Anyone know much about the diamond minging industry up in the NWT?

Diamonds in Canada

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Introduction

Following the discovery of diamonds in 1991 at Point Lake, Northwest Territories (NWT) by Chuck Fipke and Stu Blusson, two geologists from British Columbia, the largest staking rush in the history of Canada began. That staking rush led to the discovery of the Ekati Diamond Mine in 1998, making Canada the 8th major diamond producing country in the world. Together with the opening of the Diavik Mine in 2002, this led to major changes within the global diamond industry and the way diamonds are marketed around the world.

The Ekati and Diavik discoveries were soon followed by the discovery of the Jericho deposit in Nunavut, Snap Lake in the NWT and the Victor Deposit, near Attawapiskat in Northern Ontario.

Since then, exploration has proceeded across the country at a rapid pace. Potentially significant finds have been found in the Otish Mountains in Quebec, Fort a la Corne in Saskatchewan and Buffalo Hills in Northern Alberta. In Nunavut, there are promising new occurrences on Baffin and Victoria Islands, and, more recently, on Melville Peninsula and in the Churchill region. In fact, several hundred kimberlite pipes have been discovered across the country since the original finds at Point Lake. In the global context, approximately 50% of the world exploration budget for diamonds is targeted at Canada.

Mine Development and Production

Canada's current production comes from two mines: the Ekati Mine, owned by BHP-Billiton (80%), Chuck Fipke (10%) and Stewart Blusson (10%), has over 100 kimberlite pipes on its property, of which eight are considered economically viable and will likely be mined. The projected mine life for Ekati is 21 years (including the past five years of production,) and is expected to produce a gross value of approximately $9.5 billion (C).

During its initial three years of operation, BHP Diamonds Inc. (now BHP Billiton Diamonds Inc.) sold 35% of its production to the De Beers Diamond Trading Company (DTC). That contract ended in 2002 and BHP-Billiton markets most of its all Canadian production on the open market.

At the end of 2001, with the Ekati mine in full production, Canada ranked 6th in the world by value of production. The Ekati production was the world's first major, full-range assortment of high-quality diamonds, valued between $100 (US) and $160 (US) per carat, to hit the global market outside of the DTC.

The Diavik Mine is a joint venture, owned by Rio Tinto (60%) and Aber Corporation (40%). Aber is the only fully Canadian-owned corporate producer.

Throughout its 20-year mine life, Diavik will mine four kimberlites, and produce a gross value of approximately $10 billion (C).

As Diavik moves into full production, Canada's diamond output has doubled, with projections in the range of $1.2 billion (US) for 2004 total Canadian production. Canada is now ranked 3rd by value in world production and is a serious competitor as a supplier to traders and major manufacturers in the global market.

An important factor to consider in the context of world production is the impact of diamonds on the nation's Gross Domestic Product (GDP). On a national scale, the impact is relatively low for Canada. However, for the NWT, the picture is dramatically different. At about 20% of GDP, we acknowledge the major contribution diamond exploration and mining has made to that economy, and the importance of benefits that can be derived regionally from such activity.

By comparison, the Snap Lake Project, owned and operated by De Beers, has an estimated production value of $2.7 billion (C), and will produce over a 15 year mine life. The Jericho project in Nunavut, owned by Tahera Corporation, is valued at about $460 million (C) and is expected to have an eight-year mine life.

The Victor Deposit in Northern Ontario is also owned by De Beers. The site is in pre-development stage and is expected to be in production by 2008.

Assuming development proceeds as projected, the current projected value of Canada's production is anticipated to peak at bout $1.6 billion (US) around 2008.

From Mine to Market

Once the rough diamonds are mined and processed at the Ekati and Diavik mines, they are transported to Yellowknife, where each company has its own sorting and valuation facility. Under the Canada Mining Regulations, before the diamonds are permitted to leave the NWT, each company must have their diamonds sized and pre-sorted for valuation by the Canadian Government Diamond Valuator (GDV). This process happens 10 times per year, approximately every five weeks. Although mining royalties are based on final sales, the GDV's valuation provides assurances to Canada that values are known before the diamonds are exported. The Valuation is also required for Certification under Canada's Kimberley Process Legislation, The Export and Import of Rough Diamonds Act, before export.

In the case of Diavik, that production is split 60%- 40% before valuation, since each of the JV partners markets its own diamonds independently. Aber's share then goes to Toronto, where they are sorted for final sales to Tiffany & Co., their primary customer, as well as to other clients in Antwerp. Rio Tinto's share goes to Antwerp, where that company, along with BHP-Billiton and Aber Corporation operate their own sales and marketing facilities and where each company can directly access the established world market.

Under an arrangement with the Government of the Northwest Territories, Ekati and Diavik make approximately 10% by value of their respective productions available to three of the cutting and polishing factories in Yellowknife.

Value Added in Canada

There are four cutting and polishing factories in Yellowknife. Three have been opened with the assistance of the territorial government's Canadian Arctic Diamonds Certification Program and they include Sirius Diamonds, Arslanian Cutting Works NWT Ltd. and Canada Dene Diamonds. Each company has established a partnership with a international diamond cutting firm and rough diamonds for these operations are supplied by BHP-Billiton and Rio Tinto Diamonds. The fourth NWT-based company is Laurelton Diamonds, which is a wholly-owned subsidiary of Tiffany & Co. of New York. Laurelton has been set up primarily to cut and polish diamonds under the purchase agreement between Aber Diamond Corp and Tiffany.

Several other independent factories have been opened in Vancouver, Toronto and Matane. These companies are cutting and polishing Canadian diamonds and diamonds from other sources obtained through the Antwerp Market.

Producers and manufacturers alike operating in Canada are interested in maximizing economic opportunities and taking advantage of whatever premium the Canadian Diamond might command in the market place.

To date, perhaps the most well-known has been the Polar Bear Brand marketed by Sirius Diamonds. BHP-Billiton has developed the Aurias Brand and is also pursuing the establishment of "Canada Mark" as their corporate guarantee of Canadian origin.

Neither Diavik, nor Rio Tinto has indicated the intention to pursue branding as a means of marketing their diamond production, other than through their established clientele. At this early stage in the Canadian industry, it is difficult to state categorically the extent to which a premium exists on Canadian diamonds in the market place. Some diamontaires, however, have reported incremental price advantages on some Canadian rough assortments, ranging from 5% to 20%.

The quest for maximizing value-added from Canadian diamond development and production has created many new business opportunities. Throughout its history, Canada's mining industry has been highly successful and is a leading exporter of related technology and expertise. In the case of diamond mining, the industry is providing high-paying, high-tech jobs and other downstream benefits that have come as a direct result of the development of Diavik and Ekati. For example, at Diavik, there are numerous northern businesses providing services to that operation that are either new enterprises, or have expanded substantially because of their work with Diavik. Similar partnerships exist at the Ekati operation. Canada recognizes those benefits as it pursues new ventures in the industry.

Summary

Canada is the first developed country where producing companies are independently marketing the full range of diamonds. We have major exploration potential for new kimberlite discoveries, so our prospects for new development are very positive. We recognize that the industry is highly mobile and advancing rapidly in new technology and new opportunities. Canada has a strong competitive advantage in world mineral development and it is essential that we preserve that advantage as our diamond industry grows and matures.