Will Purcell..hwHarry Winston et al. start winter resupply
2009-02-19 14:04 ET - Street Wire
by Will Purcell
The annual resupply to the Diavik mine is well underway with the Tibbitt to Contwoyto winter road officially open for its 28th consecutive year. The link, which connects several mines and advanced exploration projects with the all-weather road at Yellowknife could be headed for its shortest season yet, but this time it will be the economic climate, not the meteorological one, that will be the culprit. The loss of Tahera Diamond Corp. to bankruptcy is also a key factor.
The road opens
Bob Gannicott, chief executive officer of Harry Winston Diamond Corp., confirmed the winter road opened during the first week of February. That is later than last year, which saw the first small loads head north during the last week of January, and it roughly matched the opening date of the disastrous 2006 season, when an abnormally warm year forced a late start and an early end to the trucking season.
Global warming proponents are unable to cite climate change as the reason for the late 2009 opening. The area between Yellowknife and Lac de Gras had an old-fashioned start to winter, with the coldest temperatures in about 60 years from the end of November through mid-January.
That allowed the ice to thicken early, and had there been much interest, the road could have opened earlier for hot shots: grocery and supply trucks with light loads. The later opening allows for a fewer number of heavier loads to make the trip north. Late last year, the expected number of loads was just over 7,000, but the current expectation calls for about 6,800 trips. Because of the cold weather and the expected lighter traffic, there is no secondary route this year, as the operators do not expect any problems keeping the main route open as long as needed.
In fact, the users expect to have all their supplies delivered by mid-March, and the road is likely to close on March 20, six days earlier than in the aborted 2006 season. A key difference is the ice thickness, which is bringing the route to its maximum weight allowance quickly, unlike the warm year when the ice never did become thick enough to support the loaded Super-B fuel trains.
The global recession is a key reason for the light shipping season. The road, which first opened in 1982 to bring supplies to the Lupin gold mine at Contwoyto Lake, is about 200 kilometres shorter this year. The Lupin mine has been closed for years but the road still ran past Lupin on its way to Tahera's Jericho diamond mine, about 30 kilometres northwest of Contwoyto. With Tahera's bankruptcy, the ice road now ends at the turnoff for Ekati mine, 400 kilometres from Yellowknife.
The loss of Jericho eliminated well over 1,000 trips. A planned eight-week closure by De Beers Canada Inc. at Snap Lake is reducing the number of required loads further and De Beers will not need much at Gahcho Kue this year. As well, BHP Billiton Diamonds Inc. has cut some costs at Ekati, which will require less fuel and supplies over the next year. Even Diavik is not immune, as Rio Tinto and Harry Winston have deferred some capital expenditures and they are also paring back their operating costs where possible.
The costs
Building and maintaining the winter road is an expensive proposition. Work starts in mid-fall and continues until the road officially closes. It costs several millions of dollars to get the road ready for the first shipments and the maintenance, administrative and security crews rack up about $2-million a week in operating expenses. As a result, the road's main users have a vested interest in getting supplies in as quickly as possible, as the costs are passed on to the companies using the road. Shipping charges on the ice road typically add about 50 cents to the price of a litre of fuel.
Harry Winston lost eight cents to close at $4.03 on 161,100 shares.