Canada’s Diamonds

TIt has taken less than a decade for Canada to thoroughly shake up the global diamond industry as the new kid on the block. Going forward, there are significant potential implications for the northern regional economies, intergovernmental relations, fiscal transfer funding formulas and the global diamond industry.

With current negotiations already under way, $260 million in annual diamond royalties flowing from mines in the Northwest Territories (NWT) to coffers in Ottawa may well be the final motivation towards granting the NWT the status of being Canada’s 11th province.

As in the NWT, diamond mining holds the promise of transforming northern economies in Nunavut, Ontario, and particularly Saskatchewan. In 2005, diamond mining accounted for about 51 and 9-percent of the NWT and Nunavut economies, respectively.

To give a sense of how quickly the industry has evolved, Canada had no diamond mines in operation as recently as 1997, but now claims three in production, two more slated to open by 2008 and potentially three more later.

By quantity, Canada is sixth in the world in total annual production, but by value, it is the third biggest diamond-producing country in the world behind Russia and Botswana and slightly ahead of South Africa. Canada now accounts for about one-eighth of global diamond production by value, which is higher than its share of production measured in carats (about 8- percent) because Canadian diamonds are generally among the highest quality in the world and fetch higher prices.

Over 2007-2008, when the new mines open, diamonds may well overtake gold as the fifth largest source of Canada’s mining activity. These two new mines – Snap Lake (NWT) and Victor (Ontario) – will place Canada solidly in third place, well ahead of South Africa, but still behind Russia and Botswana by value.

With widespread appraisal activity scouring the frozen north for more diamondiferous kimberlites (volcanic cones that push upward from the earth and contain diamonds created under high pressure and temperature), there even exists the possibility of many more mines to come.

Diamond exploration expenditures ($251 million in 2005) have been scattered across about 60 prospecting areas in Canada. In 2004, the NWT once again led diamond exploration expenditures in Canada at $96 million. However, diamond exploration and deposit appraisal expenditures in Nunavut ($79 million), Ontario ($44 million), Quebec ($29 million) and Saskatchewan ($25 million) have also been ramping up during the past five years.

Mines that are in operation (Ekati and Diavik in NWT and Jericho, Nanavut), those that will be in operation by 2008 (Snap Lake, NWT and Victor, ON -100km W of James Bay coast), and other possible future mines (Fort a la Corne, SK -50 km NE of Prince Albert), (Gahcho Kue, NWT - 300 km NE of Yellowknife) and (Star Diamond, SK -60 km E of Prince Albert).

Within eight short years, diamonds came out of nowhere to now account for about six percent of the value of total mineral production in Canada. Only nickel, potash, copper, coal, gold, and cement surpass diamonds on annual production values. Over 2007-2008, when the new mines open, diamonds may well overtake gold as the fifth largest source of mining activity.

This will place Canada solidly in third place, well ahead of South Africa, but still behind Russia and Botswana by value.
— Condensed from RBC Economic Digest June 2006.

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