Lacking local support, De Beers shelves Ontario diamond mine expansion

De Beers is shelving immediate plans to study an expansion project at a remote northern Ontario diamond mine after failing to get support from a neighboring aboriginal community, a "disappointing" setback for the world's top diamond producer, the mine's manager said.

The isolated Victor mine in the James Bay lowlands produces some 600 carats of diamonds annually and is scheduled to stop production in late 2018 and close in early 2019, De Beers Canada general manager James Kirby told Reuters late last week.

The nearby Tango deposit could have added five or six years, but assessment work will not proceed without formal support from the First Nation of Attawapiskat, 90 kilometers (56 miles) east of the mine, Kirby added.

Attawapiskat Chief Ignace Gull, elected last summer, did not respond to requests for comment.

The community of about 2,000, which has grappled with such challenges as inadequate housing and flooding, last April declared a state of emergency after a wave of suicide attempts.

It has had a rocky relationship with the company, reflecting concerns over economic and environmental issues, picketing the official mine opening in 2008 and blockading the mine access road in 2013.

Talks resumed only in recent weeks and did not make progress on Tango, said Kirby, who manages Victor.

To determine if Tango is economically viable, the miner needs 100 days in winter to extract a bulk sample from the frozen wetlands.

Tango is not permanently canceled and could revive with community support, but further delays may create a production gap, boosting costs and impacting profitability, Kirby said.

The miner is now studying ways to delay closing Victor, which has 550 staff and contractors, and C$74 million ($56.39 million) in remediation costs.

It could process 6-7 million tonnes of lower-grade ore on site, if profitable, Kirby said, adding two-three years to the mine life. It is also studying a technically-challenging dig, deeper into the pit, which would add two-four months.

Offers to buy the site could also be considered, Kirby said, but the company currently plans to dismantle and remove operations during shut-down.

Victor, which costs about C$20 million annually to keep dry with pumps, has 18 other diamond-bearing kimberlites with lower-grade stones.

Canada was one of just six countries with diamond production worth more than $1 billion in 2015, shows data from the Kimberley Process, which monitors sales.

"Canada is very important, as it's the most stable jurisdiction for diamond miners (with) considerable exploration potential," said Mountain Province Diamonds Inc Chief Executive Patrick Evans, adding that it produces about 10 percent of world output by volume, but some 15 percent of value.

In the Northwest Territories last year, De Beers Canada suspended its unprofitable Snap Lake mine and opened Gahcho Kue, where it is 51 percent owner, with partner Mountain Province.

Without Victor, De Beers Canada has just one producing diamond mine in the country.

"We really want to be expanding and getting the diamond mining industry going, not closing and retreating to just one asset," said Kirby. "It's highly disappointing." ($1 = 1.3122 Canadian dollars) (Reporting by Susan Taylor; Editing by Denny Thomas and Marguerita Choy)