Tuesday, July 13, 2010

Ontario Diamonds Compete on the World Market

We as appraisers have to be constantly aware of the changing world around us. This changing world is very apparent when I look at the poster over my desk showing the state of the diamond industry in 1987. The map does not show any diamond production in Canada. When the first Canadian diamonds came on the market they commanded a 10-15% premium over other diamonds of like quality not accompanied by a document attesting to Canadian origin. This too has changed.

The Canadian diamond industry is at the end of its first decade and continues its exponential growth. Today, Canada has four diamond mines and is third in the world in producing gem-quality rough diamonds. With approximately $2B of diamonds coming out of the ground, Canada has also worked to develop a strong secondary industry in both Ontario and the Northwest Territories that includes diamond polishing, jewellery design and manufacturing, opening a diamond bourse (a wholesale polished diamond exchange where trade merchants meet to transact business) and a strong retail community.

In the diamond industry the term beneficiation refers to local downstream activities that add value to locally-mined rough diamonds. It includes the process of sorting and valuing rough diamonds, their subsequent cutting and polishing, diamond trading, and the manufacture of diamond jewellery. It can also include the local marketing of diamonds. The question that has always been raised in the beneficiation process in Canada is the high-cost environment and the ability to remain competitive against diamond manufacturers that are polishing in India, Vietnam or China. Can a local industry develop? There have been a number of polishing facilities to open and close their doors in Canada ranging from small companies to some of the largest DTC Sightholders in the world. Success has proved elusive to all but one, the HRA Group of Companies.

In 2000, HRA opened a factory in Vancouver, British Columbia that began by polishing diamonds from the Ekati diamond mine. This was followed by HRA being named a Select Diamantaire by Rio Tinto Diamonds for the Diavik production and a Sightholder for the De Beers Snap Lake mine in 2007. In 2008, Crossworks Manufacturing Ltd., an HRA Group Company, was announced as the successful applicant to receive the 10% allocation of the De Beers Canada Victor Mine. The process was set in motion after the Government of Ontario and De Beers had reached an agreement to support the secondary industry by making rough diamonds available. The competition was open to all of De Beers’ global customers.

De Beers Canada began construction of Victor, Ontario’s first diamond mine, in 2005 approximately 515 km north of Timmins Ontario. The mine is a fly-in/fly-out open pit mine and currently employs 500 people. The rough diamond “run of mine” (average of all qualities) at Victor is on average three to four times the industry average, making the Victor Mine the highest quality rough producer in the world.
The agreement to provide access to 10% of Victor diamonds to Crossworks provided a springboard for the company to open a state-of-the-art diamond polishing facility in Sudbury, Ontario. The quality of the rough and sizes (2ct+) has allowed Crossworks to polish over $50M since the inception of the factory in September 2009.

The facility in Sudbury is currently staffed with 27 cutters from the HRA Vietnam facility and they are in the process of training a local labor force. The factory has doubled in size in less than one year and has some of the most advanced cutting equipment in North America. All of the rough is scanned with images and laser measurements into a computer to determine highest yield, not only in terms of diamond size but also quality and shape. The diamond is then tracked at every stage of cutting for quality control and weight loss. Crossworks also has a state-of-the-art laser diamond cutting machine that can cut a two carat piece of rough in half in 8-10 minutes, saving hours over the traditional sawing machines. The cutting of the primary diamond from the rough is done almost all by hand, but the facility uses robotic cutting machines to cut most of the tops (smaller top half of original cut diamond) thus reducing the labor cost on the smaller diamonds.

By use of cutting edge technology, not having to buy and cut rough under 2.00 carats and concentrating on GIA triple “very good” or triple “excellent” diamonds, Crossworks has been very competitive in the market. Crossworks is selling the diamonds at approximately the same price as equal quality goods on the market, only with the added benefit of “mine to finger” tracking and an Ontario Government certificate of origin.

James Poag, ISA CAPP, GG, NAJA CM, CJA-CAP
ISA Vice President
james@poags.com

8 comments:

  1. Excellent post and great improvement for Canada in Diamond Engagement Rings and jewellery. But it's high-cost environment is it's drawback.

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