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Feb. 2000

Carol Besler, the editor of Canadian Jeweler, gives us part two of her report from her on-the-scene visit to the new Ekati mine in the Northwest Territories.

Nothing more clearly illustrates the difference between the way diamond mining works in Canada than an examination of the role of the government of the Northwest Territories (GNWT.) Despite discouraging precedents in other diamond-producing countries, the GNWT aggressively set out to create policies to ensure that the newfound diamond wealth was spread among northern communities in a way that went beyond employment quotas.

In the past, towns were built around mines in Canada’s north and attached to the growth of the mines. The end of a mine’s life marked the beginning of federal subsidies to keep the communities going. Eventually, the government’s position favored the less costly fly-in/fly-out approach, forcing mines to transport staff from self-sustainable communities elsewhere that were self-sustainable. (The majority of workers at the Lupin gold mine, just north of Ekati, for example, were flown in from Edmonton, Alberta.) The only objective was to create wealth, through royalties, for Canada. For example, Federal royalties from the BHP mine alone over the next 20 years are estimated to reach about $1.8 billion.

Joe Handley, deputy minister of resources, wildlife and economic development for the Northwest Territories, was one of a handful of northern politicians and civil servants who helped change this precedent. “Someday, the mines will be gone, and if we don’t act now to build a more diverse economy, we’ll have lost the opportunity. Everyone will just leave and we‘ll be left with the waste,” he said.

First, the GNWT negotiated employment quotas, ensuring that northerners were hired both for the construction and ongoing operation of the mine. Next, it set its focus on reaping direct economic benefit for northerners.

Not having any previous experience in the diamond world was both a hindrance and an advantage. Since they harbored no deep-rooted convictions based on the collective wisdom of all who had come before them in the diamond industry, the various bureaucrats and elected officials on the Diamond Projects team freely considered every option imaginable. No idea was too crazy. Why not establish a cutting industry in Yellowknife? And a bourse? Even a jewelry manufacturing industry?

Of course, industry experts from around the world — and these days, everyone is a diamond expert — surfaced to tell them they would fail. Establishing a cutting centre hadn’t worked in Botswana and it couldn’t possibly be viable in Canada. Did they know how Canadian labor costs compared to India’s? Didn’t they know that the diamond industry in Antwerp and its famous infrastructure took centuries to establish?

To make matters worse, jurisdictional issues weakened the GNWT’s position. While the environmental approval process for Ekati was unprecedented in its scope, requiring BHP to virtually establish its own department of natural resources, the legislation contained no stipulation for downstream development. By the time the GNWT narrowed its focus to the one thing that would most likely ensure local development — a value-added agreement that would require the mines to hold back a certain amount of high-quality rough for local manufacture — Ekati had already received full approval. The Department of Indian affairs and Northern Development (DIAND), the department responsible for issuing final permits to BHP, refused to make a value-added agreement part of the approval process.

Undeterred, GNWT resolved to negotiate an agreement directly with BHP. “We appealed to their sense of image, and pointed out it wouldn’t cost anything,” Handley says. Even more persuasive was the GNWT’s threat to impose “taxes that would choke a mule” (in the words of one Diavik official, which negotiated a similar agreement.) “We threatened to impose a special mining tax, even though we didn’t want to resort to that because it would make less competitive internationally,” says Handley.

In the end, they didn’t have to. BHP agreed to supply 10% (by value) of its gem quality diamonds, which amounts to 7,500 carats every five weeks. The diamonds, .75 – to four-carat goods of high quality, will be sold to manufacturers whose proposals were pre-approved by the GNWT. The main criteria: They had to be willing to set up cutting facilities in Yellowknife. In return, they would be guaranteed return allotments of high quality rough. In addition, the GNWT would provide loan guarantees, training and capital support. The first of the three companies that now hold such contracts with BHP is Sirius Diamonds, which received a grant of $250,000 from the GNWT. Sirius has already built a cutting factory in Yellowknife, where it polishes about 1,000 carats a month, supplied by BHP.

In August, BHP announced similar contracts with two more manufacturers: Deton’Cho diamonds, a joint venture between a Yellowknife Dene band and Goldeos, a Calgary company whose principal owner is Belgian-Canadian; and Arslanian Cutting Works, a diamond processor based in Antwerp, Belgium, in partnership with a Yellowknife Dogrib band. In return for an undisclosed investment, the Dogrib community will receive advice and knowledge about the diamond. In a few years, when other mines are established in the area, they hope to operate their own factory. Both companies expect to have factories running this year.

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