Canadian Miners Warn of Force Sales To Domestic Cutters
March 11, 04There were some 40 potential diamond exploration and mining hopefuls exhibiting this week at the Toronto Prospectors and Developers Association (PDAC) annual show - all looking for money or partnerships, or both. These junior companies were displaying their recent discoveries and presenting updates - all optimistic - that they one day might discover the next Ekati or, better still, Diavik.
Though some companies were proudly indicating that they were cash-rich and weren’t currently seeking new capital, other firms were ready to make deals with overseas diamond manufacturers. “You invest money in our company now, and we’ll grant you the marketing right of our output if and when we produce diamonds.” These aren’t easy deals as most of these junior exploration companies will end up selling their properties to the major mining companies if and when a commercially viable diamond deposit is eventually found and confirmed.
The exhibitors at the Toronto show were preoccupied with showing their gold and mineral samples to the more than 10,000 visitors - certainly a record attendance. There was ample deal making and, seemingly, far less politicking. But with such close contact between governments and the private sector, an element of politics was inevitable - with the diamond companies taking advantage of the opportunities presented by the annual event.
Indeed, Canada’s largest public associations of present and future diamond miners this week sent a very strong message to national and provincial governments to refrain from adopting diamond strategies aimed at linking the permitting of new mines to commitments to supply local manufacturers. The message was voiced by Robert Boyd, President of Ashton Mining of Canada, who serves as a Director of the PDAC and has been advising PDAC and others on matters relating to government policy initiatives that may affect diamond exploration and development in Canada.
Last year, then GNWT Premier Stephen Kakfwi called upon the Canadian provinces and territories to develop a National Diamond Strategy. This set off a rather heated nationwide discussion focusing mostly, but not only, on the link between the development of a local diamond secondary industry that would maximize the benefits to Canadians from all stages of the emerging diamond industry and the ‘price’ to be paid by the mining companies in order to make this happen.
Speaking on behalf of three powerful industry associations - the PDAC, the Mining Association of Canada and the NWT Chamber of Mines - Robert Boyd expressed support for the general vision articulated in the National Diamond Strategy but also warned against “rushing to finalize the Strategy without an understanding of [diamond mining] industry concerns on the benefit of proper economic and cost-benefit analysis of the downstream activities.”
The emerging Canadian National Diamond Strategy – a body of principles supported by all the local governments in whose jurisdiction diamonds are or will be mined - basically embodies the following policies:
- The economic benefits from diamond resources across Canada should be maximized to provide value and benefit for Canadians
- In order to achieve this vision, cooperation and partnerships between provinces, territories, the federal government, the diamond industry and other stakeholders should be developed
- Governments should encourage opportunities for the participation of Canadians in all sectors of the diamond industry
- Governments should encourage investment and growth in all sectors of the diamond industry
The outcome of such a policy, it is believed, will be to turn Canada not just into a rough producer but rather will make “the diamond industry in Canada a world leader in all aspects. Canadian diamond products will be recognized and marketed as high quality products in Canada and globally.”
In a few weeks, the industry associations are expected to formally submit a detailed paper, entitled “National Diamond Strategy: Industry Response”, to the Canadian provincial and national governments. Boyd provided a first glimpse into what that paper will say: “Each producing company should be allowed to market its rough diamonds in accordance to its own strategic business model. To do otherwise will result in a less healthy primary industry and will be a disincentive to exploration and development; both of which will affect the sustainability of all industries downstream in the pipeline.”
Then, in a rather unusual move, the mining associations will publicly take issue with the policies of the GNWT, which has successfully secured from BHP Billiton, Rio Tinto and De Beers commitments to supply rough diamonds to some four manufacturing companies in Yellowknife. Warns the industry policy paper: “The GNWT policy requiring producers to provide select, high quality rough to local cutters and polishers should be seriously reconsidered and should not be adopted in other jurisdictions.”
The miners have a long wish list and most of the needs identified make sense and will attract public support. They are calling for uniform royalties to prevent the smuggling of rough from one jurisdiction to another. Canada must balance its wider role in the international diamond industry with its responsibilities towards its own aboriginal First Nations groups, on whose lands most of the nation’s mineral wealth will be mined. In this context Mark Sills, a mining lawyer, warns that making specific supply demands on the Canadian miners might violate the nation’s international trade commitments in terms of Nafta and WTO.
Everybody realizes, however, that this is beyond being a legal matter. Profound domestic humanitarian, “good neighbor” and aboriginal policy issues are at stake. Therefore there is a need for a national debate. Kakfwi knew what he was doing when he asked for it.
The mining associations are exceedingly careful in their wording. They support the development of a local diamond cutting industry but they don’t want to be the party to pay for it. “Economic policies designed to stimulate downstream activity should be supported by general revenue [i.e. the public purse],” says the draft paper. The emerging local diamond industry ought to be supported by the governments through fiscal measures, tax benefits, loans and grants, etc. “Public policy instruments could include fiscal measures supporting small - and medium-sized [rough] purchases and upgrading of high-tech equipment; and training in the use of high tech cutting and polishing equipment,” says the paper.
Boyd said there are several very successful diamond cutting companies in Canada (and he mentioned a Vancouver venture by name) which, without government intervention, have become very successful and they secure rough on the open market - also from Canadian producers. More foreign companies are in the process of planning investments and involvement in domestic manufacturing operations, he discloses, stressing that the development of a strong Canadian cutting center is part of the industry consensus. The question centers on how to achieve this in a sustainable and economically responsible manner.
“Governments should avoid the use of short-term, unsustainable policies to stimulate the development of cutting and polishing in Canada, particularly when those policies detract from the long-term competitiveness of primary producers.” Boyd was blunt: “If producers are forced to sell locally, if the permitting process of new mines is linked to local consumption of rough diamonds, and if the federal definition of a “Canadian diamond” (i.e. a diamond mined in Canada) is revised to mean only a “diamond cut and polished in Canada”, this will inevitably result in significant disincentives to exploration and capital investment by mining and exploration companies in Canada.
The former GNWT Premier was interested in securing uniform nationwide strategies. This will not happen without meaningful debate among the affected stakeholders. It has now become apparent that the Premier got what he wanted - such debate is gaining momentum. The last word hasn’t been said yet.