By Rose Ragsdale
For Mining News 

Diamonds restore shine to Far North economy

Canadian government analytical paper tracks effects mining precious gemstones had Northwest Territories, country


Last updated 7/30/2006 at Noon

Diamond production in Canada's North is delivering more than vast profits to mining companies and millions of carats to eager consumers around the globe.

Since its first diamond was discovered in 1991, Canada's North has emerged as a world-class diamond producer. Three of the biggest diamond mines, all in the Northwest Territories, are expected to generate $26 billion in gross domestic product over their lifetimes and provide around 125,000 person years of employment.

Diamond mining also has spawned a support industry of cutting and polishing factories in Yellowknife, further stimulating the far north economy.

Two mines, Ekati and Diavik, are currently in production in the Northwest Territories while a third, Jericho, began production earlier this year in Nunavut. Another operation, the Snap Lake Diamond Project in the Northwest Territories, is scheduled to begin production in 2007.

Extraction of the brilliant gemstones has had a profound effect on the local economy.

Per-capita gross domestic product of the Northwest Territories jumped dramatically in 1999 with the first diamond exports from the region and since has climbed at an annual average rate of 12.5 percent. This was nearly three times the average annual rate of national per-capita GDP growth of 4.2 percent.

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These are among findings in "Diamonds: Still shining brightly for Canada's North," an analytical paper published by the Canadian government's international trade division in June.

The paper, prepared by Craig Byrd, examines the overall impact of diamonds on the Northwest Territories since 1999 and provides statistical data on production values from 2002 to 2005.

Leading diamond producer

In just five years, the rapidly growing Northwest Territories industry propelled Canada to the forefront of global diamond markets, moving the country to third in the world in terms of output value and sixth in terms of volume by 2004.

The value of Canadian diamond production trails that of long-time leader, Botswana, and is rapidly catching Russia.

The value of diamond exports from the Northwest Territories surged to more than $1.6 billion in 2005, nearly twice the level in 2002, and more than three times the value exported during the first year of production.

Since 1999, diamond exports have risen at an annual average rate of 29 percent in value. In addition, growth in actual volume of diamond exports mushroomed nearly six-fold. Mining companies exported 12 million carats of diamonds from the Northwest Territories in 2005, up 141 percent from nearly 5 million carats in 2002 and up 476 percent from 2.1 million carats in

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Today, diamond mining and related activities are the driving force behind an economic turnaround that is transforming Canada's North. The discovery of, and resulting boom in, diamond mining coincided with a scaling back of gold production in the Northwest Territories, thus further magnifying its effect.

Remarkable turnaround

Manufacturing shipments, employment and income per capita as well as GDP have all seen remarkable reversals since the onset of diamond production, according to Byrd.

Between 1999 and 2005, manufacturing shipments in the Northwest Territories also climbed at an average annual rate of 38 percent, compared with minus 12.5 percent during the previous five years.

By contrast, Canada's annual average manufacturing shipments grew at a rate of 2.8 percent during the latter period, down sharply from 7.5 percent annual growth between 1993 and 1998.

Unlike the robust 12.5 percent growth in GDP in recent years, per-capita GDP in the Northwest Territories fell well below the national average to 1.7 percent prior to the start of diamond production, about half the national average of 3.3 percent.

With growth in GDP has come substantial jobs creation. Employment in Canada's diamond mining industry has experienced strong growth. From 2001 to 2003, both production employment and total hours worked in the diamond mining industry more than doubled.

The number of production workers increased to 992 in 2003 from just 84 in 1999. Jobs growth has continued. Today, the Ekati mine, operated by BHP Billiton, employs nearly 2,000 people, about 1,300 of whom are production workers. The Diavik mine, which began production in 2003, employs about 700 workers. It is operated by Diavik Diamond Mines Inc., a subsidiary of London-based Rio Tinto plc.

Wages strong and steady

Average wages for miners, however, fell from $70,000 in 1999 to about $61,000 in 2001 and since have remained virtually unchanged.

Prior to diamond production, personal income per capita in the Northwest Territories languished well below the Canadian average. Growth in annual per-capita personal income was just eight-tenths of 1 percent from 1993 to 1998, while the national average exceeded 2 percent. But by 2004, annual growth in per-capita personal income had accelerated in the Northwest Territories to 4.8 percent, well above the national average of 2.8 percent.

Another closely related measure of the economic impact of diamonds is retail sales. The average annual rate of growth in retail sales between 1999 and 2005 was virtually unchanged in the rest of Canada from the pre-diamond period between 1993 and 1998. In the Northwest Territories, however, retail sales per capita increased sharply.

Between 1993 and 1998, the territory registered a 4.5 percent annual increase in retail sales, just below the national average of 4.8 percent. From 1999 to 2005, the territory's retail sales grew at an annual average rate of 8.2 percent, compared with the national average of 5.1 percent.

Retail workers in the Northwest Territories also saw their earnings increase at a faster rate from 1999 to 2004. In addition, the annual increase in average weekly earnings in the territory was much higher than in the rest of Canada in the six-year period since diamond production began.

Between 1993 and 1998, the annual increase in average weekly earnings in the territory was just six-tenths of 1 percent, less than half the national average of 1.4 percent for the same period.

But this trend completely reversed itself by 2005, when the annual increase in average weekly earnings in the territory accelerated to 3 percent, a full percentage point higher than the national average of 2 percent for the period.

Indirect benefits

While diamond mining is not itself a manufacturing industry, it requires a significant amount of goods and materials to get plants and mine operations under way, some of which is manufactured in the Northwest Territories. As a result, manufacturing shipments can be used to gauge the impact of diamond-related spin-offs in the territory's economy, according to Byrd.

During the pre-diamond period 1993 to 1998, manufacturing shipments in the NWT fared quite poorly, declining at an average annual rate of 12.5 percent. In contrast, manufacturing shipments in the rest of Canada rose at an annual rate of 7.5 percent.

After the start of diamond production in 1999, the 38 percent average annual jump in manufacturing shipments in the territory far outpaced comparable shipments nationwide, which had fallen to just 2.8 percent a year.

Favorable outlook

The outlook for the economy of Canada's North is also bright with two more diamond mining projects entering the picture.

The Jericho mine, Nunavut's first diamond mine, came on line with production in early 2006. Developed by Tahera Diamond Corp. of Ontario, Jericho is located about 250 miles northeast of Yellowknife. The mine is expected to produce more than 500,000 carats of diamond annually and employ 125 to 175 workers.

The Snap Lake Project about 136 miles northeast of Yellowknife will be the Northwest Territories' third diamond mine and Canada's first fully underground diamond mine. Developed by DeBeers, it is expected to employ about 500 workers and produce 1.5 million carats per year when in full production. Production is set to start at the mine in October 2007.


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