Diamonds were first discovered in Canada in 1991, in an area that few people believed could possess kimberlite intrusions. The Ekati mine, which is still in operation today, began mining in 1998. The following year, a massive gold mine called the 'Giant mine' closed after more than fifty years of mining. This was a major blow to the mining-heavy economy of the region, and diamond mining helped save the capital city of Yellowknife, in the Northwest Territories. In Canada, roughly 87 percent of the population of 36 million people live and work within 160 km of the US border. That makes Yellowknife, located about 2,000 km north of the US border, very remote, to say the least. The Northwest Territories, where much of the diamond activity in Canada is centered, has a population of just 44,000 people in an area of 1.34 million square kilometers. Diamonds have been a major source of employment and tax revenues for this area, which are desperate to benefit from their resource base.
Canada's attempts to develop its own cutting and polishing industry have had mixed, but mostly disappointing, results. In Canada, the provincial or territorial governments have much autonomy to establish the laws and guidelines within their jurisdiction. This had led to different rules within the three different provinces currently mining diamonds, and has created competing interests for the downstream diamond manufacturers in the country. However, in two of the three provinces where diamond mining takes place, the local governments mandate that mining companies sell up to 10 percent of the mined diamonds by value to local manufacturing companies, assuming that such demand actually exists. In reality, the demand has been far less than 10 percent, and the local cutting industry has not really gotten off the ground in more than 15 years.
In the early days of diamonds in Canada, many companies rushed to take advantage of the opportunity. In Yellowknife, a small compound was developed, and aptly named 'Diamond Row,' a stretch of buildings located next to the city's airport. Some big players entered the area with much promise, including Tiffany & Co.'s rough diamond polishing company Laurelton. However, it soon became evident that proximity to the diamonds was not a sustainable competitive advantage. In Northern Canada, the remote location makes the delivery of most products and services very expensive. This means that the cost of just about everything, including wages, is very high, making everything from the cost of building a factory to day-to-day operations high-cost and non-competitive.
For many years, local and federal governments were willing to subsidize factories that were losing money in order to keep the industry alive. However, this proved unsustainable, and many factories closed immediately after subsidies were revoked. This included many high profile manufacturers such as Tiffany and Arslanian…