In 1991 an exciting diamond find was made at Point Lake in the Northwest Territories. Since then, Canada has become a major player in the international diamond trade.
Few countries have commercially viable diamond mines. Some 49% of rough diamonds originate from central and southern African countries.
Mining about 15% of the world's rough diamond supply, Canada is the world's third-most productive diamond mining country behind only Botswana and Russia. Significant sources of the precious mineral have also been found in India, Brazil and Australia.
Canada's rough diamonds are generally high-quality. In 2001, the average price for a Canadian-mined diamond was C$228 per carat. This represented the third-highest average diamond price in the world, behind only Namibia and Angola.
The Northwest Territories account for over 40% of Canadian diamond exploration, while Nunavut and northern Ontario are tied for second in prospecting activity. Diamond-producing properties in the Northwest Territories include the EKATI mine (80% owned by BHP Billington of Melbourne, Australian), the DIAVIK mine (a 60/40 joint venture between Diavik Diamond Mines of the U.K. and Aber Diamond Mines of Toronto), and the Snap Lake project which is 100% owned by diamond giant subsidiary DeBeers Canada. EKATI is expected to be a commercially viable diamond mine for 8 more years, while DIAVIK and Snap Lake are projected to be viable for 17 years and 15 years respectively.
Toronto's Tahera Corporation (TAH: TSX) is developing the smaller Jericho project just south of Ekati in Nunavut. After Jericho went into production in July, Tahera reported fewer high-quality diamonds extracted from Jericho than expected due to the mine's low-grade kimberlite rock and slow processing rates. At the same time production costs are exceeding the project plan budget, leading to Tahera's third-quarter loss of $10.8 million. To finance Jericho's escalating expenses, Tahera has had to renegotiate its financing agreement with New York's Tiffany & Co. In November, Tahera raised $30 million in cash by issuing 16% of its stock to Teck Cominico (TCK-B: TSX). Teck also received 22.1 million share-purchase warrants - which can again drive down or restrain Tahera's stock price.
Such are the high risks of diamond exploration. Discovering oil typically allows a company to project the value of its oil find based on a given price per barrel. The per carat value of diamonds from the same mine can range widely from $0 to many hundreds of dollars. A diamond prospector only finds out the value of each diamond as it is extracted, and after incurring the much higher costs of an entire diamond production project. In Canada's harsh northern communities, costs are more dramatic due to long winters coupled with short summers, difficult transportation on ice roads, and environmental considerations like caribou migration patterns.
And The Winners Are...
Yet Canada's north has realized great benefits since diamonds were first discovered in 1991. The diamond industry has invested $1.8 billion in capital spending in the Northwest Territories, representing 37% of the region's total capital investment from 1998 to 2002. In 2001, the diamond industry directly employed over 700 employees, up from only 90 in 1998. More recent statistics show close to 3,000 diamond industry jobs, three-quarters of which are held by northern residents (39% of whom are aboriginal). And these are high-paying jobs. The average salary for diamond production employees is about $70,000 per year.
Some 95% of Canada's rough diamonds are exported to the United Kingdom and Belgium, the traditional distribution centers that route rough diamonds for cutting and polishing processes. Most rough diamonds are sorted and sold through London in the U.K. and Antwerp in Belgium. From there, rough diamonds are re-sold to wholesale customers throughout the world (including Canada) who then manufacture the diamonds into polished gemstones ready for retail sale.
Canada enjoys a healthy surplus in the international diamond trade, with exports of some $1.4 billion while imports are valued at about $300 million. Canadian rough diamond exports represent over three-quarters of its total diamond trade.
Just as important is the fact that the annual growth rate for Canadian diamond exports is much higher than the growth rate diamond imports into Canada (flat at about 5%).
In terms of value, over 90% of diamonds imported into Canada come from Israel, Belgium, the U.S. and India. Canada also imports a large quantity of lower-value diamonds principally from Ghana, the U.S. and Belgium. These industrial diamonds comprise about 1% of Canada's diamond imports based on total value, and are used to make diamond tools and equipment.
Canada is doing well in the global trade of rough diamonds. The total for world trade of rough diamonds came to some $11 billion in 2002. That same year, cut and polished diamonds were valued at $17 billion. Wholesale diamonds amounted to $33 billion, with retail sales of about $68 billion. (These statistics are per the Rio Tinto Group.)
If Canada acquires the capacity to distribute, cut, polish, and wholesale its own rough diamonds, the world's third-largest diamond nation will enjoy an even more profitable position in international diamond trade.
Sources: Statistics Canada
