Feature: Canada's once-booming Arctic diamond sector loses luster

North Arrow Minerals

27/10/2015 05:00

By Susan Taylor 
    YELLOWKNIFE, Northwest Territories, Oct 27 (Reuters) - A 
decline in diamond prices because of lower growth in Chinese 
jewelry demand is dulling the appeal of Canada's Arctic diamond 
industry, with the resulting drop in exploration hurting the 
region's long-term prospects. 
    Exploration spending in Canada's diamond-rich Northwest 
Territories (NWT), the world's third-biggest producer, is 
forecast to drop 54 percent this year, according to a Canadian 
government estimate earlier this year. That is bad news for an 
industry where even profitable deposits can take 10 to 20 years 
to develop into a mine. 
    "It's worrisome," said Tom Hoefer, executive director of NWT 
and Nunavut Chamber of Mines, which is based in Yellowknife, the 
territories' economic hub and capital. "Exploration is the 
lifeblood of mining." 
    Once the engine for booming diamond demand, the growth in 
China's appetite for polished gems has slowed alongside its 
economy. 
    Anglo American-owned  AAL.L  De Beers, the world's top 
producer by value, expects 3-5 percent sales growth in China 
this year for its polished diamonds. They grew 5 percent last 
year, down from 29 percent in 2011. De Beers forecast flat 
global diamond jewelry demand in its 2015 annual outlook for the 
industry.  L1N11R0C2  
    In an attempt to ease a supply glut, miners have lowered 
production. Last week, De Beers chopped its global output for 
the third time this year.  L5N1173RI  L8N12M1EZ  
    Producers have also been cutting prices, and several 
different benchmark measurements of diamond prices have been 
dropping in recent months. (for graphic, see: 
http://link.reuters.com/kuk65w) 
    In some cases, spending is being cut. De Beers Canada will 
close its Toronto headquarters and relocate the operations to 
Calgary, Alberta by the end of next June as part of a 
restructuring.  L1N12G29J  
    Since its first diamond mine opened in 1998, Canadian 
production by value has boomed, and lags only Botswana and 
Russia. Most of the industry is based in NWT - which has a land 
mass bigger than France and Germany combined, but with a 
population of just 43,600. 
    Over the past five years, global diamond production grew 
just 4 percent to 124.8 million carats, but Canadian output 
increased nearly 10 percent to some 12 million carats, according 
to data from the Kimberley Process, which monitors sales.  
   As a contributor to 18 percent of NWT's gross domestic 
product and the creator of thousands of jobs, the diamond 
industry is a "godsend", said David Ramsay, NWT minister of 
justice and industry, tourism and investment. 
     
    BUZZING WITH BACKHOES 
    Even as prices slump, De Beers is building NWT's fourth 
diamond mine, Gahcho Kue, which is expected to have an 11-year 
life. On a recent flight over the treeless tundra, the remote 
site was buzzing with backhoes, trucks and hundreds of workers 
preparing for production to begin in late 2016.  
    But companies have no other new mines planned and existing 
operations are "long in the tooth," Hoefer said. 
    "Within 10-15-20 years, we may be seeing some of these 
diamond mines shut down," said Mark Heyck, the mayor of 
Yellowknife, a city established because of gold mining and 
fortified by the growth of diamond mining. 
    De Beers' existing Snap Lake mine, which is not yet 
profitable, will operate until 2028.  
    Rio Tinto  RIO.L  sees production at its majority-owned 
Diavik mine ending in 2023. Dominion Diamond  DDC.TO , which 
holds 40 percent of Diavik and 89 percent of the Ekati mine, 
awaits expansion permits that could extend Ekati by 11 years to 
2031.  
    While this isolated region is seen having rich potential - 
with more opportunities for discovery of new deposits than 
places that have seen much more exploration - the lack of 
infrastructure and a punishing climate have always made 
development costly. 
    Some miners complain that NWT's permitting process also 
takes longer than elsewhere, another disincentive to development 
when prices are weak. 
    The area's promise is "phenomenal", but the way it has been 
managed is "appalling," said Patrick Evans, chief executive of 
both explorer Kennady Diamonds  KDI.V  and Mountain Province 
Diamonds  MPV.TO , which is 49 percent owner of Gahcho Kue. 
    "Kennady is the only company that is doing any serious 
diamond exploration in the Northwest Territories," Evans said. 
"And if we weren't there already, we wouldn't go there now." 
       
    LAND CLAIMS 
    The mining industry also frets that a recent NWT draft plan, 
to increase land set aside for conservation to 40 percent from 9 
percent, could restrict future finds. 
    Unsettled land claims are another concern.  
    Some 144,000 square kilometers (56,000 square miles) of 
mineral-rich land is "frozen" because land claims have not yet 
been settled with aboriginal groups, said NWT Minister of 
Finance and Environment and Natural Resources Michael 
Miltenberger. 
    And while the permitting system is complex, it has been 
improving since last April, when the NWT took over many federal 
responsibilities, said Miltenberger.  
    "We have to not only have the proper infrastructure for 
managing the processes and the paperwork, but we also need to 
make sure we clean up our own things, like land claims, so that 
industry knows ... there's land available," he said in an 
interview. 
    To help foster development, the government is proposing a    
C$170 million ($129.2 million) all-weather road on the south end 
of a winter ice road connecting Yellowknife with the main 
diamond mining area. 
   Standing on the shore of Great Slave Lake, Yellowknives Dene 
First Nation Chief Edward Sangris said history has shown 
indigenous people the need for environmental protection in this 
delicate landscape. 
    His community of Dettah is a 15-minute car ride from the 
abandoned Giant Mine outside Yellowknife, a former gold mine 
which has 237,000 tonnes of lethal arsenic trioxide buried in 
underground vaults.  
    "We have to ensure that whatever we agree to, with industry, 
complies with our understanding on how we're supposed to protect 
our environment," he said.  
    Longer term, the NWT could help revive its diamond industry 
by resolving uncertainty around mineral rights, said Peregrine 
Diamonds  PGD.TO  Chief Executive Tom Peregoodoff.  
    "It is a great frontier from a mineral exploration 
perspective," he said. "I'd be reticent to say that the heyday 
is over."  
    ($1 = 1.3153 Canadian dollars) 
 
    <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ 
Graphic: Rough diamond prices take a dive    http://link.reuters.com/kuk65w 
Graphic: The long odds of discovery    http://link.reuters.comfer53w 
Graphic: Canadian diamond production    http://link.reuters.com/fat85w 
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 (Reporting by Susan Taylor; Editing by Jeffrey Hodgson and 
Martin Howell) 
 ((susan.taylor1@thomsonreuters.com; +1 416 941 8083; Reuters 
Messaging: susan.taylor1.thomsonreuters.com@reuters.net)) 
 
Keywords: CANADA DIAMONDS/