As Northwest Territories' gold mines dry up, diamond mines pick up the slack. They are the world's most brilliant -- and costly -- stones, writes Peter Gorrie.

LAC DE GRAS, NWT -- "That thing on a lady's finger: Do you realize what's behind it? "Tom Hoefer proudly asks the question during a tour of an 11-story building filled with crushers and conveyors that, amidst an ear-splitting cacophony, manhandle rocks by the thousands of tonnes.

Hoefer speaks for Diavik Diamond Mines, which wrests the tiny gems out of the Northwest Territories' wind-whipped Barren Lands, 300 kilometers northeast of Yellowknife.

His query could have come earlier on the visit, as he stood at the edge of a circular pit -- 800 metres in diameter, with spiral sides leading to a base 125 metres below -- where the diamonds originate.

Here, every 24 hours, workers blast loose about 90,000 tonnes of rock, shovel it into monster trucks and haul it away. The daily result is several thousand carats of "rough" diamonds, which look like milky bits of glass. Cut and polished, they'll sparkle: the world's most brilliant and costly stones.

Diavik's $1.3 billion mine is one of two operating in the NWT. It's owned by subsidiaries of Toronto-based Aber Diamond Corp. and Rio Tinto PLC, in London. The other, 30 kilometers away and known as Ekati, belongs to Australian giant BHP-Billiton Diamond Inc.

The mines, which together employ 1,600 people and create hundreds of spin-off jobs, rescued Yellowknife as its gold mines declined and much of its large public service sector was packed off to Canada's newest territory, Nunavut. The new industry has also spawned aboriginal corporations that promise good jobs for people who for years struggled on occasional work or welfare. Impact benefits paid by the mines to aboriginal communities -- under secret terms -- fund social services, airports and other facilities, as well as training and scholarships.

Taxes and royalties fatten federal coffers, and mine-related activity is the main reason the NWT's gross domestic product grows by more than 10 percent annually -- five times the national rate. On the other hand, some northerners complain, the diamond boom has disrupted local communities. The NWT government gets little of the tax bonanza back from Ottawa. Aboriginal workers report discrimination at the mines.

Good and bad, it's just the beginning. While the current mines will last about 20 years, both companies expect to develop additional reserves. De Beers Canada Corp. -- part of the South African giant that created the modern diamond market -- is to begin operations in 2007 at a site called Snap Lake. Other projects are in the works.

And why not? BHP paid for Ekati in three years and makes an 80 percent return on its investment. Last month, Aber, which gets 40 percent of Diavik's diamonds, reported a $13.6 million profit for the three months ended April 30, up from $2.8 million a year earlier.

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About 55 million years ago, the NWT's diamonds were carried up from deep in the Earth by molten volcanic material called kimberlite, which solidified into cone-shaped "pipes" of dark, soft rock. They were discovered in 1991. Ekati began production in 1998; Diavik in 2003.

About 125 pipes have been discovered in the "diamond neighbourhood." Diavik says it knows of at least 67 on its 240,000-hectare claim block. The three in its current mine plan are under ice cold Lac de Gras. Some 3.5 million tonnes of rock were required to build a 3.9-kilometre dike to enclose the first pit and allow it to be drained. Two pipes are being mined there. Work is underway on another pit, to access the third.

Fifteen tonnes of waste rock are removed for every tonne of kimberlite. Diavik's ore is rich by world standards: Each tonne yields almost four carats of diamonds. A carat is worth about $100.

Diavik's goal this year is 8.2 million carats, Hoefer says. Both Diavik and BHP are going underground to dig out the lower, narrower ends of their pipes.

From February to April, supplies are trucked to the mines from Yellowknife on a 350.kilometre ice road. The rest of the year, the sites can only be reached by air.

Managers and administrative staff live in Yellowknife. Most blue-collar workers fly in from other NWT communities or southern Canada. Few from the south moved north: Housing costs are a major deterrent.

Workers do two-week stints, working 12-hour days, seven days a week. Production never stops: More frequent breaks are the only concession when temperatures plummet to as low as minus 60 Celsius.

Under the deal that lead to approval of the mines, up to 10 percent, by value, of the diamonds must be processed in the NWT: Yellowknife is now home to four cutting and polishing plants, with employees from around the world.

The mines made local hiring commitments. Diavik says it's on target: Two-thirds of their work force are northerners, and 38 percent aboriginal. Most management and professional employees, however, are non-aboriginal southerners.

Two-thirds of Diavik's construction and operations contracts go to aboriginal businesses, either in joint ventures with southern companies or, increasingly, on their own.

They provide most maintenance, food, security, and cleaning services. They also do much of the mine's construction work, as well as excavation and hauling of the ore.

"We get contracts because we're damned good," says Neil McFadden, CEO of Deten'Cho Corp., a holding company owned by the Yellowknives Indians, which has 300 employees and $140 million annual revenue.

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Mining diamonds and extracting them from the kimberlite is an entirely mechanical process.

In the processing plant, the ore is crushed several times until the largest piece is about 25 millimeters in diameter. Then, it's spun in a cylinder where centrifugal force flings the diamonds to the outside.

Finally, the diamonds and residue are hit with x-rays that make the gems glow. Computer-directed jets of air blow them aside.

The diamonds are flown to Yellowknife, but don't go straight to the cutting and polishing factories there.

Instead, they're taken to valuation centres, near the airport, to determine royalty payments. Then, it's off to diamond houses in London or Antwerp to be sorted for market. From there, most go on to cutting plants in India and other low-cost areas. The NWT's small share is selected and flown back to Yellowknife.

Three of the cutting plants, surrounded by barbed wire, are also near the airport. The fourth, Canadian Dene Diamonds Ltd., dominates N'dilo, a small native community adjacent to the city's Old Town.

Northern labour costs are so high -- polishers' annual wages start at $42,500, compared to the $40 a month paid in India -- that it's economic only to cut large, high-quality gems here.

The gems have laser-etched identifiers, in part to distinguish them from those that bankroll wars in Africa.

Local employment is increasing. Recruits now take a 22-week course at Yellowknife's Aurora Community College.

Like the mines, the plants seem set to prove diamonds are gold. Arslanian's sales were $8 million in its first year. This year, they're projected to hit $40 million, says director Hilary Jones. "Demand for Canadian diamonds is amazing."