De Beers Commits To Supplying “Pure” Canadian Rough To Local Canadian Manufacturers And Dealers
December 12, 02De Beers has always said it would supply rough diamonds to Canadian diamond factories – but it has also made it clear it would only supply from the London DTC assortment.
However, that’s not what the Government of the Northwest Territories (GNWT) want – and it is good news that De Beers has finally embraced the inevitable: the president of De Beers Canada, Richard Molyneux, has gone on record that diamonds mined at its (future) Snap Lake Mine would be sold directly to future local customers, without being mixed with other non-Canadian productions.
The De Beers commitment, made under intense questioning during formal public hearings of the powerful mining permitting body (the Mackenzie Valley Environmental Impact Review Board) represents a dramatic break from the De Beers time honored policy that all rough diamond intake from its worldwide production sources are mixed into so-called London assortments.
Presently, manufacturing and trading organizations in all cutting centers, including those situated in producing countries such as Botswana, Namibia and South Africa, are only supplied with “London assortments.” De Beers has reluctantly – but graciously -- agreed to make an exception in order to further the aspirations and the policies of the peoples in Canada’s NWT. It is seen in Yellowknife as a significant concession to DTC marketing principles.
In a way, De Beers had little choice. It had acknowledged that Canadian goods provide premium opportunities in the resultant polished. Thus a chain of warranties reflecting the origins of the rough are essential. The Canadian origins – and the premium opportunities -- would be lost if the goods were mixed in a London assortment.
The Government of the Northwest Territories (GNWT) strongly believes that the economic feasibility of diamond cutting and polishing in the NWT depends on the success of its polished marketing and the sustained maintenance of price premium on Canadian goods – the issue being origin, not brand.
In the Public Hearings, the GNWT industry consultant (i.e. the writer of these lines who enjoyed the privilege of representing the GNWT) observed “it wouldn’t make sense for De Beers to supply local economic entities with London assortments. If there is a market premium on Canadian goods, a premium which has been estimated to be anywhere between 10-15 percent, De Beers would destroy that premium opportunity by mixing the Canadian rough with African or Russian productions. Factories in the NWT processing mixed origin goods would not be able to obtain the valued certification stating that these goods have been mined and manufactured in Canada. These goods would have lost the premium – and all of this at no benefit to De Beers.”
De Beers has recognized the weight of the argument and agreed to negotiate the supply of pure Canadian boxes of rough diamonds to clients in Canada. Though the commitment was repeated a few times under intense questioning, Molyneux did caution that, based on the current understanding of the requirements of the NWT industry, the actual quantity of goods from the Snap Lake production that would match the local needs would be extremely limited. If the requirements of the local industry could not be met by the Diavik, Ekati and Snap Lake productions, the company could facilitate additional supplies from the DTC in London.
It is not unlikely that De Beers in London may not see eye to eye with De Beers Canada on this issue and that, at some point, De Beers will argue that “the NWT clients want London assortments”, just as has happened in South Africa a decade ago, when London Sights were introduced “at the request of sightholders.” Canadian local manufacturers are expected to prefer the locally mined goods – provided they are priced and sorted in the right way.
De Beers made the direct supply concession in context of a tiresome, exhausting and probably most frustrating permitting process. Indeed, to get a mine started in the NWT is probably more complicated than almost anywhere else in the world – or in Canada for that matter. The mine is located in a geographic area inhabited by four aboriginal groups whose livelihoods and way-of-life are directly affected by the proposed De Beers mine.
Therefore, De Beers must negotiate Impact Benefits Agreements (IBA) with each of these groups, providing either some form of compensation or sharing some of the mining benefits. In addition, the Government of the NWT carries the responsibility of maximizing benefits and opportunities for all the peoples of the Northwest Territories from the development of the nation’s resources.
The government thus has a broader interest above those of the individual aboriginal groups. The government does not have the power to “legislate” local supplies, or to force De Beers into giving rough. It has, however, the ability to frustrate the permitting process. Thus De Beers must negotiate with the GNWT as well. It has been estimated that millions of dollars are spent on the permitting process and the patience of the miner will be tested to the limits.
However, by agreeing to make direct supplies available, De Beers has enormously improved its standing with local government and community. This was reflected in many newspaper articles, radio broadcasts and other positive reactions in Yellowknife and the surrounding communities. De Beers may have doubts about whether it makes economic sense to cut and polish in the NWT – it probably thinks it doesn’t make sense. But the “jury is still out” on this.
BHP-Billiton and Diavik have also made supply commitments – and, for all practical purposes, the local industry has so far only purchased a fraction of its monthly allotments. However, that shouldn’t affect the policy.
As a producer, it always makes good sense to fully support the aspirations of host governments and host communities. Richard Molyneux and his Canadian team have made the right undertakings – and it is hoped that the London decision-makers will fully and enthusiastically support these commitments.