Mine matter under legal review: mine plan cannot be unilaterally terminated - Debeers.

The temporary halt called by the Attawapiskat Cree to DeBeers' plans to develop Ontario's first diamond mine may influence whether the mining giant proceeds with the project.

In late July, the Attawapiskat First Nation announced to DeBeers Canada they were terminating their three-year-old memorandum of understanding (MOU) to allow the community to conduct a two-month internal review of the project.

The announcement, which came after a public meeting in the community of 1,600, caught the South African diamond producer off guard.

"This move came as a surprise to us, and we are obviously concerned about the state of the project at the moment," says Linda Dorrington, a DeBeers Canada spokesperson based in Toronto.

"We are in a critical stage in getting funding for the project and if it appears the project may not proceed without the participation of the First Nations, that may have an impact whether or not funding will go through," Dorrington says.

DeBeers has spent more than $40 million to excavate kimberlite rock at their Victor project site about 90 kilometres inland from the James Bay coast.

With the exploration phase complete, DeBeers and their engineering consultants are in the midst of a pre-feasibility study to determine if it is worth building a mine in the remote area considered part of the traditional lands of the James Bay Cree.

Dorrington says the timing of the delay is especially crucial given project managers are expected to be going before the DeBeers board of directors in South Africa. within the next few months to seek funding approvals to take Victor to the next stage, a full feasibility study.

DeBeers is now taking the matter under legal review in considering various options and expects to make an announcement soon on how to proceed with the project.

"It is our view that the (MOU) cannot be unilaterally terminated by them," says Dorrington, adding the community's internal review can be accomplished within the framework of the existing agreement through the consultation process.

Acting chief Thomas Tookate did not return phone calls, placed by Northern Ontario Business, and band manager Clayton Kennedy declined comment when contacted.

Dorrington describes their relationship with the Attawapiskat Cree as "very productive and healthy" and will continue to correspond with them.

"Our understanding is that their intention is not to stop the project, but take a break to review what's been done so far.

"This is new to the community. A lot of the terminology and the concept of mining is something they've not had to deal with before."

She denies published reports indicating DeBeers had overstepped the boundaries of the MOU from exploration work into the development stage.

"Our representatives for many months have been in discussion with the First Nations working toward a protocol for the negotiations for a participational impact benefit agreement."

Should the project meet approval by the board of directors, construction of a mine could begin in 2005-06 with an eventual mine operating life of 11 to 12 years.

The operation would be an open-pit mine, a little under one square kilometre in size, which would require draining a muskeg area.

A DeBeers spokesperson said last spring the company is making painstaking efforts to consult with Native elders to ensure plants, wildlife and the environment are not harmed.

The development also offers the promise of dozens of base-camp jobs for residents.

Only two locals currently work in the care and maintenance of the camp, but DeBeers intends to hire more for their winter work program.

"We need some clear direction from the community within the next few weeks as to how they want to take this forward," says Dorrington.

She says DeBeers remains committed to an education and training program having begun negotiations with the acting chief and some area institutions to provide funding for a bridging program to assist local residents in any necessary educational upgrades.

"We hope we can' have a speedy and successful resolution to this delay and would like to get the project moving."