The Canadian Diamond mining Industry began in the late 1980's and has since garnered the title of the third most valuable diamond mining country in the world. The first glimmerings of this new era can be traced back to two single-minded prospectors from British Columbia, Chuck Fipke and Stewart Blusson. In the 1980's Fipke, who had spent years prospecting in remote mining backwaters from Papua New Guinea to Brazil, became convinced the Northwest Territories was prime diamond property.

In a story that is now legend, Fipke spent his last dollars to charter a helicopter to an unnamed lake about three hundred kilometers northeast of Yellowknife. He had been following a trail of glacial run-off that led to the lake's dark, bedrock shores. The patch of sediment was full of lesser gemstones such as garnets and chrome diopsides, which often indicate that diamonds are buried below in kimberlite pipes: carrot-shaped formations created by ancient volcanoes that spewed up from below the earth's mantle millions of years ago, sometimes picking up diamonds on the way.

On a bitterly cold day in April 1990, Fipke began frantically chipping through ice and rock in the hopes of collecting tell-tale samples. The following year, a drilling expedition in the same area yielded eighty-one tiny diamonds. The site, on the shores of Lac de Gras, became Ekati, Canada's first diamond mine.

Fipke's discovery sparked the largest staking rush in Canadian history, perhaps the largest in the world to that point. Some fifty million acres were claimed in a manic dash over the next two years, during which exploration crews threw wooden stakes bearing claim tags from helicopters so as not to waste time landing. According to local lore, the chief of Lutsel'ke, an isolated Dene community southeast of Yellowknife, came home to find his outhouse staked.

One of the first on the scene was Grenville Thomas, a Welshman based in Vancouver who had been prospecting in the Territories since the mid- 1960's. He teamed up with the experienced South African diamond hunter Chris Jennings and, to disguise their true intentions, the two flew up to Yellowknife separately, stayed in different hotels and avoided being seen in public together. They knew De Beers, the diamond mining behemoth, was already staking land to the Northeast of the Ekati claim block, and so, in a decision that would prove fortuitous for Thomas's company, Aber Resources, they moved to the southeast.

Three years later, in 1994, a group of geologists headed by Thomas's daughter Eira, was examining the last rock-core samples before wrapping up the season when one of the three-inch tubes of kimberlite snapped, exposing a 1.8 carat diamond. It was a phenomenal find, considering that kimberlite normally yields an average of one carat (equivalent to one-fifth of a gram) per metric ton of rock.

Indeed, the now-famous A154S pipe is thought to be the richest in the world. It yields an average of 4.8 carats per ton, a large proportion of which are high quality gems, and now forms part of the Diavik mine, which began operations last year. Along with Ekati, in production since 1998, the two claim to mine three of the world's six richest pipes. This year they will produce roughly thirteen million carats, conservatively estimated to be worth $1.2 billion (U.S.) - that's fifteen percent of global diamond production in terms of value.

The windfall has catapulted Canada into an enviable position among the exclusive ranks of diamond-mining countries. This year it surpassed South Africa to become the world's third-largest diamond producer in dollar value. With two more mines, one in the Northwest Territories and one in Nunavut, both slated to begin production by 2007, Canada should rival Russia as the number-two diamond producer, behind Botswana.

Canada's sudden pre-eminence has shaken up the tightly controlled diamond industry and thrust what was once a remote fur-trading outpost into the international spotlight. Its clear, white stones, among the most sought after and expensive in the world, are luring the elite of the diamond trade to Yellowknife. The exclusive New York jeweler, Tiffany & Co., is now cutting and polishing diamonds on the outskirts of this rough-hewn city of 20,000, perhaps better known for its raunchy saloons and late-night street-fights. International diamond dealers are frequent visitors, melding into the city's rich mix of quirky characters, adventurers, and troubled souls on the lam. "New York is interested in our diamonds," says Stephen Kakfwi. "So are Antwerp and London. They know what goes on here every day. It has put us on the world stage,"

Diavik, owned by London-based Rio Tinto plc and Canada's Aber Diamond Corporation, has spent $1.3 billion and braved temperatures of minus 50 degrees Celsius to unearth the billion-year-old carbon crystals buried beneath glacial water 220 kilometers south of the Arctic Circle. In what is considered a wonder of modern-day engineering, super-sized trucks scour 5,000 tons of kimberlite a day from the icy bottom of Lac de Gras and haul it to the mine's processing plant, where it is crushed and loaded onto a dizzying array of conveyor belts.

Under the watchful eye of closed circuit cameras (the process is secret and off-limits to visitors) the diamond rich chunks next pass through a series of X-ray machines. The invisible rays cause the stones to emit an ultraviolet light that is picked up by sensors. The diamonds are then sized and transferred into heat-sealed plastic boxes, which in turn are put into self-locking stainless-steel suitcases.

For all that effort, Diavik collects four kilograms of the rough, mottled diamonds a day, just enough to fill a two-litre milk carton. The mines owners are loath to disclose exactly what the gems fetch on the open market, but Diavik is estimated to churn out anywhere from $1.4 to $2 million (USD) a day in diamonds. Its profits are even more amazing, with a gross operating margin of eighty-two percent, say analysts, compared to less than ten percent for a base metal mine.

"A diamond mine makes a typical gold mine pale in comparison," Says John Kaiser, a diamond-industry analyst based in California. "You can take the smallest, rattiest little company, it plunks down money on a property, and it could be sitting on billions of dollars. The potential is huge."

Canada and Australia now account for some forty-one million carats out of an estimated world diamond production of 120 million. Their combined clout has effectively broken the cartel of De Beer's. "Half the world production is now outside De Beers's control," says Pierre Leblanc, a diamond consultant based in Yellowknife. "Canada was the straw that broke the camel's back. The impact has been very significant."

Unlike Africa and Russia, where palms are regularly greased and corporate oversight is minimal, companies in Canada, industry analysts say, are held to comparatively high levels of accountability and are subject to strict environmental regulations.

The high standards, in turn, have earned Canadian diamonds a reputation for being "ethically clean," standing in stark contrast to African gems, which continue to be sullied by the specter of child labor, and by blood diamonds -the illicit gems used to finance murderous civil wars in Congo and Sierra Leone.

"Canada is the single most important event to happen in the diamond industry worldwide," says Chaim Even-Zohar, an Israeli diamond consultant. "It is really the most modern Western democratic country that has diamonds. It has an open culture of transparency, accountability, and corporate decency, and in this current day and age, those are factors that have become important."

In perhaps its most ambitious move, however, the territory became the first government in the world to brand its diamonds. Playing off the dubious origins of some stones, it created a certificate of authenticity that guarantees its diamonds have been mined, cut, and polished locally. To date it has spent millions marketing the merits of its trademark "Canadian Arctic Diamonds" in the U.S., Europe, and Japan.

Laser-inscribed with tiny polar bears and maple leaves and bearing up to three certificates of authenticity, Canadian stones sold in Canada are reportedly garnering premiums of between 5 and 30 percent over comparable diamonds. The gems are now being retailed in large chains such as Peoples Jewelers and Costco, and they attracted media attention when Avril Lavigne, the Canadian teen idol, wore a cross encrusted with Canadian diamonds at the 2003 MTV awards in New York.

The territory has also lured up some of the world's largest cutting and polishing houses by guaranteeing them steady access to rough stones. Tiffany & Co is the latest addition to the ranks, which include leading Indian diamond-polishing firm Rosy Blue, Israel's Schacter & Namdar, and E. Schreiber of New York. Most have set up shops in a series of squat, security-rigged plants near the Yellowknife airport.

Hilary Jones, director at Arslanian Cutting Works (partially owned by Rosy Blue), estimates that at any given time $200 million worth of rough stones are being polished along the strip, popularly, referred to, like the Rae-Edzo suburb, as Diamond Row. "Guaranteed access to rough is unheard-of anywhere [else] in the world," she says. "In this industry you don't have contracts; everything's done on a handshake. Here we know we'll get rough every five weeks."

Aber Resources, the one-time junior mining company, has come a long way since helping to spearhead the discoveries of both Diavik and De Beer's Snap Lake project. The former penny stock saw its shares peak at $52.50 in January, and, since 1999, Aber counts Tiffany & Co. among its shareholders. Unlike most other exploration companies, it managed to maintain a forty-percent interest in Diavik, a cash-rich asset used in a successful bid to buy the New York-based Harry Winston Inc., the so-called "Jeweler to the Stars."

Oren Sofer, Tri-Star's chief executive, referring to the Canadian diamond as the "Rolex of precious stones," puts them on a par with Swiss watches, German engineering, and Italian leather. They offer an intrinsic appeal in what he calls "the new luxury world," where value is placed on a product's political and social attributes.

References:

• (i) The Walrus April/May 2004 - "The New Stone Age" Andrea Mandel-Campbell
  
• (ii) Fire Into Ice - Charles Fipke, "The Great Diamond Hunt" Vernon Frolick
  
• (iii) Mining Explained - "A Layman's Guide" by The Northern Miner