De Beers unlikely to find buyer for Snap Lake mine, says analyst

Groundwater problems, weakened diamond prices and a thinning crowd of diamond producers mean De Beers is "very unlikely" to find a buyer for the Snap Lake mine before the company floods itlater this year, says one diamond industry analyst.

"I don't see somebody buying it and turning it back on and producing at current prices," says Paul Zimnisky.

He says hisdata indicates diamond prices are only up about five per cent since De Beers halted production at the N.W.T.mine in December.

If a junior mining company does agree to purchase Snap Lake, it will likely do so under a "call out option" acquiring and sitting on a mine for the express purpose of reselling it once prices improve.

But with BHP Billiton having exited the diamond sector and Rio Tinto seemingly none too eager to expand its diamond holdings, that leaves only a small pool of buyers, including Dominion Diamond Corporation, the owner of Ekati diamond mine and co-owner of Diavik.

"I think there's probably better options out there for a company like that to make an investment at this point," says Zimnisky of Dominion Diamond.

It's better if the property stays with De Beers, says Ugo Lapointe, the Canada program co-ordinator for Mining Watch.

"It's much better if the legal liability is still tied up to De Beers because De Beers is a well established company. It does have capacity to pay for cleaning up properly."

But if the property is sold, the buyer has to be properly vetted by De Beers to make sure it has the money to clean up the project, added Lapointe.

"Otherwise we've seen it again and again,it's the public that has to clean up the mess," he said.

The N.W.T. government was holding around $77 million in financial security for Snap Lake as of late 2014. All of that security was in the form of irrevocable letters of credit.