Kelsey Lake mine gears up

Diamond miners ready to dig in

VIRGINIA DALE — On the ponderosa pine-studded high plains northwest of Fort Collins, the throat of a 390-million-year-old volcano coughs up diamonds.

Now, after almost two years of dormancy, the miners that sift through thousands of tons of ore to retrieve the gems are preparing to swing back into action.

A $2 million equipment investment by the new Canadian owner of the Kelsey Lake Diamond Mine means lower production costs, higher efficiencies and greater likelihood that large, gem-quality diamonds will make their way to the retail market, resurrecting the fortunes of the only producing diamond mine in the United States.

“We don’t yet know the frequency with which large diamonds might be found,´ said Howard Coopersmith, who has been prospecting the Kelsey Lake diamond mining district since 1975. “But I think we’ll see diamonds in the 100-carat range. Maybe 150.”

Coopersmith bases his more-than-a-guess on a complex formula of “geostatistics” that tell him a vertical pipe of kimberlite — the grayish ore formed from volcanic magma — will yield stones of that size.

The promise is attractive enough that McKenzie Bay International Ltd., which bought the mine for a song last year from the failed prior owner, is pouring money into the operation that straddles the Colorado-Wyoming state line a few miles west of U.S. Highway 287.

McKenzie Bay’s investment includes an X-ray scanner that will raise the level of efficiency in separating diamonds from ore to “close to 100 percent,´ said Mike Hobbs, the mine’s general manager.

The machine is an import from Mauritius — a tiny Indian Ocean island nation — and is widely used in diamond-recovery plants. About the size of a large office copier, the “Flowsort” machine will anchor the end of a production chain that includes crushing, screening and transport equipment. Hobbs, Coopersmith and newly hired diamond-recovery expert Carl Brink were set to run the first ore sample through the X-ray machine on Sept. 5, after The Business Report went to press.

While other new equipment is being added, and an application for extending the mine’s operating permits is processed, the Kelsey Lake miners will dump tailings into the production mill — confident that the new technology will enable diamond recovery from the processed ore.

With the new equipment will come a new set of operating procedures, including a greater emphasis on security, said Gary Westerholm, president of the Great Western Diamond Co., McKenzie’s wholly owned U.S. subsidiary.

The company would make “substantial investments in security improvements,” Westerholm said without being any more specific. “It doesn’t make much sense, from a security standpoint, to talk about what kinds of security measures we will take.”

Every stage of diamond recovery, transport and final processing carries risks that the six current employees of the mine live with daily. (Employment will rise to about 25 when the mine is in full production early next year.)

“We don’t have a big ‘Diamonds-R-Us’ sign at the gate,” Hobbs said. The entrance to the Kelsey Lake Mining District, as the 1,600 acres of land that the mine leases is known, is as inconspicuous as any other of the dozens of ranch-land access points in the area.

After bouncing along a gravel road in Hobbs’ Ford pickup, the mining center reveals itself suddenly and unexpectedly. Forty acres of grayish tailings, in various stages of processing that will eventually lead to complete restoration of the landscape, surround a two-story steel building housing the processing plant.

Nearby, the mother lode — the scratched surface of a kimberlite pipe — lies in an excavated hollow the size of a football field.

The two kimberlite pipes Kelsey Lake miners will excavate in the coming years formed when a cluster of small volcanoes were the predominant features of the local landscape. The pipes have their roots in a subterranean netherworld, perhaps as many as 350 miles deep, where pressurized matter — neither liquid nor solid — provides just the right environment for diamonds to form.

Kimberlite formations yielding gem diamonds are rare: Fewer than 15 kimberlite mines operate worldwide, the Kelsey Lake mine being one of the smallest.

But the prime target site at Kelsey Lake has already proven its promise: In 1996, the mine produced a 28.3-carat rough diamond that put the mine on the map with publicity that spread globally.

Dubbed the “Colorado Diamond,” the gem was cut and polished by legendary New York diamond cutter Bill Goldberg, and the 5.4-carat finished stone sold to an anonymous New York buyer for $87,500.

The gems that sift out of the soft, gray kimberlite ore at Kelsey Lake are unique in one important respect: Their brand — Colorado Diamonds — identifies them with the land they were taken from.

“We were the first company in the world to brand diamonds based on their place of origin,” Coopersmith said. “Being the first to do that, we didn’t know how it would be received. … But it’s worked out well.”

So well, in fact, that demand has consistently exceeded supply during the mine’s producing history. “For all the retailers who have so far handled our production, I know it’s increased their sales volume many-fold,” Coopersmith said.