01 Mar 2018

Rio Tinto Releases 2017 Annual Report, slashes outlook for Argyle Mine

Rio Tinto’s 2017 annual report released today includes significant changes in estimates of Ore Reserves and Mineral Resources at Rio Tinto’s Argyle Diamond mine in East Kimberley, Western Australia.

Rio Tinto has lowered its estimate of diamonds it can viably extract from the Argyle mine, after experiencing operational difficulties and reducing its price forecast.

The asset’s ore reserves slumped 45% to 16 million tonnes at the end of 2017 versus a year earlier, the company said in a statement. That translates to 38.5 million recoverable carats, at a grade of 2.4 carats per tonne of ore. Reserves are the economically extractable material present in a mine, and are distinct from resources, which refer to all deposits.

The decrease includes almost 5 million tonnes of ore that Rio Tinto depleted during the year at the mine in Australia. It comprises a further 3 million tonnes due to reduced production outlook resulting from operational challenges in 2017, it said.

Rio Tinto also cut its price expectation for the mine for 2020 and 2021, resulting in a higher “economic shut-point” — the minimum volume it must produce per quarter for operations to be worthwhile. This, combined with adjustments to its estimates of future mining grades, shaved just over 5 million tonnes off its reserves.

The available reserves will enable Argyle operations to continue until 2020. The company could increase the estimate and extend the life span beyond that, depending on how the mine performs, it added.

However, the miner said other mineralised deposits at Argyle do not demonstrate economic prospects and are not scheduled for production. As such, Argyle Mineral Resources, exclusive of Ore Reserves, decreased from 15 million tons to zero.

The Argyle diamond mine is expected to produce 3 million carats less of diamonds this year than it did in 2017 – Image copyright 2018 Rio Tinto

Rio Tinto is the industry’s third largest producer by volume, yet only has interests in two producing diamond mines, its 100%-owned Argyle mine in Australia and a 60% stake in the Diavik mine in Canada.

By volume, 76% of the company’s net production is estimated to come from Argyle – the largest mine in the world in terms of carat volume produced. The majority of the mine’s production is low quality in terms of size and colour, and the mine’s economics are driven by the occurrence of fancy pink diamonds that fetch a significant premium to white and most other fancy coloured stones. In 2018, Argyle’s production is expected to decrease by 3 million carats year-on-year to 14 million carats.

Argyle production commenced in 1983 and, at one point, produced as much as 40 million carats annually, making it arguably the industry’s most important mine. However, as a result of normal depletion, annual production has dropped to 14-17 million carats in recent years.

In 2016, Rio took a $241 million impairment charge on Argyle after reassessing mine-life expansion economics and has now cut the mine’s recoverable diamond reserve estimate to 39 million carats, thus reducing the remaining mine life to less than three years.

Sources: Rapaport, Rio Tinto, Mining Journal, Paul Ziminsky
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