The Northwest Territories’ secondary diamond sector has been struggling to compete ever since the first cutting and polishing centre opened in mid-1999, but there is renewed hope that the industry, or some vestige of it, may survive long enough to become viable.
Last year, two of the four government-subsidized factories in the Northwest Territories (N.W.T.), Sirius Diamonds and Arslanian Cutting Works, were forced into receivership because they lacked the capital to import skilled labour and buy the high-quality stones needed to compete with lower-cost cutting centres in India and China.
But both Sirius and Arslanian were rescued by Montreal-based Basal Diamonds and a third plant, Canada Dene Diamonds, is taking advantage of the Northwest Territories government’s (GNWT) new “Rare in Nature” campaign to market its diamonds internationally.
The world’s only aboriginal-owned diamond polishing facility, Canada Dene is a partnership between Yellowknife’s Dene First Nations and Israel’s Moshe Namdar & Co. The partnership has just launched its own jewelry line through fashion designer Paul Hardy and is ramping up production to respond to increased demand for government-certified Canadian stones.
Of the other three plants, Arslanian produces high-quality cut diamonds using the Ekati label, Sirius is known for mid-to-high quality stones under the Polar Bear brand and Laurelton Diamonds, 100%-owned by
Laurelton is the only one of the plants that has opted out of the N.W.T. government certification program guaranteeing the diamonds are mined, cut and polished in Canada.
To help support the fledgling industry, the GNWT just withdrew from the National Diamond Strategy (NDS), a nationwide initiative designed to add value to Canada’s diamond assets, in order to concentrate its resources locally.
“(The secondary industry) is in its infancy and there have been some bumps in the road as it has developed,” says Brendan Bell, GNWT’s minister of industry, tourism and investment. “We need to make sure our local industry is on solid footing before we take our eyes off that to focus on national initiatives.”
Bell says that instead of spreading limited resources among the NDS and other responsibilities, from now on the department in charge of diamond projects will focus on regional exploration and marketing diamonds from local cutting and polishing plants.
Rare in Nature, a campaign designed to increase awareness of government-certified Canadian diamonds that are guaranteed to be conflict-free, will be financed through the sale of certificates to centres that want to use the Canadian diamond brand to sell their product. Bell says certificates sales have doubled since last year, providing more money for marketing.
But there remain challenges unique to the North that will be difficult for the secondary industry to overcome, no matter how clever the marketing campaign.
Most significantly, the cost of cutting a stone in the N.W.T. is several times greater than in India and China, where labour is relatively cheap and plentiful.
At the same time, purchasing costs are increasing. De Beers, the world’s biggest supplier of rough diamonds, increased its prices by 14% in 2004 and continued to raise prices in 2005 in the face of strong consumer confidence and demand. Producers in the Northwest Territories are following suit.
“The industry is continually reinvesting and retooling,” says Bell. “They have to stay at the forefront of technology in order to counteract the fact that they don’t have the labour market of a developing country here.”
When it became clear that the Territories would become a major diamond producer last decade, the GNWT developed a policy whereby the proposed mines had to agree to supply local factories with up to 10% of their rough diamonds in exchange for government support for the mine.
The policy was an attempt to add value to diamonds from the Northwest Territories and provide jobs for northerners.
But an industry report released last year in response to the development of the NDS (National Diamond Strategy: An Industry Response) slams the policy for preventing producers from getting the best price for all of their product, while questioning the economics of the scheme.
“A diamond mining company is seriously disadvantaged if a government edict creates a situation whereby the company loses control of its right to market its product,” the report says.
The territorial government’s statistics show that the value of shipments from N.W.T. diamond cutting and polishing was $45 million in 2004, up from $20 million in 2001, representing about 65% of the manufacturing sector. Contributions to gross domestic product (GDP), both directly and indirectly, are estimated at $15.7 million, and the industry employs about 246 people, directly and indirectly.
By comparison, the Ekati and Diavik diamond mines contribute $1.9 billion to GDP and employ about 6,500 people.
There are four cutting and polishing centres in the Northwest Territories that have been subsidized by the territorial government to varying degrees.
Arslanian, a subsidiary of Arslanian Cutting Works of Antwerp, Belgium, set up shop in Yellowknife in 2000. The N.W.T. government, as the guarantor of a $9-million loan to the company, forced Arslanian into receivership last year when the bank recalled its loan.
Basal Diamonds rescued Arslanian by paying its bank loan and taking a majority shareholding in the company. Arslanian then purchased the Sirius Diamond plant from the GNWT for $4.5 million.
Sirius, a Canadian-owned company opened in 1999, was the first large-scale cutting facility in Canada. It established the Polar Bear brand of diamonds popular in both Canada and the U.S., but was never able to buy the throughput it needed to stay afloat. The plant now employs about 30 people, about five of whom are aboriginal.
The Canada Dene Diamonds plant, established in 2000, was closed in the fall of 2002 because of financial difficulties, but reopened in 2003 and now employs about 15 workers.
The most recent arrival on the scene, Laurelton Diamonds, is owned by Tiffany & Co., the New York City-based jewelry manufacturer that has a diamond purchasing agreement with
Whether the North’s secondary diamond industry will become a viable enterprise or another white elephant remains to be seen. If local plants can successfully market the integrity of their brand, they might just have a chance. The outcome will depend on how much jewellers and consumers really care about the origins of their diamonds.
— The author is a freelance writer specializing in mining issues, and principal of Toronto-based GeoPen Communications (www.geopen.com).
Be the first to comment on "Secondary diamond industry showing signs of life"