Does speed mean greed?

Diavik is a very special place. Canada’s second diamond mine is coming up with larger, higher-quality stones than had been predicted, with one of the highest in-situ values per tonne of ore of any diamond mine in the world. This must make Diavik’s owners Rio Tinto (60% interest through subsidiary Diavik Diamond Mines Inc.) and Aber Diamond Corp. (40% interest) very happy.

The underwater location of the kimberlites is challenging, requiring the temporary draining of portions of Lac de Gras, N.W.T., during mining. Any damage to the tundra takes scores of years to heal.

But the owners have clearly done their best to achieve sustainable development, minimizing environmental impact, ensuring fair employment of northerners (now 73%) and aboriginal people (now 37%), and purchasing much of the goods and services from northern and aboriginal businesses. With everything coming up roses, why change the plan?

A strategic planning team is looking at how to take full advantage of the high-quality product. In mid-November the partners announced that they are considering speeding up the mining rate by over 30%. This would require more personnel, more haulage trucks, an expansion of the processed kimberlite containment structure, and earlier construction of the water containment dyke for the next pit and the ramp for the underground mines.

The partners also want to beef up exploration on the property to find more reserves. The winter 2003 issue of Dialogue, Diavik’s newsletter, says “Given the successes to date, we expect that mine life will remain between 16 and 22 years,” even with the higher production rate. In the world of exploration, that is more of a hope than an expectation.

They want to take advantage of the current strong diamond market, and they feel the market “can readily accept significant additional Diavik product”. Speeding up production and getting those stones out into the hot market is certainly one way to go; this is the route that the mining industry has traditionally taken. But so much depends on the U.S. market, which accounts for 50% of total world retail diamond jewelry sales. The second biggest consumer is the Japanese market. Would you want to bet your future on the capriciousness of luxury goods sales in these two economies?

When the price does eventually slip, the mine will be left with a larger workforce, extra aging equipment and unattractive economics. If it cuts production, the per-carat operating cost increases. Whether the owners lay off workers and cut production, or keep up the production rate at lower revenue, their shareholders won’t be happy. The resource will be depleted that much faster, drying up the source of income for employees, contractors and suppliers.

What about the environment? In what way would it be better protected by racing ahead with the next water containment dyke?

I hope the strategists advise a plan that continues to pay careful attention to the natural and human resources of the region. This is a modern mine and deserves a sustainable future.