NWT dangles carrots for carats to lure diamond manufacturers

The Northwest Territories is trying to attract more diamond manufacturers with a series of new incentives tied to jobs, investment, and even tourism.

Despite the presence of three diamond mines in the territory, the cost of manufacturing here – polishing and preparing a rough diamond so it’s ready for sale – is prohibitive, so rough diamonds get sent out-of-territory instead.

To beat those costs and attract new companies, the territorial government is making a new promise to manufacturers who base themselves in the NWT.

Locally based manufacturers already have access to 10 percent of rough diamonds mined in the NWT, set aside specifically for them.

Even though that kind of access to rough diamonds is a big draw for manufacturers, nobody currently takes up the NWT’s offer – because the territory demands all of those rough diamonds be polished here too, and that doesn’t add up financially.

From now on, local manufacturers will be allowed to send large amounts of those rough diamonds for processing elsewhere – where costs are far cheaper – as long as they still do some polishing here and invest in the economy.

Previously, the territorial government wouldn’t let exports like that happen. The change in approach is an admission that the old policy did not work.

Miles Welsh, a territorial manager helping to oversee the new policy, called the announcement “a sea change.”

“This is a new approach that we think will allow us to realize a vision we have long held, with no direct financial investment,” Industry Minister Wally Schumann told a panel of MLAs on Thursday afternoon.

Northern premium

The territory is betting on manufacturers being able to charge a premium for diamonds that are not only mined in the NWT but also polished here.

“If you link that up with tourism, a tourist can say they bought a diamond ring from an Indigenous designer and that was mined, polished, and designed here,” said Tom Jensen, deputy minister for the Department of Industry, Tourism, and Investment.

There are currently two manufacturers based in the NWT: Crossworks and Almod. Both are outposts of much larger groups.

Crossworks opened the NWT Diamond Centre in Yellowknife four years ago but currently chooses not to work with the territory’s own diamonds as “market conditions weren’t conducive,” the territorial government said.

Almod has purchased a factory next to Yellowknife Airport and arranged staff housing, but the factory is not yet open, despite hoping to be operational last year, following apparent work permit issues. The company is now said to be working on its business plan.

Neither company immediately responded to requests for comment from Cabin Radio. The territorial government says it has worked with both and is hoping they will be the first two companies to begin manufacturing the NWT’s rough diamonds locally through the new policy.

“There’s $150 million of rough [diamonds] available,” said Jensen. “We see room for four to five manufacturers. The first step we need to take is to work with these two, make sure they are up and running.”

Diamond scorecard

The difference in operating costs for manufacturers in the NWT, versus elsewhere in the world, is vast.

In areas like India, China, and Vietnam, polishing and preparing diamonds can cost around $80 per carat, the territory said. In the NWT, it’s more like $300 per carat.

“The costs of actually operating here are still quite prohibitive,” said Welsh. “We understand we can’t compete against these markets for mass production, so we want to focus on smaller-scale factories, niche operations.”

The new system essentially uses a scorecard, or ‘matrix’, to offset the extra cost. The more a manufacturer does to invest locally – creating jobs, buying from local suppliers, setting up stores – the more rough diamonds they are allowed to send to other countries for cheaper processing.

Manufacturers will be scored out of 100. Creating 20 or more full-time jobs in the diamond industry will score a maximum 30 points; paying millions of dollars in operating or capital expenditures into the NWT economy scores more points; so does creating local retail stores or finding ways to work with the tourism industry.

So, a manufacturer which scores 95 or more out of 100 – an “extraordinary score,” which the government admits would be rare – would be allowed to send 90 percent of its rough diamonds to India, China, Vietnam, or anywhere else, and process just 10 percent of them in the NWT.

A more common score would be something like 30 out of 100 – equivalent to four full-time jobs and some other investments – and that would allow a company to export around 70 percent of rough diamonds, then manufacture 30 percent locally.

‘This is clever’

There is no new government money involved in the scheme. Territorial officials said the changes are the result of work with international consultancy the Constell Group, and have “sparked interest” among a range of manufacturers contacted.

“On the face of it, I’m very impressed with the department’s creativity,” said Kieron Testart, the MLA for Kam Lake, reviewing the plans. “If the issue identified is export, I think this is a clever way to get around it.”

“There are potential benefits to this, but it will take a long time to get going,” added Kevin O’Reilly, the MLA for Frame Lake.

The proof will be in take-up rates over the coming years. Business plans from Almod and Crossworks are expected in the new year. It is not clear if any other manufacturers are seriously considering setting up shop locally.

The territory is still recovering from the debacle of Deepak International, a supposed manufacturer which purchased two Yellowknife buildings in 2013 and was promoted enthusiastically by the territorial government of the day – before promptly disappearing off the face of the Earth.

Toronto businessman Deepak Kumar was last reported, in June 2017, to be wanted on related fraud charges.

While the new policy hopes to attract “niche operations,” deputy minister Jensen said the territory has learned success in the NWT will only come from “a very experienced manufacturer” with many business connections – and not the likes of Kumar.

“A polisher like Almod is vertically integrated. They’ve got more than 100 stores across the world, primarily in the Caribbean and Alaska. They are engaged through the whole chain,” said Jensen.

“Even if they have less margin in the polishing, they gain value from the polish to the retailed piece of jewellery.”

Tiffany Hall, the territory’s director of diamonds, royalties, and financial analysis, said the NWT was ready to do a better job of vetting and monitoring its manufacturers.

“We have the capability now to really put [the manufacturer] through a rigorous process, annually and monthly,” she said.

“They will be put through a full audit process. We plan to monitor this quite closely.”