Aurora Canadianis

The only significant diamond mine in the Western Hemisphere has opened in northern Canada. It will be producing 3.5 million to 4 million carats of quality gems annually when it goes fully online in 1999.

Built in 17 months at a cost of about $700 million by BHP Diamonds, the Ekati mine lies in the frozen wastes of Canada’s Northwest Territories. The nearest city, Yellowknife, is 300 miles to the south; the Arctic Circle is 120 miles to the north. Ekati, pronounced “EK a tee,” is Inuit for “fat lake” (the mine descends into a drained lake). Inuit natives inhabit the area.

With diamond demand sharply depressed by the economic turmoil in Asia, it would seem an inopportune time to open a big mine. But BHP Diamonds president Jim Rothwell vows the mine will begin earning a profit from the day the first stones go on sale in Antwerp this month.

Who will buy the rough? Officially, BHP is taking an independent line from De Beers’ Central Selling Organisation, stressing a multichannel marketing approach. For now BHP is selling its production through IDH Diamonds of Antwerp “to a small group of qualified core clients,” according to Rothwell. BHP executives say they want to test the market for their goods before committing to a long-term agreement with De Beers or any other major diamond producer.

Rothwell says BHP’s eventual goal is to develop its own core of sightholders, who would buy large quantities of rough in regularly scheduled sales. IDH is also offering relatively small parcels of diamonds to the open market “so we can determine current market conditions for specific qualities,” Rothwell says. “We’re still on a learning curve.”

Thus far, most of the diamonds coming through the IDH office have been high color and very cuttable, says Daniel Horowitz, a partner in the firm. He adds, however, that he hasn’t received enough of the production to gauge the prevailing sizes of the material. “In all, it’s quite good quality and should be in strong demand, even these days,” he says.

De Beers isn’t out of the picture. BHP officials say the current marketing arrangements will work for now but may change next year. Rumors persist that the CSO will be offered half of the mine’s output. The only public statement either side will commit to is that talks are cordial and ongoing.

CSO officials reportedly are reluctant to accept such an arrangement; their basic policy is that market control can be ensured only if diamonds are sold through a single channel. The CSO has fought other attempts by some producers in its network to sell a minority percentage of their diamonds outside the organization. CSO officials offer the Russian debacle of the mid-1990s as evidence of how such loopholes can get out of hand.

BHP has its own pressures, however. The giant Australian mining company has more than $2 billion worth of operations in the United States, and its executives worry that the U.S. Justice Department may take a dim view of its working closely with De Beers. De Beers is banned from directly doing business in the United States because it violates antitrust laws.

The Ekati mine is actually a cluster of three kimberlites named Panda, Koala, and Misery. Production has started with Panda – the largest with the largest stones, averaging about $200 per carat (the price manufacturers would pay). Mining at Misery, which produces the smallest goods valued at an average of $40 per carat, will commence next year. Koala Pipe, which lies under the lake bearing its name, is the smallest but also yields high-value stones, averaging $188 per carat, according to sample results. In addition, BHP is still testing two other smaller pipes, Sable and Fox, which lie close by.

Another cluster of diamond-bearing kimberlites, even larger than Ekati, lies about 30 miles to the east. That mine, majority owned by Rio Tinto, is likely to come on stream in 2002, producing 5 million to 6 million carats yearly. De Beers is also pursuing a promising deposit in the same area.

Working in 60-below weather. Mining at Ekati will be a 24-hour-a-day operation, even in the dead of winter, when daylight lasts only a few hours and temperatures plunge to 60 below. Miners will work 12-hour shifts under floodlights to meet Ekati’s daily quota of 9,000 tons of ore. At an average grade of a carat per ton, the total daily take will be about 9,000 carats.

Besides the cold, another severe challenge is the surrounding rock – highly abrasive granite that grinds down valuable equipment. Bulldozer blades have a life span of only 250 hours, or less than two weeks under continuous use. Drill bits, costing $1,500 each, wear out in just two hours.

There’s also a potential “inversion factor” – the entrapment of noxious exhaust fumes in the mining pit on very cold days. “We haven’t experienced it yet,” says Harold Gates, mine improvement consultant, “but it could become a problem when the pit gets deeper.”

Since BHP’s staff had no previous diamond experience, Ekati’s miners have to take larger-than-usual slices of the surrounding rock from the walls of the pit to ensure nothing’s missed.

“We’re still on a learning curve about this,” says Gates. “It’s a real experience trying to work these things out.”

Another challenge is the shaky financial condition of BHP, which owns 51% of the project and will market all of the diamonds for three years. The company, one of the world’s largest mining concerns, lost $1.5 billion in fiscal 1998, largely in its minerals division. It also has suffered several management shakeups. Earlier this year, it was rumored that BHP is negotiating a sale of the mine to De Beers, but both companies deny it.

Environmental impact. The Ekati project has undergone some of the most rigorous environmental tests ever. Conservationists, concerned about the draining of several small lakes to excavate the kimberlite pipes beneath them, moved in early to ensure the proj- ect didn’t damage the fragile ecology of the region. They had the government on their side.

“We had to excavate a drainage canal [to an undrained portion of Panda Lake] to provide the fish in the lake a place to leave it,” says Graham Nicholls, BHP’s external affairs manager. “We also had to ensure we didn’t block migratory routes of the caribou because the local Inuit communities depend upon them.”

BHP had to enlist support of the Inuits, who have lived and hunted on the bleak land for centuries. Early on, BHP began recruiting and training Inuit workers, and on opening day, they constituted 40 percent of the 550-person work force.

“The project has passed its tests with flying colors,” says Jane Stewart, Canada’s minister of Indian and Northern affairs, who helped officiate at the opening proceedings. “This mine has brought a great benefit to the region.”

Fear of theft. Eventually all of Ekati’s diamonds will be sorted and valued in a secure facility now being built at Yellowknife Airport. From there, they’ll go directly to Antwerp.

Security is a top priority at this facility and at the mine, says Paul Haack, who heads the security division at the mine. “Every diamond mine in the world has been infiltrated by organized theft, so we have to assume we will be a target at some point,” he says.

Most of the theft rings involve some key worker with access to diamonds who’s been coerced into cooperating with thieves, Haack says. The most astounding example is the group that purloined as much as $8 million worth of pink diamonds from Argyle’s sorting operations over several years. Investigators eventually discovered that Argyle’s security chief and his wife were working with the ringleader of the criminal operation.

“The object is to reduce opportunity for theft,” Haack says, adding that the ore concentrate – the rich mixture of diamonds and crushed ore – is carried by sealed pneumatic pipelines through the final sorting process.

Diamonds are separated from the rock by an X-ray device that sets off an air jet, pushing each rough diamond into another sealed container. Human hands never touch them.

Yellowknife Cutters to Begin Operations

While most of Ekati’s production is being transported to Antwerp, a Vancouver diamond firm will be getting a small part of it to develop a local cutting enterprise.

Sirius Diamonds of the Northwest Territories is building a facility in the provincial capital of Yellowknife to cut and polish Ekati diamonds and provide employment for people living in Canada’s far north, according to company spokesman Pierre Alvarez.

Using government funds, the company is training workers to begin polishing diamonds by April of next year. “We plan to produce 2,000 carats monthly to start,” says Alvarez. That number will eventually rise to 5,000, with 30 workers and a number of automated polishing and bruting machines.

Sirius plans to market the Canadian-mined, Canadian-cut diamonds to retailers throughout Canada. Automation and attention to quality will make the operation competitive, says Alvarez.

“Our finished product will range from one-third [ct.] to a carat,” he says. Most of the production will be Canadian Ideal cuts, similar to the proportions in the United States and Japan. The company will also produce near-Ideal cuts, called the Arctic Fire, the Ice Cut, and the Northern Lights Cut.

A Diamond Bourse in Montreal?

On the fifth floor of an office building in Montreal, four men are bent over their polishing wheels. They’re intently focused on cutting diamonds. But the way their boss sees it, what they’re really doing is starting a revolution.

Mayer Gniwisch, president of First Canadian Diamond Cutting Works, hopes his fledgling company – which opened on June 1 – will spur the development of a Montreal diamond bourse. “I want to create an industry in Montreal,” Gniwisch says. “People from New York who would go to Antwerp or Israel [to buy diamonds] would come here.”

Making Montreal into another Antwerp is an ambitious goal. But Gniwisch has already done considerable legwork, aided by his strong familial bonds. His father-in-law, a South African, is a De Beers sightholder. Gniwisch spent three years learning the craft in Johannesburg. In 1993, he returned to Montreal, establishing a company that imported diamonds from South Africa, Antwerp, and Israel. The next year, he started a New York marketing arm of his father-in-law’s company, commuting between the Big Apple and Montreal.

Through his family connection with Delmar, a Montreal fine-jewelry company owned by his parents, Gniwisch stumbled into the opportunity to become a consultant for the government of the Northwest Territories. With BHP preparing to build its diamond mine, the government wanted to study the feasibility of setting up a diamond-cutting facility there (see accompanying story). A Delmar customer whose husband was a member of Parliament from Yellowknife happened to mention the plan in the course of doing business with Gniwisch’s mother. “My Yiddishe mama – as they say in French – told her, ‘My son is a diamond cutter,’ ” Gniwisch recalls with a smile. Shortly thereafter, he won a consulting contract and wrote a study in April 1994.

Gniwisch saw the opportunity for a Canadian diamond cutter and decided to open his own factory in Montreal. Along with his brother and brother-in-law, he invested $1 million in equipment, including state-of-the-art computer-assisted bruting machines and computerized diamond-classification equipment. They set up First Canadian Diamond Cutting Works in a section of Delmar’s offices and hired four cutters from Antwerp. The Belgians, who will stay in Montreal for two years, are currently training two Canadian cutters; plans call for them to train a total of 20 Canadians during their stay.

First Canadian began selling cut diamonds in mid-June. While the company is concentrating on Canadian customers, it also has served customers in the United States as well as Hong Kong and Thailand. According to Gniwisch, because his factory is specializing in larger diamonds – 3-caraters and up – he isn’t competing with Asian cutters and their low labor costs.

With the opening of the Ekati mine in Yellowknife, the Montreal factory is set to begin cutting Canadian diamonds. “This idea has been cooking in my head for five years,” Gniwisch says. At press time, he was preparing to go to Antwerp to pick up his first parcel. With production from the BHP mine just starting, however, there’s no official word on the amount of large goods coming from Ekati.

The Delmar name and address have been a key marketing tool, enabling Gniwisch to “tap into 2,000 Canadian retail stores,” he says. “All I have to do is say, ‘Hello, I’m from Delmar’; that’s the basis of my business. I [come from] a company with 25 years of a reputation. I can sell directly to retailers, and I can sell directly to dealers.”

– Barbara Spector