The Canadian Diamond industry has witnessed significant growth since 1997, and is poised to continue the trend

By Leia Michele Toovey- Exclusive to Diamond Investing News

Diamond production in Canada is on the rise.

According to a report issued by the Mining Association of Canada, in 2007, production rose 28 per cent to 17 million carats. Production by value fell 9.6 per cent to $1.44 billion during the year, ranking diamonds as the country’s tenth most valuable commodity. The decrease in value, despite the rise in production volumes, came as a result of global price declines seen in 2006 and 2007. Further increases in Canada’s diamond production is likely be seen in 2008 following De Beers opening of its Snap Lake and Victor mines in mid 2008. The significant increases in rough prices seen in 2008 will likely push the value of production up again.

The Canadian diamond industry has developed rapidly in the past decade. In 1997, the country was not involved at all in diamond production. Now, just over 10 years later, the country is the third largest producer of rough diamonds (by value). Canada’s total production accounts for around 10 per cent of global supply by volume. Only the Russian Federation and Botswana can claim of more production of diamonds than Canada.

In the past decade, Canada’s production has been predominantly from two mines – Ekati owned by BHP Billiton, and Diavik, 60 per cent owned by Rio Tinto and 40 per cent by Harry Winston Diamond Corp. Future potential is believed to exist in the northern territories, Quebec and in Saskatchewan, where the Fort a la Corne project is among the largest kimberlite fields in the world. Canada’s rough diamond imports totalled US$651.31 million in 2007.

Rio Tinto‘s stakeholders have voiced that their primary concern when it comes to the diamond industry is the potential of a future supply shortage. Rio Tinto conducted a survey among its main stakeholders, involving individuals with varying interests, form NGOs to customers. Other concerns expressed by the stakeholders were pricing and lower profit margins, the potential of synthetic diamonds; diamond industry reputation, image, and marketing issues, supply chain transparency and Kimberley Process compliance.

Rio Tinto is the third largest producer of rough diamonds, globally. Its production comes from the 100 per cent owned Argyle mine in Australia, its 60 per cent stake in Canada’s Diavik mine, and its 78 per cent share in Zimbabwe’s Murowa mine. In addition to their primary business of marketing rough diamonds, the company also operates a niche polished pink diamond business for its production from Argyle. Rio Tinto’s total diamond production fell 31 per cent to 7.853 million carats during the first half of 2008. Revenues, however, grew 28 per cent to US$571 million, and net earnings for the period rose 20 per cent to US$108 million.

Petra Diamonds (LSE.PDL) has agreed to buy a majority stake in the Tanzania-based Williamson diamond mine from De Beers for US$10 million. The acquisition comes shortly after Petra closed its acquisition of the Cullinan mine from De Beers in July, having previously purchased the mining giant’s Koffiefontein and Kimberley Underground assets. The company disclosed that the total cash consideration will be funded entirely from Petra’s internal cash resources. The acquisition is to be completed in mid-October, 2008. At 146 hectares, Williamson is the largest kimberlite pipe ever to be mined and it has been operated continuously as an open pit diamond mine for nearly 70 years. During this period it has produced over 20 million carats of diamonds. The company believes that there remains a substantial resource of some 40 million carats of diamonds. The mine produces large, high quality stones and is a source of the rare and valuable fancy pink diamonds.

Petra has expressed a strong interest in diversifying its geographical spread, and the acquisition marks the company’s entrance into Tanzania. Petra now boasts assets in five African countries including Tanzania, South Africa, Angola, Botswana and Sierra Leone.

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