TORONTO (miningweekly.com) – TSX Venture Exchange-listed Shear Minerals has reached an agreement to buy the Jericho diamond mine and related facilities in Canada's Nunavut territory, as well as some other exploration assets, the firm announced on Monday.
Shear plans to complete a new economic assessment of the mothballed operation by the end of 2011, and will then look at reopening the mine.
Jericho, the first and only diamond mine in Nunavut, started operations in 2006, but owner Tahera Diamond Corp struggled to turn a profit, hampered by a stronger Canadian dollar versus the US dollar, rising input costs and ongoing operational and production setbacks.
The company sought bankruptcy protection in January 2008 and the mine was put into care-and-maintenance in June that year.
Before it closed, the Jericho mine produced 786 00 ct of gem-quality diamonds , including more than 1 100 stones greater than 10 ct.
Shear plans to update and increase the resource at the project and complete a new economic assessment late next year, ahead of reopening the mine, said CEO Pamela Strand.
Shear will benefit from the operational infrastructure already in place on site, and has identified opportunities for “substantial operational improvements”.
More than $200-million was spent to develop Jericho, including on a 2 000-t/d diamond recovery plant, a maintenance facility, a fuel farm, and offices and accommodation for 225 people.
Shear believes there is a “significant” upside potential for the mineral resource at Jericho, she said.
SRK is currently preparing an updated NI 43-101 resource estimate for the Jericho project, which should be filed on Sedar within 45 days.
Before Tahera started mining, the project had a 3,7-million-ton indicated resource, containing 4,17-million carats, plus 3,4-million tons, containing 1,76-million carats in the inferred category.
There is also a 156 000-t stockpile on surface contains 65 000 ct that are "readily accessible", Shear said.
Under the agreement announced on Monday, Shear will pay $2-million in cash and issue 80-million shares, 72-million of which will be issued to the debtor-in-possession and secured creditor of the vendors, CAZ Petroleum Inc.
CAZ will also get a 2% royalty on diamonds and mineral production, as well as the right to nominate a director to the board of Shear.
As part of the acquisition agreement, Julie Lassonde will become the executive chairperson of Shear, while Strand will continue as president and CEO.
The Jericho operation is located 420 km north-east of the city of Yellowknife and is accessible by air all year and by winter road from Yellowknife.
The sale also includes the nearby Carat property, as well as Tahera's 50% joint venture (JV) with De Beers on lands overlying the diamondiferous Muskox kimberlite complex and 75% of a JV with Rio Tinto's Kennecott on lands encompassing the diamondiferous Anuri kimberlite complex. Both prospects are also in Nunavut.
The deal is conditional on regulatory approvals, as well as Shear raising $10-million in an equity financing.
Shear Minerals currently has a portfolio of eight diamond projects in Canada's north, seven of which are drill-ready, according to the company.