(Repeating story to send to additional subscribers)
By Susan Taylor
YELLOWKNIFE, Northwest Territories, Oct 27 (Reuters) - A
decline in diamond prices because of lower growth in Chinese
jewelry demand is dulling the appeal of Canada's Arctic diamond
industry, with the resulting drop in exploration hurting the
region's long-term prospects.
Exploration spending in Canada's diamond-rich Northwest
Territories (NWT), the world's third-biggest producer, is
forecast to drop 54 percent this year, according to a Canadian
government estimate earlier this year. That is bad news for an
industry where even profitable deposits can take 10 to 20 years
to develop into a mine.
"It's worrisome," said Tom Hoefer, executive director of NWT
and Nunavut Chamber of Mines, which is based in Yellowknife, the
territories' economic hub and capital. "Exploration is the
lifeblood of mining."
Once the engine for booming diamond demand, the growth in
China's appetite for polished gems has slowed alongside its
economy.
Anglo American-owned AAL.L De Beers, the world's top
producer by value, expects 3-5 percent sales growth in China
this year for its polished diamonds. They grew 5 percent last
year, down from 29 percent in 2011. De Beers forecast flat
global diamond jewelry demand in its 2015 annual outlook for the
industry. L1N11R0C2
In an attempt to ease a supply glut, miners have lowered
production. Last week, De Beers chopped its global output for
the third time this year. L5N1173RI L8N12M1EZ
Producers have also been cutting prices, and several
different benchmark measurements of diamond prices have been
dropping in recent months. (for graphic, see:
http://link.reuters.com/kuk65w)
In some cases, spending is being cut. De Beers Canada will
close its Toronto headquarters and relocate the operations to
Calgary, Alberta by the end of next June as part of a
restructuring. L1N12G29J
Since its first diamond mine opened in 1998, Canadian
production by value has boomed, and lags only Botswana and
Russia. Most of the industry is based in NWT - which has a land
mass bigger than France and Germany combined, but with a
population of just 43,600.
Over the past five years, global diamond production grew
just 4 percent to 124.8 million carats, but Canadian output
increased nearly 10 percent to some 12 million carats, according
to data from the Kimberley Process, which monitors sales.
As a contributor to 18 percent of NWT's gross domestic
product and the creator of thousands of jobs, the diamond
industry is a "godsend", said David Ramsay, NWT minister of
justice and industry, tourism and investment.
BUZZING WITH BACKHOES
Even as prices slump, De Beers is building NWT's fourth
diamond mine, Gahcho Kue, which is expected to have an 11-year
life. On a recent flight over the treeless tundra, the remote
site was buzzing with backhoes, trucks and hundreds of workers
preparing for production to begin in late 2016.
But companies have no other new mines planned and existing
operations are "long in the tooth," Hoefer said.
"Within 10-15-20 years, we may be seeing some of these
diamond mines shut down," said Mark Heyck, the mayor of
Yellowknife, a city established because of gold mining and
fortified by the growth of diamond mining.
De Beers' existing Snap Lake mine, which is not yet
profitable, will operate until 2028.
Rio Tinto RIO.L sees production at its majority-owned
Diavik mine ending in 2023. Dominion Diamond DDC.TO , which
holds 40 percent of Diavik and 89 percent of the Ekati mine,
awaits expansion permits that could extend Ekati by 11 years to
2031.
While this isolated region is seen having rich potential -
with more opportunities for discovery of new deposits than
places that have seen much more exploration - the lack of
infrastructure and a punishing climate have always made
development costly.
Some miners complain that NWT's permitting process also
takes longer than elsewhere, another disincentive to development
when prices are weak.
The area's promise is "phenomenal", but the way it has been
managed is "appalling," said Patrick Evans, chief executive of
both explorer Kennady Diamonds KDI.V and Mountain Province
Diamonds MPV.TO , which is 49 percent owner of Gahcho Kue.
"Kennady is the only company that is doing any serious
diamond exploration in the Northwest Territories," Evans said.
"And if we weren't there already, we wouldn't go there now."
LAND CLAIMS
The mining industry also frets that a recent NWT draft plan,
to increase land set aside for conservation to 40 percent from 9
percent, could restrict future finds.
Unsettled land claims are another concern.
Some 144,000 square kilometers (56,000 square miles) of
mineral-rich land is "frozen" because land claims have not yet
been settled with aboriginal groups, said NWT Minister of
Finance and Environment and Natural Resources Michael
Miltenberger.
And while the permitting system is complex, it has been
improving since last April, when the NWT took over many federal
responsibilities, said Miltenberger.
"We have to not only have the proper infrastructure for
managing the processes and the paperwork, but we also need to
make sure we clean up our own things, like land claims, so that
industry knows ... there's land available," he said in an
interview.
To help foster development, the government is proposing a
C$170 million ($129.2 million) all-weather road on the south end
of a winter ice road connecting Yellowknife with the main
diamond mining area.
Standing on the shore of Great Slave Lake, Yellowknives Dene
First Nation Chief Edward Sangris said history has shown
indigenous people the need for environmental protection in this
delicate landscape.
His community of Dettah is a 15-minute car ride from the
abandoned Giant Mine outside Yellowknife, a former gold mine
which has 237,000 tonnes of lethal arsenic trioxide buried in
underground vaults.
"We have to ensure that whatever we agree to, with industry,
complies with our understanding on how we're supposed to protect
our environment," he said.
Longer term, the NWT could help revive its diamond industry
by resolving uncertainty around mineral rights, said Peregrine
Diamonds PGD.TO Chief Executive Tom Peregoodoff.
"It is a great frontier from a mineral exploration
perspective," he said. "I'd be reticent to say that the heyday
is over."
($1 = 1.3153 Canadian dollars)
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Graphic: Rough diamond prices take a dive http://link.reuters.com/kuk65w
Graphic: The long odds of discovery http://link.reuters.comfer53w
Graphic: Canadian diamond production http://link.reuters.com/fat85w
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