New industry for Canada

Canada’s Department of Indian Affairs and Northern Development (DIAND) is funded by taxpayers to the tune of billions of dollars each year, yet most Canadians have little knowledge about how its huge budget is spent. It has developed a reputation for being one of least accountable and most complex ministries, with a mandate that, at times, seems contradictory and confusing.

DIAND has come under the spotlight in recent months for its role in stalling progress at the Diavik diamond project in the Northwest Territories. The ministry is supposed to be working in the best interests of its constituents — native peoples — yet it seems to be working in a counter-productive manner instead.

The problem began when DIAND refused to issue an interim land-use permit that would have allowed the owners to prepare lay-down areas for fuel, equipment and supplies to be transported to the site by winter road. This work was essential if the company was to meet its construction schedules. By refusing to issue the permit, DIAND effectively slammed shut Diavik’s small window of winter opportunity.

DIAND’s heavy-handed tactics have also raised concerns in international mining circles. “This is a serious blow to the joint venture and will delay construction of this major mine by a least a year,” wrote International Mining Review, a London-based publication.

The journal also cited the impasse over development of the Voisey’s Bay nickel project in Labrador. “Laughably, investors still prefer to invest in North American mining companies because of the political stability. This, clearly, is becoming more and more of a joke as the inherent investment risks, particularly for those in the developmental stage, are becoming increasingly high.”

That Diavik’s woes have received international attention is not surprising. After all, the project is 60%-owned by Diavik Diamond Mines, which, in turn, is wholly owned by London-based Rio Tinto, one of the world’s largest mining companies. An Australian firm holds 50% of the nearby Ekati diamond mine, the first operation of its kind to open in Canada. These foreign firms invested in Canada’s fledgling diamond industry during its early days, but only after several domestic majors said thanks but no thanks.

In the early days, the Canadian juniors that made the discoveries were backed by mostly retail investors, many of whom continue to hold shares. Aber Resources, which owns 40% of Diavik, might never have survived without this support. Diavik would not have come as far as it has without Aber’s support either. The junior cut its teeth in the north: long before it discovered kimberlites there, it had explored numerous gold and base metal projects in hopes of generating profits for its shareholders, and jobs and benefits for northerners. There is no doubt about this company’s commitment to the north.

Aber and Rio Tinto are working hard to resolve the impasse. However, as the talks dragged on, it soon became obvious that DIAND was playing hard-ball in order to extract additional benefits and concessions.

Negotiations are continuing, but DIAND is now calling for Diavik’s operators to post an environmental security deposit of $185 million. The sum is a hefty one, far beyond what might be considered reasonable given the benign nature of diamond mining: no chemicals are used in the recovery process; there is no potential for acid-rock drainage; and, contrary to what some environmental groups have stated, wildlife and mines are not incompatible.

The joint-venture partners have also gone to extraordinary lengths to do things right. The environmental agreement is the first of its kind in Canada to include the affected First Nations peoples as signatories. The project has been designed to meet the stringent demands of the International Standards Organization under the ISO 14000 Environmental Standards. And plans for progressive reclamation are consistent with the report approved by the minister of the environment last fall.

Diavik’s economic benefits are impressive too: existing reserves have an in situ value of $8.5 billion, and governments would receive more than $3.5 billion over project life in direct and indirect taxation benefits.

The project delivers jobs and benefits where they are needed most. The unemployment rate in Canada’s north is staggering. It has the youngest population in the country, and many social problems.

Diavik is literally a gift from Mother Nature — a $1.3-billion mine proposal based on the mining and processing of four kimberlite pipes in the Lac de Gras region. The federal government approved the project last year after concluding that it would generate no significant adverse environmental effects.

DIAND has attempted to thwart these plans without communicating its position broadly to the people of Canada, or to other stakeholders in the mine. There has been no transparency or accountability. Canada’s reputation as a fair place to do business has suffered as a result.