Professional Jeweler Archive: Busy Tundra

November 2001


Busy Tundra

In Canada, the big diamond players are jockeying for position and staking new claims while the junior players ponder their futures

By 2005, Canada is expected to join the ranks of the biggest diamond-producing countries in the world, accounting for 12%-15% of world supply by value. The news that Canada would become third behind Botswana and Russia was reported at the second World Diamond Conference, held in August in Vancouver, British Columbia, Canada.

Charles Fipke, credited with discovering diamonds in Canada, could scarcely have imagined this when he was begging mining companies to pay attention to his indicator mineral finds a little more than a decade ago. Many major players admit they missed out when opportunities first beckoned. They include De Beers Chairman Nicky Oppenheimer, despite his company sending geologists to prospect Canada’s frozen north for the past 40 years.

Since the diamond rush began in earnest, however, De Beers has wasted no time staking claims, including in areas not previously thought to contain diamonds. It’s also worked out marketing deals with some major diamond producers and swiftly bought out promising junior companies. Clearly, De Beers’ focus goes beyond simply staying in the game. “Canada has become a country of strategic importance; nearly half of De Beers’ exploration budget is now directed toward Canada [$30 million to $40 million this year],” says Tom Beardmore-Gray, senior vice president for De Beers Canada Corp. According to experts witnessing this new stage in the diamond rush, De Beers’ modus operandi is a model for the larger players in the coming decade: exploration, staking out new claims and buy-outs.

Clean Ice

Aside from the promise of future supply, Canadian diamonds are attractive for other reasons, including the fact they’re not traded to finance wars as in some African countries. That notion will be clearly heard in the United States, where the issue of conflict diamonds is still simmering as human rights groups grow increasingly impatient with the Kimberley Process. The Kimberley Process is working toward an international certification program to halt the trade of conflict diamonds.

The potential taint of conflict and the veiled threat of boycotts if the Kimberley Process doesn’t work have increased attention on Canada as a source of clean diamonds.

And while mining companies in Canada note the lengthy and complex permit process and costly recovery operations required by law, they also are thankful for the ability to develop the infrastructure necessary to bring diamonds to market in a stable political environment. The wait for permits and the promise to be good corporate citizens will undoubtedly have future pay-offs.

These advantages will be felt at the retail level as well. Experts say it was with some foresight that Tiffany & Co. became the first major U.S. retailer to establish a direct pipeline to Canada’s diamonds. Tiffany signed a $72 million deal with owners of the Diavik Mine, which is expected to start producing commercial quantities in 2003.

The issue of conflict diamonds will not go away and might even increase as Canadian producers look for ways to distinguish their product. While the vast majority of the world’s diamonds aren’t mined in conflict areas, Canada’s geographic distance from warring areas can’t be overlooked. Neither should its geographic proximity to the world’s largest diamond market, the United States.

The Canadian government also has embraced the opportunities that clean diamonds can provide. The government of the Northwest Territories, the province where the diamonds have been discovered, moved swiftly to establish a polar bear logo as a trademark for all Canadian diamonds. (Sirius Diamonds Ltd., a Canadian diamond manufacturer, already used a polar bear logo. A recent court decision gave the company and the government both the right to use a polar bear logo, though the Sirius logo faces west and the government’s faces east.)

Major Players and the Future of Diamonds

Since De Beers announced that it’s restructuring operations and abandoning its role as custodian for the diamond industry, it’s clear the single-channel pipeline for diamonds has ended. The emergence of Canada as a major supplier (containing major players other than De Beers) will increase the multitude of new producing pipelines. The new leaders in the diamond arena include massive mining companies such as BHP-Billiton, which owns the Ekati Mine, and a Rio Tinto/Aber Diamond Corp. joint venture that owns the Diavik Mine.

It’s unclear how many of these companies will be successful. But the companies are hopeful, having invested a combined total of more than a billion dollars in exploration and development in the Northwest Territories. Other Canadian provinces – including Alberta, Manitoba, Ontario, Saskatchewan and Quebec – have been identified as potential diamond areas also. But in the face of cooling economies in diamond-consuming countries – including the United States and many in Europe and the Far East – the possibility of greatly expanded production raises the specter of a diamond glut. That would make it very difficult for the new companies to fully recoup their investments and make profits.

For now, however, the excitement over Canada’s status is palpable. An estimated 60 diamond companies are in some stage of prospecting or drilling in the country. Here is a glimpse at a few of the major players.

Broken Hill Properties – Billiton/Dia Met

These major mining companies own the world-class Ekati Mine in the Northwest Territories. The mine began operations in 1998 – later than expected because of delays securing permits and regulations – and so far has produced some 7 million carats of rough diamonds with an average value of $160 per carat. Over 11/2 years ago, De Beers negotiated a three-year contract with BHP to buy and market a 35% share of mine-run production.

Rio Tinto/Aber Diamond

These two major mining companies own the Diavik Mine, also in the Northwest Territories, south of Ekati. Diavik is expected to start producing diamonds by spring 2003. This year, the companies dedicated their efforts to obtaining the proper licenses and permits and moving heavy equipment to the site to build concrete foundations for the mine. Tiffany & Co. is the first retailer to secure a major stake (about 8%) in the diamonds’ production. In exchange Tiffany will receive an estimated $50 million worth of diamonds from the mine each year.

De Beers Canada

De Beers has been working hard to catch up, acquiring Snap Lake properties in the Northwest Territories from Winspear in 2000 and from Aber Diamond Corp. this year. Aber still holds a 32% stake. Beardmore Gray of De Beers Canada says the Snap Lake Mine, located south of Ekati and Diavik, is scheduled to begin production in 2004 and yield 1.6 carats per ton (about 1.75 million carats a year) at an average value of $100 per carat.
De Beers also is in the advanced stages of exploration elsewhere in Canada. So far, geologists have identified over 220 kimberlite pipes, a geological formation in which diamonds are often found. Other promising sites in the Northwest Territories include Gahacho Kue (or Kennady Lake) and Fort a la Corne, joint ventures with other mining companies. De Beers also identified the Victor kimberlite in Attawpiskat, located in the James Bay lowlands.
Among the junior companies worth observing is the Jericho Mine project in Nunavut. Tahera Corp., which owns the project, says the company will soon be able to supply millions of carats of rough diamonds per year.

– Robert Weldon, G.G.

The Ekati Mine in the Northwest Territories is open and Diavik will follow in 2003. De Beers’ Snap Lake properties are expected to begin production in 2004.

Copyright © 2001 by Bond Communications