Diamond mines in Canada at risk

The owners of Canada’s two largest mines are looking to get out.

(Photo: John Lehmann/Canadian Press)

Diamonds are symbols of permanence. Some—thought to have arrived on meteorites—may be 10 billion years old, more ancient than the planet itself. The fortunes of diamond mines, by contrast, can be protean. That’s worrisome for the Northwest Territories, home to Canada’s two largest diamond mines, Ekati and Diavik. Since November, their majority owners (multinational mining giants BHP Billiton and Rio Tinto, respectively) both have commenced reviews of their diamond operations, effectively putting both mines up for sale. Some analysts speculate these reviews could result in individual mine sales or initial public offerings of entire diamond divisions.

Canada’s diamond industry has also reached a crossroads, for related reasons. It’s been more than two decades since geologists Chuck Fipke and Stewart Blusson discovered diamond-rich kimberlites in the N.W.T., sparking the biggest staking rush in Canadian history. Their Ekati mine, developed in partnership with BHP, opened in 1998. Rio’s Diavik followed in 2003. It’s tough to understate these mines’ impact on an industry characterized for most of the 20th century by monopolistic practices. By the early 2000s, Canada had become the world’s third-largest diamond-producing nation, behind Botswana and Russia. Our mines helped break the famed De Beers cartel.

It couldn’t last forever, though. In 2007, two men pondered the industry’s future. Tom Hoefer, then manager of public affairs at Diavik, warned at a conference that the industry needed to ramp up exploration. Canada’s mines were all old discoveries, and it was taking ever longer to bring new ones into service. Meanwhile Dennis Bevington, MP for the Western Arctic, issued a report noting the diamond industry had come to account for half of all economic activity in the N.W.T. Ekati and Diavik were harvesting ore at rates exceeding original targets. As good as that may have been for profitability, he warned, it had ominous implications for sustainability.

Both observations proved prescient. Canada’s diamond production peaked that year above 16 million carats. It’s been falling ever since, dipping below 10 million carats last year. At Ekati, old pits are being closed, and their successors are smaller. Talk of extending its life by as many as 20 years has faded; closure is now expected in 2018. Production at Diavik is expected to jump this year, but it too has limited life left. Rio puts it at “10-plus” years. Canada’s newer mines, such as De Beers’ Snap Lake, or those in development (like Gahcho Kué, a joint venture between De Beers and Mountain Province Diamonds currently in environmental assessment) aren’t large enough to fill the void.

Worse still, nobody took Hoefer’s advice. “Exploration expenditures in the N.W.T. have languished over the past few years and could therefore limit the territory’s options for growing its mining industry in the long term,” noted a recent report by the Conference Board of Canada. Hoefer, now executive director of the NWT & Nunavut Chamber of Mines, says a combination of land claim uncertainty, a complex regulatory regime and growing swaths of protected lands scared off investors.

BHP and Rio haven’t said precisely why they’re having second thoughts, but one can guess. Most of the surface ores at Ekati and Diavik are exhausted; both moved to more expensive underground mining as they matured. Diesel, the North’s crucial fuel, is three times more expensive than it was when the mines opened. And because diamonds are priced in U.S. dollars, Canada’s rising currency has hurt margins. Globally, diamonds comprise a relatively small part of BHP’s and Rio’s overall activities. Rio has signalled it would rather focus on more profitable commodities like copper, iron ore and uranium. Morningstar stock analyst Mark Taylor called BHP’s potential divestiture “a good move that would remove what amounts to little more than a distraction.”

Five years after voicing their concerns, Hoefer and Bevington differ on the industry’s prospects. Hoefer points to surging demand for diamonds from the Far East, particularly China. If sustained, that could prompt more exploration or production of known pipes. “What’s not ore today may be ore tomorrow,” he says. “There is a prospect for renaissance.”

Bevington, though, has long expected the industry would consolidate as mines aged and production shifted to less lucrative kimberlite bodies. Although the N.W.T. has other kinds of mining projects currently under development, he suspects the diamond industry’s best years have passed. “There’s opportunities for a company that would want to be involved in the end game of the diamond mines in that area,” he says. “But of course none of this is really good for the Northwest Territories.”