TORONTO (miningweekly.com) – Diamond-miner De Beers Canada and partner Mountain Province Diamonds (MPD) have signed a new joint-venture (JV) agreement for their Gahcho Kué project, in Canada's Northwest Territories, in which MPD has agreed to repay C$59-million of past expenditures to De Beers.

De Beers owns 51% of Gahcho Kué and MPD owns the balance.

Under the previous agreement, signed in 2002, De Beers funded the project on its own, carrying MPD's interest, and had the right to increase its holding in the project to as much as 60% by completing a bankable feasibility study, building the mine and starting production.

The interest in Gahcho Kué is MPD's flagship asset, which means the company has been impatient to see progress.

But, De Beers Canada has, understandably, been more measured in its approach, with two diamond mines already in operation, and more recently having dealt with a slowdown in demand for the rough stones after the financial crisis hit late last year.

However, the new agreement reorganises the new JV so that the partners will fund their own share of development and make decisions by consensus. In fact, MPD will actually end up paying for 100% of the next big step for Gahcho Kué – the completion of a feasibility study.

The ownership split will also be held at the current level.

The agreement is "a key milestone", MPD CEO Patrick Evans said on Monday.

“Mountain Province and De Beers are jointly committed to advancing the development of the Gahcho Kué project as expeditiously as possible.”

To begin with, the companies have agreed to get moving on a feasibility study for the project “as soon as possible”.

They have received a feasibility study proposal and expect to make a further announcement “in the near future”, MPD said on Monday.

Under the previous agreement, De Beers would have had the right to recover the development costs spent on behalf of MPD from 90% of cash flow generated once the mine was in operation.

Now, each firm will market its own share of diamond production, according to the ownership split.

“Material strategic and operating decisions" will be made by consensus of all partners that own at least 40% of the project.

To implement the new agreement, the companies have agreed that MPD will repay C$59-million, or 49% of the C$120-million in sunk historic costs until the end of 2008, to De Beers.

The payments will include C$200 000 on the execution of the new JV agreement, up to C$5,1-million by covering De Beers entire share of the feasibility study, C$10-million on completion of a feasibility study with an internal rate of return of 15% or a decision to build the mine – whichever comes first, and C$10-million when commercial production is achieved.

The balance will be paid within 18 months after the mine achieves commercial production.

While the feasibility study is under way, the partners will continue to develop an environmental impact statement, for submission to the Mackenzie Valley environmental impact review board.

Gahcho Kué contains an indicated mineral resource of 50,5-million carats, plus 10,3-million carats in the inferred category.

The project was discovered more than a decade ago, but development has been delayed by lengthy permitting processes, as well as a decision a year ago to include the Tuzo kimberlite in the initial mine plan, rather than waiting to develop it in ten years or so, when the other two primary pipes were mined out.

If the project continues to production, Gahcho Kué would be De Beers' third mine in Canada, after the Snap Lake mine, in the Northwest Territories and the Victor mine, in Ontario.

Shares in MPD gained 4,62% on Monday, to C$1,81 apiece by 15:04 in Toronto.

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