Professional Jeweler Archive: Nice Ice

May 2000


Nice Ice

Canadian diamond production and manufacturing goes into its second year with a few hitches but no major snags

Canada’s Northwest Territories are always frozen in January, but it felt even colder when the announcement came that the Diavik Mine had closed – at least temporarily. While production was not expected to begin until 2003, Aber Resources Ltd., a partner with Rio Tinto PLC, wanted the $879 million mine construction project to begin this winter.

That schedule was knocked off course when the Canadian government declined to issue a land-use permit because of various local issues. The Canadian government and the Department of Indian and Northern Affairs were concerned about the impact the mine will have on the land and people in the area. Negotiations progressed through February and in early March, Diavik officials agreed to specific monitoring and representation by local people on the environmental advisory board ( Daily News Archive, March 13).

Major Retailer’s Position

Probably no one wanted a resolution more than U.S. jewelry retailer Tiffany & Co., which last summer signed a deal with Aber Resources worth $72 million. The deal represents a 14% stake in the production of the Diavik mine, the first time a major retailer has positioned itself to acquire diamonds direct from a source – and outside of the Central Selling Organisation’s single distribution channel.

Diavik is projected to produce some 8 million carats annually – about 6% of the world’s diamond output – so this form of vertical integration could be an incredibly lucrative agreement for Tiffany. Stakes for an equitable resolution for all parties involved in the licensing dispute were understandably high.

Tip of the Iceberg

Just north of the Aber Resources’ claims in the Lac de Gras area of the Northwest Territories is what some call a “geologic corridor of hope.” Other diamond companies are beginning to produce healthy diamond qualities and quantities.

The Ekati Mine is a joint venture between Dia Met Minerals Ltd. and Broken Hill Proprietary Co. In December, Dia Met reported net earnings of more than $30 million, up from a negative net earning in 1998 when it commenced production. In 1999 almost 2 million carats of rough diamonds sold for $289 million, with a healthy average price of $165 per carat.

Ekati’s agreements and licenses were granted in 1996 and it became the first Canadian mine to officially open in late 1998. Now, expansion plans continue, with BHP saying it plans to expand its permits to the Beartooth, Pigeon and Sable kimberlite pipes about 120 miles north of Yellowknife. New diamond production from these pipes is expected to start in late 2005. This would expand Ekati’s life well beyond the 17 years the mine’s first kimberlite pipes were expected to produce.

Get Sirius

Production from Ekati has provided jobs for cutting companies, such as Sirius Diamonds Ltd., Vancouver, BC, Canada ( Sirius increased its stable of Canadian cutters from four in 1998 to more than 30 today. The number of cutters is likely to grow, depending on rough supplies.

“Our total diamond production is always sold out,” says Craig de Gruchy, vice president of the company. “Canadians are very intrigued by the totally North American aspects of these diamonds.” He also credits the polar bear logo laser inscribed on the diamond’s girdles and their guaranteed certificates for the success. De Gruchy says his company guarantees the certificates against Gemological Institute of America or American Gem Society certificates for over a year.

Sirius produces over 600 cut diamonds a month, but De Gruchy says that number should triple by 2001. The diamonds’ full margins and branding aspects has jewelers in the U.S. intrigued, says Bill Barker of Barker & Co., Scottsdale, AZ, the exclusive distributor of Sirius diamonds in the U.S. He too laments not having greater supplies for sale.

More to Come

Other promising properties are being developed in Canada, further establishing the great white north as a major player in the diamond business.

In December, Winspear Resources Ltd. presented the results of their kimberlite dyke tests at Snap Lake, also in the Northwest Territories. Tests in late 1999 determined the dyke to be a homogenous body, making further feasibility tests possible. Those tests will be carried out this year. Testing from 3,000-ton samples yielded 10,708 carats of diamonds with an average $105 per carat rough.

While those aren’t exactly stellar test sample results, Winspear predicts greater yields from other portions of the dyke. The site also is known to produce larger single stones. Winspear views the potential as “economically robust,” and says most major permits regarding water licenses and reclamation plans have already been granted.

New World Diamonds

New production and potential output from Canada has captivated the world’s attention. While De Beers has already weighed in on the purchase of 35% of Ekati’s run-of-mine output for three years, future methods of marketing Canadian diamonds remain in question. De Beers stated that, as part of its internal strategic review, its major goal is to become a preferred purchaser and supplier of rough. However, De Beers no longer sees itself as the ultimate controller of rough. Future agreements with world producers, including those in Canada, may take a different form.

If the channel of diamond distribution is evolving at De Beers’ level, Tiffany & Co.’s move to control its own supply suggests changes may happen in other segments of the distribution channel as well.

– by Robert Weldon, G.G.

Many kimberlite pipes are under exploration in Canada’s Northwest Territories. Some diamond-rich pipes are already yielding significant quantities of rough.

Copyright © 2001 by Bond Communications