Canada’s first two diamond mines, Ekati and Diavik, are among the best in the world. In just six years, these exceptional mines have propelled Canada into third place in the world by value of rough diamond production.
The addition of the Snap Lake, Jericho and Victor deposits, now under development, will add to this momentum, though they are smaller than the first-generation mines. Continuation of the exceptional beginning to this new industry and the establishment of a successful diamond strategy for Canada will be challenging.
The current proposed national diamond strategy is based on the production from two major mines but runs the risk of being compromised unless further large economic deposits are discovered. A successful long-term national diamond strategy will depend almost entirely on the facilitation of successful exploration efforts that lead to the discovery of further economic deposits, thereby assuring an adequate supply of rough diamonds.
Of primary importance to a national diamond strategy for Canada is a robust diamond exploration industry which is sustained by high-quality geoscience information. A strong diamond exploration industry also depends on its human resources. A shortage of qualified professors and skilled graduates has been identified as a major limiting factor for geoscience support for the diamond sector.
Impediments to the regulatory and permitting processes, particularly with respect to the operation of the boards authorized to issue permits, are frustrating exploration efforts and adding significantly to exploration and permitting costs. These rising costs are hampering the economics of the next generation of diamond mines and could discourage future exploration activity. More upper-quartile mines may lie waiting to be discovered, but without a dynamic diamond exploration sector, opportunities for value added and secondary processing remain limited.
Consideration should be given to the following points in developing such a national diamond strategy:
q The provision of free market access for producers of rough diamonds is essential to maintaining investor confidence in exploration in all jurisdictions. Free market access for rough diamonds is also fundamental to the requirements of debt-financing institutions that provide the large amounts of capital required for new diamond mine development. Any attempt to link permitting and/or title to the selective off-take of rough diamond production would be detrimental to investor and lender confidence because of the way rough diamonds are sold or auctioned. Run of mine rough diamonds are auctioned in parcels containing a mixture of high to low value stones of variable size. Any pre-selection of better quality diamonds for local use would significantly reduce the value received for all diamonds in two ways: a) fewer auction participants at local levels would constrain the bidding process; and b) remaining parcels, depleted of better stones, would fetch less at global auctions.
q Regulatory uncertainty with respect to jurisdictional overlap, land claims, and lack of clarity, combined with delays in approval processes, contributes to costly delays in permitting. Regulatory uncertainty could potentially limit the long-term supply of rough diamonds by damaging the business case for diamond deposits of more average size and grade.
q Ground staking in northern and remote areas is a key concern for several reasons, including its high costs, safety issues, surface rights and environmental considerations. Ground staking is a regulated requirement that contributes little if anything to the actual search for diamonds, and investors would be better served if more of their money were spent on actual exploration. The implementation of map staking is the logical solution to this issue.
q A Canadian diamond should remain defined as a diamond “mined in Canada” because the definition is simple, easy to understand and administer, and straightforward to market.
q The Prospectors & Developers Association of Canada supports the view expressed by many during the recent Yellowknife Round Table discussion that the federal excise tax on all jewelry (Canada’s sole remaining luxury tax) should be eliminated. In order to undertake an effective promotion of Canadian diamonds domestically and internationally, the jewelry sector should be relieved of this anomalous tax burden. Removing the excise tax on all jewelry would enhance the competitiveness of high-value-added Canadian jewelry manufacturing and sales, increase retail demand (both domestic and foreign), and reduce smuggling. Increasing competitiveness would stimulate the Canadian-based cutting and polishing sector.
In developing a national diamond strategy for Canada, ministers are asked to pay attention to supporting those elements of the diamond business that generate the highest profit margins, namely mining and jewelry manufacturing or retail sales.
To summarize, a national diamond strategy should: guarantee free-market access for rough diamonds; improve the regulatory and permitting processes; institute map staking north of 60 to acquire mineral tenure; retain the definition of a Canadian diamond as a diamond which is “mined in Canada”; and remove the federal excise tax on all jewelry.
— The preceding is an edited excerpt from a brief submitted to the 61st Annual Energy and Mines Ministers’ Conference on behalf of the Prospectors & Developers Association of Canada.
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