Canada's once-booming Arctic diamond sector loses lustre - Action News
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Canada's once-booming Arctic diamond sector loses lustre

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.

Decline in diamond prices means drop in exploration

A cut and polished diamond is on sale at the N.W.T. Diamond Centre in Yellowknife. (Susan Taylor/Reuters)

Adecline in diamond prices because of lower growth in Chinesejewelry demand is dulling the appeal of Canada's Arctic diamondindustry, with the resulting drop in exploration hurting theregion's long-term prospects.

Exploration spending in Canada's diamond-rich NorthwestTerritories, the world's third-biggest producer, isforecast to drop 54 per cent this year, according to a Canadiangovernment estimate earlier this year.

That is bad news for anindustry where even profitable deposits can take 10 to 20 yearsto develop into a mine.

"It's worrisome," said Tom Hoefer, executive director of NWTand Nunavut Chamber of Mines, which is based in Yellowknife, theterritories' economic hub and capital. "Exploration is thelifeblood of mining."

Once the engine for booming diamond demand, the growth inChina's appetite for polished gems has slowed alongside itseconomy.

Anglo American-owned De Beers, the world's topproducer by value, expects 3 to5 per cent sales growth in Chinathis year for its polished diamonds. They grew 5 per cent lastyear, down from 29 per cent in 2011. De Beers forecast flat
global diamond jewelry demand in its 2015 annual outlook for theindustry.

In an attempt to ease a supply glut, miners have lowered production. Last week, De Beers chopped its global output forthe third time this year.

Producers have also been cutting prices, and severaldifferent benchmark measurements of diamond prices have been
dropping in recent months.

In some cases, spending is being cut. De Beers Canada willclose its Toronto headquarters and relocate the operations toCalgary, Alberta by the end of next June as part of arestructuring.

Since its first diamond mine opened in 1998, Canadianproduction by value has boomed, and lags only Botswana and
Russia. Most of the industry is based in N.W.T. which has a landmass bigger than France and Germany combined, but with apopulation of just 43,600.

Over the past five years, global diamond production grewjust 4 percent to 124.8 million carats, but Canadian output
increased nearly 10 per cent to some 12 million carats, accordingto data from the Kimberley Process, which monitors sales.

As a contributor to 18 per cent of N.W.T.'s gross domesticproduct and the creator of thousands of jobs, the diamond
industry is a "godsend,"said David Ramsay, N.W.T. minister of industry, tourism and investment.

Buzzing with backhoes

Even as prices slump, De Beers is building N.W.T.'s fourthdiamond mine, Gahcho Kue, which is expected to have an 11-yearlife. On a recent flight over the treeless tundra, the remotesite was buzzing with backhoes, trucks and hundreds of workerspreparing for production to begin in late 2016.

But companies have no other new mines planned and existingoperations are "long in the tooth," Hoefer said.

"Within 10-15-20 years, we may be seeing some of thesediamond mines shut down," said Mark Heyck, the mayor of
Yellowknife, a city established because of gold mining andfortified by the growth of diamond mining.

De Beers' existing Snap Lake mine, which is not yetprofitable, will operate until 2028.

Rio Tinto sees production at its majority-ownedDiavik mine ending in 2023. Dominion Diamond, whichholds 40 per cent of Diavik and 89 per cent of the Ekati mine,awaits expansion permits that could extend Ekati by 11 years to2031.

While this isolated region is seen as having rich potential with more opportunities for discovery of new deposits than
places that have seen much more exploration the lack ofinfrastructure and a punishing climate have always made
development costly.

Some miners complain that N.W.T.'s permitting process alsotakes longer than elsewhere, another disincentive to developmentwhen prices are weak.

The area's promise is "phenomenal," but the way it has beenmanaged is "appalling," said Patrick Evans, chief executive ofboth explorer Kennady Diamonds and Mountain ProvinceDiamonds, which is 49 per cent owner of Gahcho Kue.

"Kennady is the only company that is doing any seriousdiamond 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 N.W.T. draft plan,to increase land set aside for conservation to 40 per cent from 9per cent, could restrict future finds.

Unsettled land claims are another concern.

Some 144,000 square kilometresofmineral-rich land is "frozen" because land claims have not yetbeen settled with aboriginal groups, said N.W.T. Minister of Environment and Natural Resources MichaelMiltenberger.

And while the permitting system is complex, it has beenimproving since last April, when the N.W.T. took over many federalresponsibilities, said Miltenberger.

"We have to not only have the proper infrastructure formanaging the processes and the paperwork, but we also need tomake sure we clean up our own things, like land claims, so thatindustry knows ... there's land available," he said in aninterview.

To help foster development, the government is proposing a $170 millionall-weather road on the south endof a winter ice road connecting Yellowknife with the maindiamond mining area.

Standing on the shore of Great Slave Lake, Yellowknives DeneFirst Nation Chief Edward Sangris said history has shownindigenous people the need for environmental protection in thisdelicate landscape.

His community of Dettah is a 15-minute car ride from theabandoned Giant Mine outside Yellowknife, a former gold minewhich has 237,000 tonnes of lethal arsenic trioxide buried inunderground vaults.

"We have to ensure that whatever we agree to, with industry,complies with our understanding on how we're supposed to protectour environment," he said.

Longer term, the N.W.T. could help revive its diamond industryby resolving uncertainty around mineral rights, said PeregrineDiamonds Chief Executive Tom Peregoodoff.

"It is a great frontier from a mineral explorationperspective," he said. "I'd be reticent to say that the heydayis over."