Society

Rough Trade

How Canada’s diamond bonanza is turning a secretive industry inside out

by
• 5,835 words

Dan Marion seems unperturbed by the manic dinging of the seat-belt alarm as he drives his black Mercury Marauder around Rae-Edzo, a Dogrib town an hour west of Yellowknife in Canada’s Northwest Territories. He likes the racket, he says, “because I keep thinking I’m gonna win the jackpot at the casino slot machines.” In many ways you could say he is already cashing in. With a cigarette permanently dangling from his lower lip, Marion excitedly points out the symbols of new-found wealth in this community of 2,000. Rows of sleek new half-ton vehicles idle in front of homes and stores while teenagers driving the latest-model snowmobile whiz across front yards and onto a nearby lake to practice figure eights.

The most telling signs of the town’s changing fortunes, however, are the homes. Streets of aging government-issue bungalows, disparagingly referred to as Welfare Row, are now overshadowed by an upscale, tree-lined subdivision aptly named Diamond Row. These brand-new homes are the first in Rae-Edzo to have mortgages and they are owned by band members who work at one of the two diamond mines to have started up operations in the Territories over the last six years.

The affluence is an obvious source of pride to Marion, a veteran of thirty years in the north whose expletive-studded vernacular still betrays traces of his French-Canadian roots in Manitoba’s Red River Valley. Known as K’awi K’awo, or “The Boss” in Dogrib, a title he earned while managing the local Hudson’s Bay trading post, Marion went on to become a three-time mayor of Rae and commissioner of the Territories before taking on his current position as manager of the Dogrib Nation Group of Companies, the band’s economic-development arm and vanguard of its newly emerging financial might.

The group manages fourteen subsidiaries, including the only Aboriginal-run hydroelectric dam in Canada and the Territories’ sole private airport. Its first serious plunge into the business world, however, came with the advent of diamonds. Under special impact-benefit agreements reached with the two mines, both of which are located on traditional Dogrib lands, the corporation was given multi-million-dollar service contracts to haul ore, provide on-site sewage and road maintenance, and hire personnel.

While profits are still meagre, more than 250 band members in Rae-Edzo are now employed, either through the corporation or directly by the mines. Marion estimates that welfare rolls have been cut in half, from eighty to forty percent. Many who once squeaked by on $10,000 a year in social assistance are now earning annual salaries of anywhere from $60,000 to $100,000. “It has fundamentally changed what they want out of life,” Marion says.

Aboriginal people in the Northwest Territories make up half its population of around 44,000, but until now, they have remained largely outside its rich mining economy. Only a handful has ever worked in the two gold mines whose shafts burrow deep below the streets of Yellowknife. In the past, Native business was limited to supplying miners with meat, wood, and moccasins.

The current change in their prospects can be traced to a quiet political and social revolution headed by leaders such as Stephen Kakfwi, the Native-born former premier, who succeeded in wresting significant financial benefit from the mines despite wielding limited legislative power in the federally administered territory. Kakfwi’s term ended last December, but he’s still coy when asked how his government was able to exact aboriginal hiring “targets” as well as education and training commitments from the mining companies.

“You have to walk into the room like you own the place. And I own this place,” he adds with a flash of defiance. “I own the north and I don’t give a rat’s ass what [the federal government] says. It belongs to my people.”

For the Dogrib (a tribe of the Dene nation), a timely settlement of their land claims last year proved to be a particularly lucrative bargaining chip. The three thousand-member band will receive $152 million over the next fifteen years and a percentage of territorial resource royalties as a part of a federal agreement combining a land settlement with self-governance. It also collected $1.3 million in private deals struck with Ekati, the first diamond mine, and another $1.4 million from the second, Diavik, says John B. Zoe, the Dogrib’s chief claims negotiator. The band will use the money to shore up its financial might, and is investing $600,000 a year in a scholarship fund that is currently paying for a hundred and fifty students to attend post-secondary institutions. “It’s all been very timely,” Zoe acknowledges. “It’s a new era.”

The first glimmerings of this new era can be traced back to two single-minded prospectors from British Columbia, Chuck Fipke and Stewart Blusson. In the 1980s, Fipke, who had spent years prospecting in remote mining backwaters from Papua New Guinea to Brazil, became convinced the Northwest Territories was prime diamond property.

In a story that is now legend, Fipke spent his last dollars to charter a helicopter to an unnamed lake about three hundred kilometres northeast of Yellowknife. He had been following a trail of glacial run-off that led to the lake’s dark, bedrock shores. The path of sediment was full of lesser gemstones such as garnets and chrome diopsides, which often indicate that diamonds are buried below in kimberlite pipes, carrot-shaped formations created by ancient volcanoes that spewed up from below the earth’s mantle millions of years ago, sometimes picking up diamonds on the way.

On a bitterly cold day in April, 1990, Fipke began frantically chipping through ice and rock in the hopes of collecting tell-tale samples. The following year, a drilling expedition in the same area yielded eighty-one tiny diamonds. The site, on the shores of Lac de Gras, became Ekati, Canada’s first diamond mine.

Fipke’s discovery sparked the largest staking rush in Canadian history, perhaps the largest in the world to that point. some fifty million acres were claimed in a manic dash over the next two years, durring which exploration crews threw wooden stakes bearing claim tags from helicopters so as not to waste time landing. According to local lore, the chief of Lutsel’ke, an isolated Dene community southeast of Yellowknife, came home to find his outhouse staked.

One of the first on the scene was Grenville Thomas, a Welshman based in Vancouver who had been prospecting in the Territories since the mid-1960s. He teamed up with the experienced South African diamond hunter Chris Jennings and, to disguise their true intentions, the two flew up to Yellowknife separately, stayed in different hotels, and avoided being seen in public together. They knew De Beers, the diamond mining behemoth, was already staking land to the northeast of the Ekati claim block, and so, in a decision that would prove fortuitous for Thomas’s company, Aber Resources, they moved to the southeast.

Three years later, in 1994, a group of geologists headed by Thomas’s daughter Eira was examining the last rock-core samples before wrapping up the season when one of the three-inch tubes of kimberlite snapped, exposing a 1.8-carat diamond. It was a phenomenal find, considering that kimberlite normally yields an average of one carat – equivalent to one-fifth of a gram – per metric tonne of rock.

Indeed, the now-famous A154S pipe is thought to be the richest in the world. It yields an average of 4.8 carats per tonne, a large proportion of which are high-quality gems, and now forms part of the Diavik mine, which began operations last year. Along with Ekati, in production since 1998, the two claim to mine three of the world’s six richest pipes. This year they will produce roughly thirteen million carats, conservatively estimated to be worth $1.2 billion (U.S.) – that’s fifteen percent of global diamond production in terms of value.

The windfall has catapulted Canada into an enviable position among the exclusive ranks of diamond-mining countries. This year it will surpass South Africa to become the world’s third-largest diamond producer in dollar value. With two more mines, one in the Northwest Territories and the other in Nunavut, both slated to begin production by 2007, Canada could rival Russia as the number-two diamond producer, behind Botswana.

Canada’s sudden preeminence has shaken up the tightly controlled diamond industry and thrust what was once a remote fur-trading outpost into the international spotlight. Its clear, white stones, among the most sought-after and expensive in the world, are luring the élite of the diamond trade to Yellowknife. The exclusive New York jeweller, Tiffany & Co., is now cutting and polishing diamonds on the outskirts of this rough-hewn city of 20,000, perhaps better known for its raunchy saloons and late-night street-fights. International diamond dealers are frequent visitors, melding into the city’s rich mix of quirky characters, adventurers, and troubled souls on the lam.

“New York is interested in our diamonds,” says Stephen Kakfwi. “So are Antwerp and London. They know what goes on here every day. It has put us on the world stage,”

As you fly into the Diavik diamond mine in the early-morning hours, an icy veil of Arctic darkness still shrouds the land. By mid-morning, an anemic sun slowly begins to rise, its pale light revealing a polar desert of snow-covered dunes. The hulking shadows of massive machines are dimly visible as they forage like mechanized dinosaurs in a futuristic ice age. In the distance, a cluster of buildings rises from the vast, treeless expanse. These are the Barren Lands, at once breathtakingly beautiful, and one of the harshest places on earth.

Diavik, owned by the London-based Rio Tinto plc and Canada’s Aber Diamond Corporation, has spent $1.3 billion and braved temperatures of minus 50 degrees Celsius to unearth the billion-year-old carbon crystals buried beneath glacial water 220 kilometres south of the Arctic Circle. In what is considered a feat of modern-day engineering, super-sized trucks scour 5,000 tonnes of kimberlite a day from the icy bottom of Lac de Gras and haul it to the mine’s processing plant, where it is crushed and loaded onto a dizzying array of conveyor belts.

Under the watchful eye of closed-circuit cameras (the process is secret and off-limits to visitors) the diamond-rich chunks next pass through a series of X-ray machines. The invisible rays cause the stones to emit an ultraviolet light that is picked up by sensors. The diamonds are then sized and transferred into heat-sealed plastic boxes, which in turn are put into self-locking stainless-steel suitcases. These are stored in an onsite vault before being whisked to the airport and eventually, to sorting facilities in Toronto and Antwerp.

For all that effort, Diavik collects four kilograms of the rough, mottled diamonds a day, just enough to fill a two-litre milk carton. The mine owners are loath to disclose exactly what the gems fetch on the open market, but Diavik is estimated to churn out anywhere from $1.4 to $2 million (U.S.) a day in diamonds. Its profits are even more amazing, with a gross operating margin of eighty-two percent, say analysts, compared to less than ten percent for a base-metal mine.

“A diamond mine makes a typical gold mine pale in comparison,” says John Kaiser, a diamond-industry analyst based in California. “You can take the smallest, rattiest little company, it plunks down money on a property, and it could be sitting on billions of dollars. The potential is huge.”

No one has understood or exploited the potential of diamonds better than De Beers, the world’s dominant diamond miner and the mastermind behind our modern-day love affair with the gems.

While treasured for thousands of years as symbols of wealth and power, their rarity ensured that diamonds were restricted to royalty and the very rich. Then, in the late 1860s, a spectacular discovery was made in the Kimberly region of South Africa. Those diamond mines became the foundation of the powerful De Beers dynasty, which would go on to establish an iron-fisted control over some eighty percent of the world’s rough diamond supply. To ensure a steady retail demand for its product, it tied the gems to the centuries-old aristocratic practice of giving engagement rings and in 1938, it launched its now-famous advertising campaign, “Diamonds Are Forever.”

Dubbed the world’s longest-running monopoly, De Beers ran its company like a cartel, carefully controlling the amount of diamonds available on the market to maintain the illusion of scarcity and keep prices artificially high. Its cutthroat tactics, combined with its secretive style and magisterial airs, earned the entire diamond business a reputation for being the most impenetrable and least accountable of industries. “When you talked to De Beers executives, you had the feeling you were speaking to God,” says Luc De Smet, a former De Beers employee who now runs Tiffany’s cutting and polishing plant in Yellowknife.

The first crack in the cartel’s armour appeared in the early 1980s, with the discovery of diamonds in Australia. Rio Tinto, the owner of Australia’s Argyle mine, the largest in the world, opted to bypass the cartel and sell its diamonds on the open market. The decision set an important precedent, but its impact was blunted because the majority of Argyle’s diamonds are of low quality, averaging about $12 (U.S.) a carat.

When the two Canadian mines, which were scooped up by Rio Tinto and by Australia’s BHP Billiton, the world’s largest resource company, began producing, the balance was decisively tipped. Neither sells its diamonds to De Beers.

Canada and Australia now account for some forty-one million carats out of an estimated world diamond production of 120 million. Their combined clout has effectively broken the cartel. “Half the world production is now outside De Beers’s control,” says Pierre Leblanc, a diamond consultant based in Yellowknife. “Canada was the straw that broke the camel’s back. The impact has been very significant.”

Luc De Smet hardly recognizes the seven-storey De Beers sorting facility in Antwerp where he used to work. Many former colleagues have been let go and the building stands virtually empty. Its manufacturing wing is closed and most of the company’s joint ventures have been sold off. Last year the company delisted itself from the London stock exchange.

De Beers’s radical retrenchment combined with Canada’s growing primacy has thrown the tightly knit and secretive industry into turmoil as traditional middlemen are being replaced by a consolidated global industry. The shakeup has raised questions about the financial viability of many within the sector, while at the same time making the industry’s dealings more transparent. In stark contrast to Africa and Russia, where palms are regularly greased and corporate oversight is minimal, companies in Canada, industry analysts say, are held to comparatively high levels of accountability and are subject to strict environmental regulations.

The high standards, in turn, have earned Canadian diamonds a reputation for being “ethically clean,” standing in stark contrast to African gems, which continue to be sullied by the spectre of child labour, and by blood diamonds – the illicit gems used to finance murderous civil wars in Congo and Sierra Leone.

“Canada is the single most important event to happen in the diamond industry worldwide,” says Chaim Even-Zohar, an Israeli diamond consultant. “It is really the most modern Western democratic country that has diamonds. It has an open culture of transparency, accountability, and corporate decency, and in this current day and age, those are factors that have become important.”

Ironically, it was De Beers that first ignited the small, grassroots government of the Northwest Territories into believing that it could aspire to more than just mining jobs, and actually claim a chunk of the diamond industry’s lucrative value-added chain – one that converts $7.9 billion (U.S.) in annual rough stones into $60 billion (U.S.) in diamond jewellery. The spark came in the mid-1990s when the then president of De Beers Canada gave a now-famous speech to the Yellowknife Chamber of Commerce. According to Martin Irving, Director of Diamond Projects for the Northwest Territories, the executive in effect told the audience of hard-bitten miners and intrepid northerners, “You guys stick to mining and leave the diamonds to us.”

The unsolicited advice was a wake-up call for territorial leaders, long frustrated by what they saw as their colonial status within Canada and angered by the fact that billions of dollars in mining royalties would be going directly into federal coffers. “We all thought, ‘Who’s this guy telling us we can’t when we haven’t even tried?’ ” says Irving. “It was the catalyst that got us thinking and [it] galvanized us to take a look at the industry.”

Months later, the mayor of Yellowknife led a delegation to Antwerp, the so-called “City of Diamonds.” Its renowned diamond quarter – a square mile of narrow, twisting streets crammed with dealers, brokers, buyers, and manufacturers – handles an estimated seventy percent of the world’s diamond trade. The trip left an indelible impression on the delegation, and not long after its return, Yellowknife rechristened itself “The Diamond Capital of North America.” The trademarked epithet was the first step in an ambitious plan to transform the isolated frontier town into a leading international diamond centre.

The key to launching what the territorial government calls a “New Diamond World” was a demand that the mines hand over a percentage of rough stones to feed a nascent cutting and polishing industry. Loan guarantees and wage subsidies were made available to interested manufacturing facilities, and the territory even established one of the world’s only cutting and polishing courses at the local community college to ensure a steady stream of qualified workers.

In perhaps its most ambitious move, however, the territory became the first government in the world to brand its diamonds. Playing off the dubious origins of some stones, it created a certificate of authenticity that guarantees its diamonds have been mined, cut, and polished locally. To date it has spent millions marketing the merits of its trademark “Canadian Arctic Diamonds” in the U.S., Europe, and Japan.

Irving, one of the central architects of the scheme, admits the unorthodox methods sparked talk of a “Canadian conspiracy” among the Belgian diamond élite. “We’re bringing a different approach to the business and changing the industry,” he says. “Some people see this as an opportunity and some are scared by it. My response is, we’re not really that devious or really that smart.”

Regy Demeersseman peers through a dime-sized magnifying loupe at the tiny, half-polished diamond he holds a few inches from his face. It’s something he’s seen a thousand times before, but the Belgian master polisher never tires of looking at the dazzling facets that shimmer and bend into endless refractions of light. “I’m in love with diamonds,” he says in his heavy Flemish brogue. “Every stone is different. It’s always a challenge to get rough and make it into a beautiful diamond. You have to fight against the stone to make it perfect.”

As the production supervisor at a brand new, four-million-dollar polishing facility in Yellowknife owned by a subsidiary of Tiffany & Co., Demeersseman oversees the exacting process whereby a rough stone is fashioned into a standard round diamond, with its fifty-six perfectly symmetrical facets. “Anyone can learn to polish a diamond after a few weeks, but it won’t be beautiful,” he says. “The big challenge is to make a stone Tiffany wants.”

Demeersseman must also fight forbidding manufacturing conditions that make Yellowknife one of the toughest places in the world to cut and polish diamonds. While most of the highly competitive industry has moved to low-cost countries such as India and China, the Territories are doubly challenged by prohibitive costs and a dearth of skilled labour. Tiffany managers admit they are just looking to break even. According to Ester Jang, marketing manager at Sirius Diamonds, a Vancouver-based polishing firm operating in Yellowknife, “Without the support of the territorial government, the industry wouldn’t be viable.”

Despite these difficulties, the territory has lured up some of the world’s largest cutting and polishing houses by guaranteeing them steady access to rough stones. Tiffany & Co is the latest addition to the ranks, which include leading Indian diamond-polishing firm Rosy Blue, Israel’s Schacter & Namdar, and E. Schreiber of New York. Most have set up shop in a series of squat, security-rigged plants near the Yellowknife airport.

Hilary Jones, director at Arslanian Cutting Works (partially owned by Rosy Blue), estimates that at any given time $200 million worth of rough stones are being polished along the strip, popularly referred to, like the Rae-Edzo suburb, as Diamond Row. “Guaranteed access to rough is unheard-of anywhere [else] in the world,” she says. “In this industry you don’t have contracts; everything’s done on a handshake. Here we know we’ll get rough every five weeks.”

That access has not been easy to come by. Martin Irving admits it took a certain amount of “arm twisting and intense negotiations” to get the mines to cough up some of their stones. Before Ekati would agree to provide a ten-percent cut, the territorial government threatened to saddle the mine with a tax that would “choke a mule.”

Diavik is providing some diamonds as well, although it has refused to commit to a percentage. Negotiations with De Beers, which is trying to start up the Territories’ third diamond mine, Snap Lake, have been the most acrimonious. The company steadfastly refused to supply local diamonds, arguing that the practice would countermand its policy of sending all its stones, regardless of origin, to its headquarters in London.

Perhaps coincidentally, Snap Lake’s development is now two years behind schedule, bogged down in government permits and Aboriginal demands that have so far cost De Beers an estimated $10 million, and, company officials say, have put the project’s future in question.

The bitter wrangling erupted into the open last September when then-Premier Kakfwi, frustrated over De Beers’s obstinacy, accused the company of trafficking in blood diamonds. He quickly issued a public apology and, soon after, De Beers agreed to keep some of its diamonds in the Northwest Territories, although a permanent deal has yet to be reached.

While De Beers has always balked at revealing the origins of its diamonds, its reluctance, say analysts, goes deeper than company policy. Because of the high manufacturing costs it only pays to polish large, high-quality diamonds and, as a result, the mines are being forced to hand over some of their best stones for local processing. Even more worrying, the mine owners fear they will come under pressure from the Territories to provide the diamonds at subsidized prices to ease the sector’s financial strains.

“This is life and death for us and De Beers if we’re forced to sell to local guys struggling to get financing,” says Matthew Manson, vice-president of marketing for Aber. “It is a fundamental disincentive for investing [here].”

“We’ve sunk billions into the economy and employed hundreds,” he adds. “It’s not appropriate to bang the mines on the head over polishing when so much good has been done.”

To understand Manson’s apprehension, one need look no further than Deton’ Cho Corporation, the economic-development arm of the Yellowknives Dene. The corporation built a sprawling three-storey, two-million-dollar complex on the outskirts of Yellowknife, to house its cutting and polishing venture. With no experience in the difficult and risky business, workers were each cutting one diamond a day (compared to one every thirty-five minutes in Antwerp), almost bankrupting the corporation and sending it $10 million into debt, Chief Peter Liske says.

The Deton’ Cho diamond facility was temporarily closed and its Aboriginal managers fired and replaced by Neil McFadden, the general manager of a Saskatchewan media group who had moved up to Yellowknife to get out of the rat race. Judging from his nervous energy and clipped tone, McFadden is still stressed. “It was absolutely wrong to get into. We picked the hardest part in the chain to make money at,” he says. “Huge mistakes were made, absolutely. But if you’ve never been in it before how do you know what to do?”

Last year, Israel’s Schacter & Namdar took over the management of the failed diamond venture, renamed Canada Dene Diamonds. Along with the other facilities, it now draws almost entirely from an imported workforce totalling 150 cutters and polishers, mostly from Israel, Vietnam, Mauritius, Tanzania, India, Armenia, Belarus, and Ukraine.

The new arrivals seem oddly at home among the territory’s surreal patchwork of Somali cab drivers, Filipino fast-food workers, and Japanese tourists, some of whom fly half-way around the world in the hopes of conceiving a child under the auspicious green glow of the northern lights. Fuelled by the diamond boom, Yellowknife now boasts 112 nationalities and two mosques.

Not all newcomers drawn by the lure of diamonds are as well-intentioned. The stones are a magnet for professional thieves, organized-crime groups, and even terrorist organizations such as Al Qaeda, which use the easily transportable and untraceable stones to launder money and buy drugs and arms. According to Constable Darrell Robertson, one of the rcmp’s two-man Diamond Protection Service in Yellowknife, members of Asian crime syndicates and motorcycle gangs have begun cropping up on the city’s wide, windswept streets. “The intelligence is telling us different groups are showing interest in trying to get into the workforce and the stock market, and not just in Yellowknife, but across Canada,” he says. “It’s fair to say we are seeing interest by organized crime at all levels of the industry in Canada.”

Further south, diamond smuggling is on the rise. In February, 2003, customs officials in Toronto confiscated forty-seven rough stones from Namibia they’d found taped to the bottom of a man’s feet. In a separate incident, a group of Eastern Europeans were caught trying to smuggle in diamond-cutting equipment worth $26,000. There is an increasing concern that illicit foreign gems will enter the country and be passed off as “clean” Canadian stones, Evan-Zohar says, noting that many more diamonds are being sold as Canadian than are mined in the country.

To combat smuggling, the rcmp is leading the world’s first attempt to establish a DNA-like data bank for diamonds, which would use the stones’ unique compositions to identify their origin. The police force, together with federal intelligence agencies, are also collaborating with their counterparts in other diamond-producing countries. The U.S., consumer of half the world’s diamonds, has taken a keen interest, sending members of the Federal Bureau of Investigation to attend seminars in Yellowknife on the diamond industry.

“This is a big deal for the Americans,” says Chief Superintendent Everett Summerfield, commanding officer for the rcmp’s “G” Division. “Diamonds are a new phenomenon for North America and we still don’t know how it will all play out.”

In the meantime, Aber isn’t taking any chances. All visitors to its Toronto headquarters must sign a waiver legally prohibiting them from disclosing even the minutest detail of its location. “You can say [the offices] are nice, that’s it,” says Amir Kalman, manager of Aber’s investor relations. (Indeed, the offices are very nice.)

The one-time junior mining company has come a long way since helping to spearhead the discoveries of both Diavik and De Beers’s Snap Lake project. The former penny stock saw its shares peak at $52.50 in January, and, since 1999, Aber counts Tiffany & Co. among its shareholders. Unlike most other exploration companies, it managed to maintain a forty-percent interest in Diavik, a cash-rich asset it’s now tapping in a bid to buy the New York-based Harry Winston Inc., the so-called “jeweller to the stars.”

If successful, the move would give Aber a strategic position in the impeding high-stakes battle to brand diamonds, the only luxury good in the world still widely sold without benefit of trademarking or brand-specific international advertising campaigns. Things are changing quickly, however. As part of its new demand-driven strategy, De Beers is now encouraging its buyers to brand their diamonds and boost advertising in an effort to increase worldwide diamond jewellery consumption by fifty percent over the next decade. The company is even moving into the retail side by teaming up with luxury retailer lvmh Moët Hennessy-Louis Vuitton to open upscale stores in London and Tokyo that sell De Beers branded diamonds.

The looming brand war for a share of the $60 billion (U.S.) diamond-jewellery market comes just as Canada’s bid to brand diamonds by country of origin is gaining momentum. Laser-inscribed with tiny polar bears and maple leaves and bearing up to three certificates of authenticity, Canadian stones sold in Canada are reportedly garnering premiums of between five and thirty percent over comparable diamonds. The gems are now being retailed in large chains such as Peoples Jewellers and Costco, and they attracted media attention when Avril Lavigne, the Canadian teen idol, wore a cross encrusted with Canadian diamonds at the 2003 MTV awards in New York.

A triumvirate of leading diamond dealers – Beny Sofer & Sons, Rosy Blue, and Backes & Strauss – have joined forces to market their Canadian gems internationally. Under the banner of Tri-Star Worldwide, the group has taken out splashy full-page ads in The New York Times and The New Yorker, while its website promotes its “Canadia” diamonds as a perfect marriage of the Arctic’s pristine beauty with Canada’s high ethical and environmental standards.

Oren Sofer, Tri-Star’s chief executive, referring to the Canadian diamond as the “Rolex of precious stones,” puts them on a par with Swiss watches, German engineering, and Italian leather. They offer an intrinsic appeal in what he calls “the new luxury world,” where value is placed on a product’s political and social attributes.

But while Canadian diamonds are top sellers at home and are making inroads in Japan, the world’s second-largest diamond market, analysts remain skeptical about their appeal in the one country that really counts – the United States. Canada’s rather dull international image does not make it a sexy contender in the diamond world, where allure is largely based on illusion, says Martin Rapaport, a diamond expert based in New York and publisher of the industry’s main trade sheet, The Rapaport Report. “Diamonds are about the relationship between men and women, and more importantly, what turns a woman on,” he says. “Is an American girl going to want to jump her boyfriend’s bones over a Canadian diamond?”

Yellowknife was in the depths of a severe recession in the mid-1990s, when billions of dollars in diamond investment and hundreds of new jobs turned the territory into the fastest-growing region in Canada. In fact, diamonds are credited with saving the city from almost certain ghost-town status: the two gold mines that first drew settlers here seventy years ago have virtually dried up; one shut last year, the second is slated for closure in 2005.

As with any boom, however, there has been a corresponding upsurge in vice. For Aboriginal communities, still struggling to make the adjustment from a semi-nomadic hunting and trapping culture to the wage economy, the dazzle of diamonds has magnified many deeply rooted social problems while creating a whole gamut of new challenges.

Last year more than 4,000 mostly Native men – a record for the town of 20,000 – were arrested for public drunkenness. The territorial crime rate, already four times the national average, has shot up fifty percent since 1996, largely fuelled by alcohol-related offences. Drug use is also on the rise, while murders in this usually friendly backwater have become uncharacteristically brutal. Spousal abuse and family violence continue to rise while some communities are seeing cases of separation and divorce for the first time as they grapple with the mines’ two-week work shift, so at odds with their traditional way of life.

But what is a burden for some has turned into the opportunity of a lifetime for others. Jackson Lafferty, a handsome thirty-four-year-old from Rae-Edzo, has his sights set on becoming one of the few Aboriginals to go beyond an entry-level job as a janitor or truck driver. “I want to be in on the decision-making,” he says. As a supervisor of the participation agreements reached between Diavik and the Aboriginal communities, Lafferty tracks the number of Native people hired or trained to ensure that targets are being met. He is a testament to the incredible lengths the mines are having to go to employ people who often lack basic job skills and education. Or who, as Lafferty says, might prefer to live on welfare.

“They are spoiled,” he admits. “They need to get their butts in gear and do something with their lives. They are so addicted to [social assistance] and they have to change that mentality where everything is paid for.”

Inroads are being made. At Diavik, thirty-five percent of the 600-strong workforce is Aboriginal and more than 340 Natives have been trained, while at Ekati, 477 Natives work at the mine. De Beers is investing $500,000 in a new trades training centre in Yellowknife and has committed to financing stay-in-school initiatives and fetal-alcohol-syndrome prevention programmes. Its brochures even promise family counselling and onsite Alcoholics Anonymous meetings. “This is not tokenism,” says Darryl Bohnet, vice-president of community affairs for Diavik. “People are realizing you can’t just subsidize people with cash all the time, it doesn’t create healthy communities. We want to build capacity that we can leave behind. We want to leave a legacy.”

Driving along the lonely, windswept highway from Yellowknife to Rae-Edzo, the Dogrib band’s chief claims negotiator, John B. Zoe, makes a purposeful stop at the town’s otherwise unremarkable high school. Like many, Zoe dropped out when he was fourteen, but then returned to work here as a night watchman. He took correspondence courses and eventually became certified as a stationary engineer and ran the school boilers. He saved some money and built his own gas station before going to work for the tribe. Much of his inspiration came from the Dogrib’s iconic “Old Chief’” Jimmy Bruneau, whose weather-worn face graces the school’s hallways and classrooms. Bruneau counselled his tribe “to be strong like two people.”

“Our challenge is to hang on to our heritage and at the same time learn some skills that allow us to go out into the world,” Zoe explains, stopping at a bust of the old chief in the school’s atrium. “Right now we are struggling with how to balance that.”

Back in his office, Stephen Kakfwi’s self-assured grin quickly turns to a stony stare as the many daunting challenges facing the Territories are reeled off. He has heard them all before. “We have two choices,” he fires back. “We can hide away in our communities and live simple little lives, but there will still be huge social problems. Or we can embrace development and build a better future. It’s a double-edged sword – but that’s true of anything. So you focus on the good and deal with the bad.”