TORONTO (miningweekly.com) – The Canadian unit of diamond giant De Beers is confident that it has positioned itself to ride out current market conditions, after curtailing production levels and targetting cuts in capital spending and operating costs, external and corporate affairs director Tom Ormsby said on Friday.

“We've made some aggressive changes to our business planning in the last six months to match demand and the way the market has shaped, and we are feeling good about our position,” he said in an interview.

“We feel very confident about what we did in our planning, so that we would have the right production levels and get our costs in line with the demands of the market. And so far we are meeting all our targets.”

De Beers Canada owns and operates the Snap Lake mine, in Canada's Northwest Territories, and the Victor mine, in Ontario.

Both operations are actually about to close for the summer – Victor for six weeks and Snap Lake for eight. The breaks were scheduled last year, Ormsby said.

Since rough diamond demand plummeted in the fourth quarter of last year, the company has cut both employee and contractor jobs at Snap Lake and reduced output, first late in 2008 and then again in February this year, to trim costs and match market demand.

Production was also reduced slightly at the Victor mine, which produces particularly high-value diamonds, but the operation has been less affected by the weaker market thanks to its high margins.

De Beers Canada CEO Jim Gowans said in March that Snap Lake was running at around 30% to 40%, and Ormsby confirmed that the mine was still running at below capacity, and that it would likely continue at this level when production restarts after the summer break.

“But we feel good about our position and the changes we have made to address the economic challenges, and look forward to being profitable this year, even at what are anticipated to be reduced sales levels,” Ormsby said.

“We feel very confident about the future of the industry overall, and certainly in Canada as well.”

The Snap Lake and Victor operations, which De Beers officially opened in July 2008, are the group's first producing mines outside the Southern Hemisphere.

“With Snap Lake being Canada’s only fully underground diamond mine and Victor an openpit mine, we have two completely different mining models that provide us a unique opportunity to continually refine our Canadian business strategy to meet the changing needs of the market,” Ormsby commented.

Although there is still a lot of ground to be regained, he confirmed that sales are “trending in the right direction”.

Earlier this year, De Beers responded to the drop in demand by slashing production at its operations around the world, even going as far as completely halting output from Debswana unit, in Botswana, in February.

However, production in Botswana has since restarted, and the group has indicated that demand for rough diamonds is beginning to show improvements, which could prompt a ramping up of curtailed production.

The Namdeb operations, in Namibia, which were halted in April, are also scheduled to resume production in mid-July.

BETTER RELATIONSHIP

De Beers' most advanced development prospect in Canada is the Gahcho Kue project, in the Northwest Territories, where the group recently revised a joint venture agreement with partner Mountain Province Diamonds (MPD).

De Beers had been sole funding work on the project, as part of an earn-in agreement.

Now, the ownership split will stay at current levels (De Beers owns 51% and MPV owns the balance), and the partners will fund their respective share of spending.

MPD has also agreed to repay its proportionate share of historical spending on the project, which has been calculated at C$120-million.

The C$59-million payment will be made in several stages and forms, one of which includes MPD funding De Beers' share of the costs to complete a feasibility study on the project.

“From our perspective, we felt it was a way to strengthen the partnership, because we had been carrying all of the costs for quite some time,” Ormsby said on Friday.

“It gives us a better relationship with our partner, and it certainly improves our economics, by having Mountain Province contributing their share going forward.”

De Beers is 45%-owned by diversified miner Anglo American.

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