Canada could create ‘thousands’ of diamond manufacturing jobs – by Matthew Hill (Miningweekly.com – November 18, 2011)

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TORONTO (miningweekly.com) – Canada has the potential to create “thousands” of diamond cutting and polishing jobs as new mines come into production in the country over the next decade, Diamond Bourse of Canada GM Adam Shubinsky said in a recent interview.

To do so, the country, which produces 23% of the world’s diamonds by value, needs to implement policies that encourage cutters and polishers to set up shop in Canada, and also push miners to sell to local factories, he said.

“Canada is standing at a transformative point in its diamond history,” Shubinsky commented in an interview. A confluence of factors were aligning, creating potential for the country to benefit from its significant diamond resources, he said.

Canada is the third-biggest diamond producer globally by value, after Botswana and Russia, and a raft of new mines set to open over the next decade means that it could grow its market share. According to Kimberley Process statistics, Canada in 2010 produced 23% of the world’s diamonds by value, equal to Russia, and less than Botswana’s 25%.

On a carat basis, Canada comes in at number four, with 10% of global output, while Russia produced 29% of the world’s diamonds and Botswana 19% in 2010. The Democratic Republic of Congo accounted for 17% of supplies.

Shubinsky said that the new production coming on line in the country, coupled with a growing demand for the stones among China and India’s burgeoning middle classes, create a big opportunities for cutting and polishing gems in Canada.

Historically, cutting and polishing has taken place in India and increasingly China, where low cost labour has made these centres more competitive.

Shubinsky points out that labour inflation in those countries has been dramatic in those countries over the past few years, making Canada comparatively more competitive. The Financial Times said in March that India had the highest wage inflation out of any Asian country, citing a human resources research report that predicted salaries would rise 13% there this year.

In China, wage inflation is expected to be 9% for 2011. At the end of the second-quarter, labour inflation in Canada was 2.6%.

Shubinsky said that while it might still be difficult for Canadian cutters and polishers to compete on the global scale for all stone sizes, it should focus on the beneficiation of larger gems.

The floor to what can be done at reasonable margins in the country is from some one-carat diamonds to two-carat sparklers and bigger. The bigger the diamond, the higher its price, and the less important cutting and polishing costs become to margins.

“We are talking about thousands of jobs of what can be done economically here in Canada,” Shubinsky said.

Canadian diamond industry sources Mining Weekly Online spoke to said “thousands” was overly ambitious, but that there was room for significant growth.

“Thousands is being way to optimistic,” Shore Gold exploration and development VP George Read said, adding that growth would more likely be in the “tens”.

There are only two companies cutting and polishing diamonds in Canada, namely Crossworks Manufacturing and Embee Diamond Technologies.

Vancouver-based Crossworks employs 32 people at its flagship Sudbury Factory, and also operates a facility in Yellowknife that has 12 cutters and polishers.

Embee, which operates out of Prince Albert, Saskatchewan, employs five cutters and polishers.

Both companies have major growth plans for Canada.

“We aim to double the Sudbury factory size, or close to that, in the next couple of years. Every new employee will be Canadian,” Crossworks marketing director Dylan Dix told Mining Weekly Online in a telephone interview, adding that the company would also add another four cutters and polishers at its Yellowknife factory, to bring the total headcount to 16 in 2012.

Embee’s Evert Botha said the company could double its staff count in the next year if it started cutting and polishing so-called “generics” – non-specialised sparklers. The company has so far made a name for itself selling its trademark cuts to independent jewellers.

Not all companies have been so successful.

Over the past nine years, eight cutting and polishing factories have failed in Canada, mainly in 2009 and 2010, when the global recession left the industry reeling.

These failures have hit the Canadian taxpayer’s pocket, with factories defaulting on nearly C$30-million in loans, mainly to the government of the North West Territorities, where most of them were based. The government had provided loans as incentives to establish themselves around the newly opened Diavik and Ekati diamond mines, north of Yellowknife.

According to Schubinsky, many of the company’s that failed did so because they could not compete with India or China, because costs of doing business are so high in places like Yellowknife.

You have to pay workers premium wages to relocate there, while other input costs are also usually significantly higher, he said.

Diamond Bourse of Canada chairperson Bhushan Vora said that businesses should be established in areas that have a strong manufacturing skills base, such as Sudbury, Toronto, or Montreal, rather than the remote areas where the mines are located.

He said the federal government needs to step in and introduce a policy that incentivises cutting and polishing in these centres, such as providing lower royalty rates for producers that sell to local factories at market prices.

“There is huge potential if government looks at this and says it’s an important element in the future of our country,” commented Vora.

Other diamond producers, including South Africa, Botswana and Namibia, have all over the past few years introduced policies that require companies that mine diamonds in their countries to sell a certain portion of their output to local cutters and polishers.

A spokesperson for Natural Resources Canada said that such policies are “a provincial jurisdiction”.

The government of Ontario negotiated with De Beers to make available 10% of the output from its Victor mine in the northern part of the province to local cutters and polishers, which all goes to Crossworks’ Sudbury factory.

Dix said the arrangement had worked very well. This is partly because Victor mainly produces large, higher value gems.

‘BRAND CANADA’

Another important factor that Canada can leverage to grow its diamond manufacturing sectors is to market what Shubinsky and Vora dub “brand Canada” diamonds and jewellery.

By this, they mean stones that have been mined, cut and polished in the country, and even set into jewellery pieces by Canadians.

Crossworks’ Dix agreed.

“There’s great value in saying a product that is mined cut and polished in Canada,” he said.

Botha also said that Embee was seeing increasing awareness of Canadian-branded stones.

“As a Canadian-based producer, we’re seeing more and more interest in Canadian diamonds, particularly from China. People like the fact that it is a 100% conflict free diamond,” he said in a telephone interview.

China, which has grown to become the world’s second-biggest economy, as well as the second-largest market for diamonds, holds great promise for Canadian diamond manufacturers.

And the Diamond Bourse of Canada, which opened in early 2010, is looking to take advantage of that, announcing in October that it set up a liaison office in Shanghai.

Shubinsky said that not only can Canadian companies benefit from China as a consumer of diamonds, but that the Asian powerhouse could also help fund building diamond mines in Canada.

According to Natural Resources Canada, over the past 12 years, diamond mines have created approximately 8 000 direct and indirect jobs for Canadians, mostly in mining. It said there are about 55 workers in the local cutting polishing industry.

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