Jericho Diamond Mine Fails, Inuit left holding the bag

by Morgan O’Neal

The bankrupt Jericho diamond mine is located at the north end of Contwoyto Lake partly on Crown land and partly on land with Inuit-owned surface rights, 350 km southwest of Cambridge Bay in the west Kitikmeot region of Nunavut. An Inuit Impact and Benefits Agreement was signed between the Kitikmeot Inuit Association and the Tahera Diamond Corporation on September 8, 2004 and on January 25, 2005, Indian and Northern Affairs Canada executed land lease documents allowing the company to use Crown land at the project site. The first four years of production were to have been from a land-based open pit, followed by two years of underground mining generating a stockpile of ore so that processing could continue for two years after the end of mining operations. The project was hyped to raise capital in the ‘Forward Looking Language’ which is the equivalent in mining of the more traditional phrasing of the old Dusty Springfield song “Wishing and Hoping.” Jericho was to have produced an average of 375,000 carats per year, and mine life may have been extended by discovery of new resources nearby. Just 16 months after opening Jericho to great fanfare and an audience blinded by the dollar signs in their eyes, Tahera Diamond Corp. is bankrupt and beleaguered CEO Peter Gillen is the villain in a fairy tale with no happy ending. The Inuit of Canada’s newest territory, Nunavut are the collective victim. At this very moment Peter Gillen is pounding the pavement up and down Wall Street trying to raise money to keep the dream alive.

It wasn’t supposed to be this way. When Jericho opened Prime Minister Stephen Harper and then-INAC minister Jim Prentice made the trip to the Barrenlands, and with Nunavut Premier Paul Okalik and other dignitaries, helped Gillin the villain cut the ribbon on Nunavut’s first operational mine. “It is symbolic that the first mine that has ever opened in our territory is a diamond mine,” Okalik told the assembled crowd. “It’s a gem.” But Jericho has been plagued with problems since the beginning. In January of 2006, Tahera began production of 2,000 tonnes of kimberlite and calculated in ‘forward looking language’ 175 jobs over its eight year lifespan. Already by October the mine was in trouble with slow processing rates, low quality kimberlite, and only a 30 million dollar Teck Cominco bailout kept it afloat on the winter road that due to global warming was melting beneath its feet. Some may call this all par for the course of adventure capitalism, others corporate welfare; but either way it looks like good money after bad; big money fiddles while the walls of Jericho come tumblin’ down. Throughout the Territories the caribou herd is on the decline because of environmental impacts from mining of all kinds, and leveraged deals with supplier Nuna Logistics and retailer Tiffany & Co., mean all levels of government could wait a long time for rightly expected profit share and increase in northern employment. The dreaming and mining of northern hopes and aspirations may prove as precarious and elusive as the diamonds themselves.

The Jericho mine was always a gamble, a small deposit in a remote location with a low carat per tonne ratio, and the carats were far from the finest. Even in Tahera’s ‘forward looking language’ predictions were for just 3,000,000 carats in total over eight years. In stark contrast, BHP Billiton’s Ekati mine has been averaging 4 million carats per year, Rio Tinto’s Diavik almost 10 million carats in 2006 alone, and De Beers’s Gahcho Kué is expected to do at least 3 million every year. Jericho’s marginal nature led these global mining giants to take a pass in the late 1990s, preferring safer bets. But the tiny Toronto-based Tahera didn’t mind the long-shot odds and had no difficulty finding money. Unfortunately for small investors and the few Inuit employees, Jericho looks to be going belly up.

The collapse of Jericho is a major blow for Nunavut. The country’s newest Territory had a Gross Domestic Product decline of 0.2 per cent in 2005 before rebounding while Jericho was being built and growing 3.4 per cent in 2006. Hundreds of temporary jobs were offered during the mine’s construction to people from remote Inuit communities creating some immediate wealth which was to have trickled down to grow Nunavut’s economy as a whole, but construction jobs are temporary. An Inuit leader in the region where Nunavut’s first and only operational mine is located said he hopes the company will emerge from bankruptcy protection, as local Inuit would be badly affected by the mine’s closure; so much for wishing and hoping. About 35 of the approximately 100 people currently working at the mine are Inuit — including some relatives of Donald Havioyak, president of the Inuit Association. “It’s a benefit to Inuit in the region, by way of employment and contracting,” Havioyak told reporters. “If it does close, it’s a loss to us.” The Kitikmeot Association estimates that 160 people from the region work at the Jericho mine over the course of a given year. “We have lots of Inuit from the region that are working in Tahera, and that would have a big impact,” he said. “Unemployment can be a very sad thing for our region if they do close down.” Yet still other Inuit say the mines obstruct the caribou migration, and pollution in lakes and rivers kills the fish. Although there has been consultation, critics say too few financial benefits reach the local people. Compare the wages of 35 workers to the wealth created along the chain of command to where the mine began as an investor’s dream. Apparently nobody foresaw the effect of global warming on the winter roads relied upon for supplies or the spike in the value of the loony that seemed to take everyone by surprise. Nunavut leaders insisted all along that some of the diamonds be polished locally in order to foster regional development, but that never happened. Tahera just continues to lose money, $143 million over the first nine months of 2007 alone, and has written off $73 million spent on the Jericho mine that it now does not expect to recover. “The write off that they have taken pretty much confirms that Jericho should never have been put into production,” said diamond analyst John Kaiser, months ago. Russia and Canada are now among the world’s leading diamond producers. Together they account for over a third of the world’s supply. But Jericho may not be mining much longer and Nunavut will be stuck with nothing but a Big Open Pit and a Large White Elephant.