Oil price crash helps mines
Workers from stalled oil sands turn north for employment
Stewart Burnett
Northern News Services
Wednesday, March 4, 2015
SOMBA K'E/YELLOWKNIFE
The next big diamond mine to open in the Northwest Territories is getting some help from cold weather and low oil prices.
An aerial view of the De Beers-Mountain Province Diamonds Gahcho Kué project northeast of Yellowknife. The mine is on budget for production in 2016 and getting a boost from low oil prices. - photo courtesy of Mountain Province Diamonds |
Gahcho Kue, northeast of Yellowknife and set to start production in 2016, is on budget and schedule. Its two biggest costs are fuel and labour, both of which low oil prices are easing.
Patrick Evans, CEO of Mountain Province Diamonds, which combined with De Beers is building the project, said his company's diesel costs should be well below the budgeted price.
"We're not yet able to
project what those precise savings will be but there clearly will be savings," said Evans.
And there's an interesting indirect benefit to the drop in the oil price.
"A lot of the oil companies in Alberta are cutting back on their capital projects and as a consequence, that's taken a lot of pressure off the labour market," said Evans.
"People who could previously choose whether to work at Gahcho Kue or Fort McMurray really now only have one option, which is Gahcho Kue."
He doesn't anticipate a drop in the labour rates but he does expect a better availability of labour than existed even six months ago.
Contractors who might have worked in the oil sands are used in both operation and construction at Gahcho Kue. As long as oil is hurting, that spells labour relief for the NWT mine.
The end of February signals 14 of 24 months down, or roughly 60 per cent finished constructing the major mine project.
Mountain Province is in the process of raising a US$370 million loan to fund its share of the remaining capital for Gahcho Kue.
The company recently issued a CDN$95 million rights offering, which entitles shareholders to buy additional shares of the stock at a lower price, to create a "cushion" account in case construction costs run high.
"The rights issue that we announced is intended to fund a cost overrun account in the event, which we think based on our progress to date is highly unlikely, that there is a cost overrun," said Evans.
Following that announcement, there has been a sharp turnaround in the company's share price performance.
"We think that the drop in the stock was really a temporary thing, which is a function of short traders in the stock," said Evans.
As well, Gahcho Kue's ice road opened a week earlier than last year, which has been a boon to construction.
"That's very important because we take about 2,200 truck loads of equipment and materials to Gahcho Kue on the ice road over the course of February and March, so having a normal winter and a favourable ice road has been very beneficial," said Evans.
Major construction at Gahcho Kue should finish this year and commissioning the plant is scheduled for early 2016. Mountain Province should see first production during the second half of next year.
