Canada's diamond industry glitters
Country could be producing half of world output, analyst says
David Finlayson
The Edmonton Journal
Saturday, June 14, 2003
CREDIT: CanWest News Service, Ottawa Citizen
BHP diamond mine at Ekati, northeast of Yellowknife
CREDIT: Journal Stock
Nunavut Premier Paul Okalik
CREDIT: The Journal, File
Reg Shah, owner of Michael Anthony Jewellers, examines one of Ekati's diamonds. The diamonds are branded with hearts, which can be seen on the screen in the background.
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EDMONTON - Diamond fever is spreading across Canada as exploration companies stumble over each other to unearth the next motherlode.
Since the Ekati mine started producing some of the world's best quality gems on the remote Northwest Territories tundra in 1998, dozens of companies have been scouring the country for kimberlite, the elusive volcanic material where diamonds are found.
And there are enough potentially major diamond finds in Ontario, Quebec, Saskatchewan, the Northwest Territories and Nunavut that Canada will be producing 25 to 50 per cent of the world's diamonds in a few years, according to independent exploration analyst John Kaiser. "This year Canada will produce a billion dollars worth of diamonds from just two mines, and it will be a toss up whether it or South Africa will be the world's third-largest producer."
At least two other mines are within two or three years of starting production, and federal Natural Resources Minister Herb Dhaliwal is so excited about it that he organized the country's first diamond roundtable in Edmonton in May.
It drew more than 100 producers, processors, jewellers and government people to identify issues to be discussed at a meeting of federal and provincial mining ministers in September.
Among them were developing a Canadian cutting and polishing industry, security, marketing a Canadian "brand," and creating opportunities for natives.
Although 85 per cent of Canada's rough diamonds go to major trading centres like Antwerp, Belgium, a secondary industry for processing diamonds is developing here -- albeit slowly. There are two cutting and polishing operations in Yellowknife, and Tiffany and Co. is opening another one there this summer.
The processors say that keeping costs down so they can compete with countries such as India, Thailand and Armenia is the biggest challenge for Canada.
Meanwhile, local aboriginal groups are making sure they get a piece of the pie through complex agreements with mine owners that guarantee such things as cash payments, job training programs and setting up businesses to provide services to the projects.
Canada's two current diamond mines northeast of Yellowknife employ about 800 people in total, a big deal in an area where job opportunities are as scarce as winter daylight, Northwest Territories diamond director Martin Irving says.
The spinoff factor in supplies and services is significant. The Diavik mine, which started production this spring across Lac de Gras from Ekati, will spend about $4.4 billion on equipment, goods and services over its 20-year life.
While deals are being struck with aboriginal groups, there continues to be disagreement among governments on who should get the biggest economic benefit.
Nunavut Premier Paul Okalik notes that mineral royalties go directly to the federal government so Nunavut can't use the money to create a better life for its people, even though it worked hard to settle its land claims so it could attract private investment.
In fact, for Nunavut, which has the highest unemployment rate in the country, the development of its commercial fishery and other resources will help more of its people than the diamond industry, he contends.
"We're still waiting for the day we can get some benefit," Okalik says.
Two new mines are coming on stream in Nunavut and the Northwest Territories in the next two or three years, but Kaiser, the exploration analyst, believes Ontario's first diamond mine could beat them.
De Beers' Victor project, in the Attawapiskat area of the James Bay lowlands, is going through a feasibility study and has all the signs of a viable mine, he says.
Snap Lake, another De Beers play in N.W.T., and Tahera Corp.'s small Jericho mine in Western Nunavut, are further along in the approval process but Victor could be built more quickly, Kaiser says.
Chuck Fipke, who started it all in 1991 when he discovered the Ekati diamond cache, has a new company that's also working Attawapiskat.
De Beers and partner Kensington Resources, who have been toiling away in Saskatchewan's Fort à la Corne area for several years, recently discovered a large 10-carat stone on the property, 50 kilometres northeast of Prince Albert.
The 69 kimberlite bodies there form one of the largest clusters in the world. And while finding a large stone doesn't necessarily mean a commercial mine will follow, it is a positive sign, says Graeme Currie, a diamond analyst with Canaccord Capital in Vancouver.
There's a big difference between finding diamonds and uncovering enough quality stones to justify the billion dollars or more needed to build a major mine.
De Beers recently put its Northwest Territories partnership with Mountain Province Diamonds on hold, leaving $3 billion worth of stones in the ground.
It had already spent $50 million on the Kennady Lake project, but was turned off by what it felt would be an inadequate return on investment.
De Beers, BHP Billiton, which owns the Ekati mine, and London-based Rio Tinto, majority owner of Diavik, arguably are the only companies in the world with the experience and financial clout to undertake a major diamond project.
That's why small companies need partners with deep pockets once they hit a promising play, Currie says.
Infinite amounts of patience and determination are also assets, he says.
"It's definitely a game of patience. You also need a little bit of luck from Mother Nature and a lot of skill."
And it only takes a hint of a major discovery to spark a new diamond rush.
More than 2,500 claims covering 2.4 million hectares were filed in the Coronation Gulf area of Western Nunavut early last year after Ashton Mining reported a promising diamond find.
That project didn't turn out to be commercially viable, but Ashton and other companies currently are testing major discoveries in the Otish Mountains of northern Quebec. And Currie says the Melville Peninsula area of Nunavut also looks quite promising. BHP Billiton turned the spotlight on that area recently by investing in two established exploration projects relatively close to each other.
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