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This article appeared in the Victoria Lapidary & Mineral Society Newsletter,
1998.

Diamonds in the North West Territories
Rick Hudson

There is growing excitement in the Canadian mining industry as the first diamond mine in the NWT moves towards start-up in late 1998. The developer, BHP/DiaMet, will have sunk over $700 million into the capital and infrastructure before the first stone hits the cutting floor, and while some may see that as a staggering investment in a new industry in Canada, the pay-back will be even more impressive.

The Ekati Mine ('Ekati' means 'fat lake' in the local dialect, and is what the area was called before being named Lac de Gras (Goose Lake) by the early explorers) is expected to go on-stream November 1988, when it will produce between 3 and 4 million carats annually, with an average carat value of $100/ct. To put that in perspective, that is close to 4% of the world's total output. For comparison, De Beer's Jwaneng mine in Botswana, Africa, has an output of 14 million carats annually, but the average value is only $70/ct. Combined, all the Botswana mines produce about a quarter of the world's output, at 20 million carats, or $1.8 billion.

The Russians, who have maintained a close alliance with De Beers, even in the dark days of the Cold War (they knew which side their bread was buttered!) currently produce another 18 million carats, worth just over a $1 billion.

Nearly all of these stones pass through the De Beers-controlled Central Selling Organization (CSO), and it looks as though the new Ekati production will send some of its stones through that pipeline too. However, Broken Hills Proprietary (BHP) is sensitive to the anti-monopoly policies of both Canada and the USA. BHP owns considerable properties in North America, so is vulnerable to anti-trust legislation.

Ekati workings
Field workings at the mine.

As a result, it is likely the company will also sell to at least one independent agency. In June 1997, BHP signed an agreement with a major Antwerp-based diamond house, to obtain 'market consulting services', which strongly suggests the company is looking at that option. So we may yet see some stones released into the local market, for specialty cutting.

However, the possibility of these NWT diamonds being bulk cut in Canada is unlikely. The world's most successful diamond company, De Beers, tried that idea in Botswana, but quickly realized that the experience of the established cutting houses in Belgium and Israel, combined with the extremely low cost of labour in India, made the project unfeasible. Recently, they sold their Botswana cutting interests to an Israeli group, who hope to do better. Canada, with its high cost of labour, is unlikely to appear attractive to value-add.

Nevertheless, through agreements made between the mining company, the NWT government, and aboriginal councils, royalties will flow into the local economy. Just what those terms are, is being kept confidential, but BHP has undertaken to hire and train native people, and to date almost 20% of the work force are of indigenous origin. When fully operational, 600 people will be employed at the remote site, which is some 250km NE of Yellowknife.

The Ekati story began back in 1981, although some say that the presence of a few stones found in the USA (notably Arkansas) have fuelled speculation for over a century that diamonds may have been carried south on the advancing glaciers of previous ice ages. In any event, in that year Chuck Fipke, a geologist based in Kamloops, found diamond indicator material while prospecting near the MacKenzie Range on the Yukon-NWT border.

Prospecting up there is doubly difficult - the season is very short, and the cost of transportation extreme. Buoyed by his findings that year, Chuck spent the next summer firming up his discoveries, before founding DiaMet Minerals Ltd in 1983, to provide funding for the work. In 1984 he took the company public on the Vancouver Stock Exchange, but it was only 5 years later, after a lot of mosquitoes, blackflies and thin pickings that the company announced in 1989 that it had found "encouraging levels of diamond indicator minerals near Lac de Gras in NWT". Note the wording: they didn't say they'd found diamonds, only encouraging levels of indicator minerals.

The following year, the company staked 450,000 acres of property, and signed up a major mining house (BHP) as a joint partner. With the added financing and credibility of this deal, DiaMet began a series of site evaluations, and in late 1991 announced they had recovered 81 diamonds from 130 lb of kimberlite core.

That was enough for everyone else. The press release triggered the largest staking rush in Canadian history. Vast blocks of land were optioned, there was a frenzy of financing on the Vancouver and Alberta Stock Exchanges, while the value of DiaMet stocks soared. In the following year, 90 carats of diamonds were recovered from a 160 tonne sample, yielding 25% gem quality, and another 9 kimberlites were identified.

In late 1993 an airstrip capable of handling 737s and Hercs had been built to supply a new 180-person camp, and by mid-1994, values of $80-150 per tonne were being released.

The mining operation itself is expected, when at capacity, to produce $500 million per year, and to run for at least 25 years, with the possibility of going underground for another 10 years. Five kimberlite pipes have been identified and bulk sampled to date. Two lakes have been drained or their water levels significantly lowered, all to the strictest environmental standards.

A modern 8,000 square metre processing plant will house the latest in hands-off sorting. Bear in mind that De Beers estimates it loses close to $120 million annually in theft, it is obvious that remotely controlled cameras, computer processing, and remote sensing will be used extensively at the Ekati mine, especially at the concentrating stages. When the ore is being crushed, diamonds make up only a part in 10 million, so there is little danger of theft, but by the recovery stage that statistic has dropped to one in 10,000, and security becomes a problem. Nor is it necessarily the workers who are guilty of criminal activity. In other places around the world, organized crime has been known to move in and threaten workers' families unless they cooperate! Diamonds, like Columbian emeralds, have a dark side too.

There are currently only about 5,000 known kimberlite pipes in the world. Of these, about 5% (250) contain diamonds, but less than 1% (50) contain economic deposits. And even at these 'good' sites, the mining company must move, on average, about 250 tons of material to find just a single carat! This is not a business for the shallow of pocket. Add to this the challenge that most kimberlites are located in remote sites, where an entire infrastructure usually needs to be created around the mining operation, and you begin to see the scale at which companies like BHP/DiaMet operate. And opening a mine today is a far different thing from 25 years ago: wages are higher, government royalties are larger, and the cost of environmental conformity much greater.

The history of diamonds is really the history of market control. Cecil John Rhodes created the De Beers company in the late 1880s after the great finds on the De Beers brothers farms at Kimberley in South Africa. He realized that the only way to bring stability was to create a monopoly, or 'single channel marketing' as it is politely called now. Today, although De Beers only produces half the world's annual supply, it markets almost 3/4 through the CSO, and spends over $200 million on marketing. Who is buying? What price level? Over 60 million retail diamond buyers are tracked and analyzed; new markets are evaluated (mens' diamond rings, and womens' diamond watches are hot this year!) and strategies implemented. For example, in the mid-60's, just 6% of Japanese brides bought a diamond engagement ring. Today, that number is an amazing 76%! And the "two month's salary" rule, as the price to pay for an engagement diamond, has become almost universal.

All these so-called traditions are, in reality, the product of a century of creative marketing from De Beers. "A diamond is forever" has been very successful at getting people to pay large amounts of money for something that is ... worthless? ... forever? In Canada, 80% of women own a diamond in some form, and last year there was a 20% growth in sales.


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