By Michael Ganley What’s being done to prepare us for the post-diamond economy? With world-class deposits at Ekati and Diavik leading the way, diamonds have been the NWT’s economic saviour for the past decade. But even with the Gahcho Kué mine in the pipeline, the end of Northern diamonds is on the horizon.

In the mining world, it only makes sense to cream off the most accessible, easiest of your resources first. You thereby recoup the hundreds of millions of dollars you invested in finding the ore body and building the mine as quickly as possible, and drive profits for investors. After that, you continue to mine (the initial investment has already been made, after all) but the ore bodies have a lower concentration of the mineral your after, or they’re harder to get at.

So here in the NWT we’ve seen the two big diamond mines, Diavik and Ekati, aggressively mine their open pits, blasting and loading ore onto massive trucks and delivering it to their very efficient production plants, following their carrot-shaped kimberlite pipes straight into the ground.

It should come as no surprise, then, that as Diavik and Ekati approach the midpoints of their lives, much of the best stuff is gone. Even accepting that 2009 was a tough year for the diamond industry across the world, the numbers out of the NWT are not comforting.

Diavik’s A154 pit – a legendarily wealthy pipe in the world of diamond mining – has just about run its course. The mine has come down from a high of 11.9 million carats in 2007, to 9.2 million in 2008 and 5.6 million in 2009. Some of the reduction in 2009 was due to the mine’s six-week shutdown, and part because of lower-grade ore coming from the A418 pipe.

Ekati is in a similar position. The first diamond mine to open in the NWT, in 1998, Ekati has done a slow but steady burn of between four and five million carats per year through its resource. The 2009 number is about 3.5 million carats.

There are a couple of other diamond deposits in play, both owned by De Beers. The Snap Lake mine is entirely underground and has a capacity of just 1.5 million carats per year, small compared to Diavik and Ekati. In 2009, Snap produced just 444,000 carats, largely due to De Beers’ decision to slow things down during the global economic downturn, including shutting down the mine completely for six weeks. De Beers is ramping things back up at Snap and says it’s on target to be running at capacity by mid-2012. Even when that happens, it won’t be enough to make up for the declines at Diavik and Ekati.

The final diamond mine in the pipe is Gahcho Kué, De Beers other Northern asset, which it shares with Mountain Province Diamonds. The project is currently undergoing a $10-million feasibility study, and if all goes well should be producing, in about four years, 4.5 million carats per year. The open pit is expected to last for 12 years, after which the mine will go underground. No doubt a significant addition to the NWT economy.

Looking ahead, both Diavik and Ekati are moving underground, where miners will operate with small machines in small spaces, following seams of kimberlite as they weave and bob through the surrounding “waste” rock.

Diavik will have one more really good year in 2010, when it mines the “crown pillar” that has until now been the bottom of A154.
That might get numbers back up to between seven and eight million carats, but after that, “Diavik is looking at about five million carats per year,” says Louis Perron, a diamond analyst with Natural Resources Canada, “so a bit less than 50 per cent of what the mine was doing in its best years. That may go as low as three million in 2012 with the open pits closing then.” At that point, Diavik becomes a completely underground mine.

Ekati’s numbers will be lower for the next few years but still not far off norms as the mine continues to draw from open pits, likely in the three to four million carat range. After that, numbers will drop further.

But the number of carats per year is not necessarily an accurate indication of a mine’s contribution to the territorial economy. Since the NWT does not receive royalties from the extraction of its resources (they go to Ottawa) it must depend on employment for its basic benefit. And employment is highest in the early years, when a mine is under construction and becoming operational. Once it’s producing smoothly, the net benefit to the territory decreases substantially. One crude but telling measure of the activity is the number of trips taken up on the Tibbitt to Contwoyto winter road. In its busiest year in 2007, the road carried some 11,000 loads to the diamond mines. This year, it will likely carry fewer than 4,000.

Gahcho Kué is an important addition to the territories’ diamond reserves, and there is ongoing exploration that could well lead to another future mine, but more must be done to encourage and facilitate exploration. “When the diamond mines wind down we are going to need some new mines to replace them,” says Mike Vaydik, the general manager of the NWT & Nunavut Chamber of Mines. “The ones that are in the pipeline now are great to have but they’re not going to have the significant economic output that the diamonds have had.” Aside from Gahcho Kué, those currently in the pipeline include Fortune Minerals’ NICO deposit near Yellowknife, Canadian Zinc’s Prairie Creek mine in the Mackenzie Mountains, Tyhee Development’s Yellowknife Gold Project, and Avalon Ventures’ Nechalacho rare earth deposit. Each of them is a modest proposal. The industry argues that there are three things holding back development of resources in the NWT: the cumbersome regulatory system; the lack of infrastructure – both roads and power lines; and an overly generous system of wilderness protection.

There is some reason for hope on the regulatory front. The Northern system was singled out in the recent Speech from the Throne, in which the federal government vowed to reform the system “to ensure that the region’s resource potential can be developed where commercially viable while ensuring a better process for protecting our environment.” Ottawa committed $11-million in the budget the next day for the reforms.

Before that, Ottawa had begun the process of setting up two new agencies intended to help with Northern economic development. The first, the Canadian Northern Economic Development Agency (CanNor), is responsible for coordinating and delivering federal economic development activities in the territories, and for policy, research and advocacy. Established in August 2009, the new agency is still staffing up and trying to find its way.

The second, the Northern Project Management Office (NPMO), is intended to co-ordinate the various federal agencies that are involved in regulating big projects. It is not meant as another regulator, but as an “honest broker,” says director general Kate Hearn. It, too, is still trying to find its feet and has targeted a launch in the spring of this year. It is not a division of Indian and Northern Affairs Canada, but it does report to the INAC minister, currently Chuck Strahl.

“They will help, I would hope,” says Vaydik, of CanNor and the NPMO. “I would certainly hope that CanNor gets the funding that it would need to have a significant influence on infrastructure development, but there’s been no sign of that yet.”

And there was the McCrank report, delivered to Strahl in July 2008, which recommended that the Mackenzie Land and Water Board be made the main regulatory board in the region, taking some decision-making powers away from smaller boards. The report didn’t receive great applause when it came out, but there may be things in there that Northerners can agree on that would quickly result in positive changes without re-opening land claims.

“Some people have referred to McCrank heavy or McCrank light,” says the NWT’s Minister of Industry, Tourism and Investment, Bob McLeod. “It would be difficult for McCrank heavy to go through because it would be difficult to make all these land claim changes.”

On the infrastructure front, industry says power – at the right rate – can be just as useful to them as a road. This leads to Dezé Energy’s proposal to triple the power coming from the Taltson Twin Gorges hydro plant and run 690 kilometres of new transmission lines into the Slave Geological Province (the area between Great Slave Lake and the Bathurst Inlet/Coronation Gulf, where the diamond mines and the best prospects lie.) The project is currently undergoing environmental assessment, with some concern having arisen over the routing for the transmission line.

The federal government has recently committed $71-million to the $160-million plan to build a new power plant and transmission line in the Yukon. A similar commitment from Ottawa for Dezé’s plans could bring this project to fruition. It brings with it the added benefit of possibly leading to a territorial power grid, to which Yellowknife and other communities could be connected in the future.

The third concern of industry involves the ponderous and complicated protected areas strategy, a decade-old, community-driven process to establish a network of protected areas across the territory. The first areas protected through the strategy were the two major peninsulas jutting into Great Bear Lake near Déline. This was concluded a year ago. Including existing parks and those being proposed, as much as 30 per cent of the territorial land mass could be protected from economic activity.

Much of the problem lies in the fact that all three of these issues – the regulatory regime, better infrastructure, control of protected areas – are largely under federal jurisdiction, and are not things the territorial government can influence directly.

“We will support and advocate for infrastructure,” says ITI Minister Bob McLeod, “but it’s very difficult for us to get a decent return on investment. Whatever we invest in, the return we get is jobs, whereas the federal government gets the royalties. The federal government is responsible for new highway construction in the NWT, and unless they take those royalties and reinvest them it’s very hard for us to build roads.”

There is some blame to be laid at the feet of politicians in the territory. “Our problem has been that we’ve never been able to get everybody singing from the same song sheet,” says McLeod. “We don’t have devolution, we don’t have resource revenue sharing, and there’s no vision as to how we should be set up to deal with things once all the land claims and self-government agreements have been settled.”

And the territorial government is a partner in the protected areas strategy. “On behalf of all the citizens the territorial government has to say ‘No more parks until we’re ready,’” says Vaydik. “Now is not the time to make all these parks as some outreach to Quebec and Ontario voters.”

There will no doubt be a long tail to diamonds, and the mines will continue to be solid contributors to the territorial economy for decades to come. But their construction phases are done (except for Gahcho Kué) and, in the cases of Ekati and Diavik, their best years are behind them. As the mining industry loves to remind anyone who will listen, it usually takes a decade to get a project from the initial discovery stage to an operating mine. It’s time to get moving.