 11 years."
In 2016, Ekati employed 1,889 people either as direct employees or contractors. Of those, 920 were northerners including 500 Indigenous people.
It's not clear to what degree suspending preparatory work at the Jay site will affect employment at the mine. The impact on current workforce numbers is not thought to be significant, but delaying the project consequently delays the arrival of future employment opportunities.
In its statement, Dominion said it "continues to invest in the Ekati mine, advancing both the Sable and Misery Underground development projects towards production, as well as the Fox Deep optimization study.
"The company also has a significant exploration program to identify incremental high-value kimberlite, which included extensive bulk sampling programs this past winter and drill programs planned for this summer."
Testart said the territorial government had yet to provide a formal briefing to MLAs on the suspension of work at the Jay site. Contacted on Tuesday morning, territorial communications staff were not initially aware of Dominion's decision. Both Premier Bob McLeod and industry minister Wally Schumann were travelling.
Despite suggesting the suspension of work is not an immediate cause for alarm, Vivian said it underlined the urgency with which the territorial government should act on its economic future.
"The government needs to start thinking about other things and encouraging investment, encouraging mines," he said.
"The problem with the GNWT is they keep depending on federal handouts and they need to be establishing their own economy."