Rio Tinto takes a shine to diamond project near Prince Albert, Sask.
Company signs option agreement committing it to spend $18.5 million in next 3 years
The world's second largest diamond mining company is showing interest in a diamond project near Prince Albert, Sask.
Rio Tinto has signed an option agreement positioning it to potentially become the majority owner of an advanced-stage diamond exploration project about 60 kilometres east of Prince Albert.
The Star-Orion South Diamond Project has been developed for years by Saskatoon-based Shore Gold Inc., which signed its agreement with Rio Tinto on Friday.
"Rio Tinto wouldn't be involved in something that wasn't world-class status," says New York City-based analyst Paul Zimnisky, who tracks the global diamond industry.
"They're large enough of a company where they can make the capital commitment to put this thing in production."
Estimated mine life: 20 years
A feasibility study released by Shore in 2011 cited a potential mine life of 20 years — though Zimnisky says the project has the potential to be mined for 100 years — and an estimated capital cost of $1.9 billion.
An updated feasibility study aimed at lowering that cost is expected from Shore.
The company also needs to receive environmental approval from the provincial government.
Saskatchewan is currently not home to any diamond production.
3 years to spend $18.5 million
Under the terms of the agreement, Rio Tinto has three years to spend $18.5 million on drilling and the pulling of a bulk sample before it can move on to receive the option of becoming a joint-venture partner and eventually owning 60-per-cent of the project.
But Zimnisky says it could still be as many as 10 years until the mine goes into production.
He says one challenge the project faces is its amount of "overburden" — the degree of material that needs to be removed first before reaching the diamond-bearing kimberlites.
Zimnisky says Shore is looking at ways to address that as well as X-ray technology to speed up the processing of diamonds within a plant.
The company's stock price closed at $0.34 on Friday, the highest it's reached in five years.