Diamond miners set for return to work

FORT COLLINS — Equipment at the Kelsey Lake diamond mine northwest of Fort Collins, idle since January, will run again under new ownership by early next year.

McKenzie Bay International Ltd., a mining company based in London, Ontario, Canada, has announced the purchase of Diamond Company NL of Fort Collins, a deal that will close before year’s end.

The local company, under the new name Great Western Diamond Co., will add equipment and retool its process during the next several months, and intends to rehire many of the workers who were laid off earlier in the year.

“We’ve got a lot of improvements and new equipment to move into place,” mine manager Mike Hobbs said. “We anticipate making all of those improvements over the winter.”

When the mine resumes its operations, 30 to 35 workers will be back on the job, said Gary Westerholm, manager of U.S. operations for McKenzie Bay.

Kelsey Lake, which in 1996 produced the fifth-largest diamond ever mined in North America, was the last of three mines that former owner Redaurum Ltd. sold as it exited the diamond-mining business.

McKenzie Bay paid $1.4 million to acquire Kelsey Lake, $1.2 million of which is committed to assumption of Redaurum’s debt. The company will invest an undisclosed sum in bringing the mine back on line.

“We’re prepared to invest substantially in improving Kelsey Lake,” Westerholm said.

The mine straddles Colorado’s border with Wyoming in rugged terrain west of U.S. Highway 287. Although it has been a proven producer of gem-quality diamonds, Redaurum was unable to sustain the investment needed to keep the mine operating, Hobbs said.

Redaurum, in papers filed with the Ottawa Securities Commission, blamed much of its Kelsey Lake financial problems on the costs of settling a lawsuit filed by the Union Pacific railroad.

Shortly after the discovery of the 28.3-carat “Colorado Diamond,” the railroad had tried to reestablish what it contended was a historic claim to the mineral rights occupied by Kelsey Lake. The suit was settled out of court.

Hobbs said that Redaurum’s troubles were more global than the company indicated in its financial reports.

“Redaurum was trying to make the jump to becoming a worldwide mining entity,” Hobbs said, adding that the firm was “overextended” with diamond operations in South Africa and Zimbabwe in addition to its Colorado holding. “They used the prospect and the opportunity of opening this mine as a good stock-promotion tool,” Hobbs said, “but the proceeds did not go toward putting the things into this mine that it needed.”

Changes at Kelsey Lake will include addition of crushing equipment and the testing and installation of screening equipment to separate gems from the ore, Hobbs said.

“The core of the plant has more capacity than has ever been used,” Hobbs said. “This plant was produced and built without any crushing capability.”

Discoveries like that of the Colorado Diamond, a find that made international headlines in 1996, are almost a statistical certainty once the mine resumes operation, Hobbs said.

“We’ve really just scratched the surface,” he said. “From a statistical standpoint, the kinds of things we’ve turned up before will turn up with increasing frequency with the improvements we’re making.”

Kelsey Lake’s diamonds are imbedded in kimberlite, a rare, 350-million-year-old rock that diamond prospectors throughout the world seek.

So far, Kelsey Lake miners have tapped the two largest of eight kimberlite “pipes,” as geologists call them, on the property. Both sites are larger than 10 acres in area, and are situated a half-mile apart. The kimberlite ore, estimated at more than 18 million tons, extends to a depth of 350 feet.

The first 10,000 carats of production at Kelsey Lake included two 18-carat diamonds, one 16-carat gem and one weighing 14 carats. More than half the diamonds taken from Kelsey Lake are clear gem-quality, and almost a third are one carat or larger in size.

Hobbs and Westerholm said that McKenzie Bay, in addition to making improvements at Kelsey Lake, would explore other prospective diamond properties in North America.

“First, we are going to get this up and operational,” Westerholm said. “While it’s a bit premature to allocate money for exploration of other properties, we’ll be better prepared for that after six months to a year. We are not stopping with one property.”

When Kelsey Lake miners go back to work in the spring, the mine will again become the only working diamond mine in the United States.