November 2008

Living up to diamonds, eh!

A conversation with Jim Gowans, president and CEO of De Beers Canada Inc.

By B. Sundararajan

With the recent opening of the Snap Lake and Victor diamond mines in the Northwest Territories and Ontario respectively, De Beers Canada has ushered in a new age of diamond mining and exploration in Canada. With this in mind, CIM magazine spoke with Jim Gowans, the company’s president and CEO, about their new operations, what it means to “live up to diamonds,” and how he is enjoying his current tenure as president of CIM.

CIM: I’m sure our readers would be very interested to know more about your background and how you came to be at De Beers Canada.

Gowans: I have certainly been around the horn a few times, having worked in the mining business for about 34 years. Of that time, almost half has been spent north of the 60th parallel, working in either projects or operations management. I was actually managing a very large mining and smelting operation for Inco – now Vale Inco – in Indonesia, when De Beers gave me a call and said that they would like me to take over their Canadian subsidiary. They said they were looking for a person with a lot of experience in projects and operations in the Northern territories and experience working with Aboriginal communities. I guess I fit the bill. I moved to De Beers mainly because I wanted the opportunity to finish my career in the North – which I love – and to go back and work with the Aboriginal people, building new mines. And here was a golden opportunity to do that. Also, this was a different mining product that I didn’t know much about. So it represented a chance to learn something new.

CIM: Have you seen your role and responsibilities change since you have been there?

Gowans: They have changed quite a bit over the past two years. During that time we’ve moved from being an advanced explorations/projects organization to a fully integrated mining company with two mines in operation and managing advanced exploration activities. Those are quite different roles. I’ve been involved in that kind of transition before; while it is quite hectic, it is nevertheless fun.

CIM: What do these new operations mean for the company and for the communities in which they operate?

Gowans: Well, as has been stated in the press releases from our chairman Nicky Oppenheimer, Canada is a pretty special partner for De Beers. All of our other operations are Southern African. Now the De Beers mines in Canada have put us on the map as a truly global organization.. And the Snap Lake mine itself is very unique. It is the only, truly underground diamond mine that started off as such. The Victor mine in Ontario is also unique in that it is Ontario’s first diamond mine and the first Canadian diamond mine outside of the NWT or Nunavut.

The First Nation communities in the NWT are a little bit different from those in northern Ontario in that they are used to mining activities. We are the fourth mine coming into production there. When the first mine came in, the focus was on jobs. As the mines moved into production, employment went up. The concentration then moved from the baseline jobs to training and development for higher skilled jobs and on business development. If you look at our IBAs [Impact Benefit Agreements], in comparison to some of the earlier ones, there is much more focus on joint venture business development.

At the Victor mine we are at about a billion dollars in total capital, and according to the studies we have done with the government, there is probably about a six to seven billion-dollar spinoff. That is pretty significant. A lot of our construction was given to companies in NWT or northern Ontario and were with Aboriginal joint ventures. So there is significant economic contribution both to Ontario and NWT. We have signed IBAs in the NWT and with James Bay communities. We are working hard to complete two more in that region.

CIM: What were some of the challenges that the company has faced in getting to where it is now?

Gowans: There were lots of challenges. Any time you are building a mine in an isolated area you face all of the issues associated with logistics. We had to be self-dependent in terms of power and all of our annual supplies had to be moved in by ice road during a very small window of time. The first year I came here, we ended up having a very warm winter and a very truncated ice road season, which caused us a few problems and necessitated some logistical adjustments. Of course, on top of these things you’ve got your construction activities to coordinate. Everything has to be very well planned.

CIM: How do Canadian diamonds compare with those from the rest of the world in terms of quality?

Gowans: With the start-up of Snap Lake and Victor this summer, Canada has essentially moved from being tied with Angola and South Africa for fourth place in terms of value production in the global space to being third, behind only Botswana and Russia. I think that’s really exciting. In terms of carats, we are the fifth largest producer but when you look at value, we are third largest. That tells you about the average pricing of our carats. Canadian diamonds tend to be of higher value than those from some of the other producing companies. In fact, Victor mine has some of the highest value diamonds anywhere on the globe. The average value of the diamonds coming out of Victor is somewhere between $ 400 and $500 a carat and Snap Lake between $150 and $200 a carat. The average per carat for a South African diamond is about $80, so that gives you an idea.

However, we don’t have a big production. Victor is among the smallest diamond mines in the world and the expected average production over a 10 to11 year life is about 600,000 carats a year. Compare that with say our mines in Botswana – some of which produce 33 million carats a year – they are several orders of magnitude higher than Victor.

CIM: I understand that there is a lot of automation involved in bringing raw uncut diamonds to the polished form sold at the stores. Are there any specific reasons for automating these processes and are any of these carried out in Canada?

Gowans: Let’s talk about the automation first. A lot of the value in a cut and polished diamond is in the symmetry of the facets. What makes a diamond unique is its ability to gather all the light sources from the top end of the diamond to go in and undergo internal reflection and refraction and come up through the upper facets of the diamond – giving it “life or fire”. If you look at the round, brilliant cut, it has 58 facets and you want it to be symmetrical. Otherwise you will get dispersion of the light rays. So the main purpose of the automation is to be able to have very accurate angles put on those facets so you could always have maximum refraction coming through and that’s what makes the diamond unique.

The second reason for the automation is consistency and to lower the cost per carat of the cutting and polishing process. We do have facilities in Canada as part of our agreement with the NWT government. We provide up to 10 per cent of our diamonds to be cut and polished in the NWT. There are two companies in NWT that do that and another one that does some work in Vancouver and will be opening in Yellowknife. And Ontario is going through a process now of evaluating companies to set up small cutting and polishing facilities here.. In terms of cost per carat, Canada has very, very high cost. They work on the higher value diamonds and it has to be automated to ensure the high quality. The bottom line is that about 70 to 80 per cent of diamonds are cut and polished in India and a high percentage in China. The reason is threefold: one is that they have very inexpensive labour and energy costs and secondly, they have very high-quality technology. You can put a lot of people polishing the very, very fine diamonds. The Indian cutting and polishing shops have perfected the process of cutting and polishing extremely small diamonds and they’ve been at it for a long time now.

The diamond industry started in India going back to about 700 years and then moved to Brazil and on into South Africa. The big cutting and polishing shops in Surat and Mumbai [cities in India] can do it for $10 to $20 a carat and cut and polish a very, very fine diamonds to 1/10th of carat, while the Canadian shops would likely charge upwards of $100 to $200 a carat.

CIM: This brings us to a recent worrying trend. Can you tell us about the controls and safeguards that De Beers Canada has put in place to prevent or reduce conflict diamonds from entering the Canadian market?

Gowans: De Beers Canada has very strict security and tracking processes in place for our diamonds. De Beers was the company that originated the Kimberly Process back in the 1990s to put a stop to conflict or so-called “blood” diamonds. We successfully worked with other companies and governments to start the process, which originated at the De Beers head office in Kimberly, South Africa.

All Canadian diamonds – not just De Beers’ – are very actively tracked. There have been a couple of incidents recently where diamonds have been smuggled into Canada but there is no way that they would become part of the producing companies’ pipeline. We are continually working on this with governments and various companies around the world and it has been reduced to less than one per cent in overall value. Our security people work closely with government officials who do the tracking. All Canadian diamond companies are very tightly managed in terms of security and we know exactly where our diamonds are going.

CIM: Can you tell us about the De Beers’ philosophy of “living up to diamonds”? What does this mean to the organization’s culture, operations, practices, and your own management style and decision-making process?

Gowans: To be honest, that was one of the reasons I joined De Beers when I had the opportunity. I like companies that run with very strong corporate values and have stated principles. “Living up to diamonds” goes back 60 years into De Beers’ history, and originated with one of the company’s pioneers, Ernest Oppenheimer. He felt that the diamond is a symbol of love and commitment and that we have to live up to that. He also believed that if we do not contribute to the communities around which our mines are operating, then we are really not doing our full job. And that philosophy is very pervasive in this company on a global basis and is a dominant management philosophy for us here in Canada. And let’s face it, our diamond mines are not in the downtown sections of any city. We are out in the hinterland and we have to be tightly linked to the communities around which we operate and protective of the environment in which we work. If we are not working on building those relationships and providing sustainable practices, employment and other benefits for those communities, then I don’t think we’re fully doing our job.

Our first core value is to be passionate about our product, our company and the value we bring to the whole operation. That also means showing respect for the environment as well as the community, its people and our employees. Even when you look at our environmental and safety performance, they are both affected by our management philosophy. We have extremely good safety statistics. We operated right through the construction phase with only one loss time incident at Victor. We won a national award for being the safest exploration company last year and may even win it again this year. And I believe we were the first company in Canada to operate a construction site and exploration with ISO 14001 standards for the environment and we’ve maintained that.

CIM: You are extremely busy with several projects and activities to juggle simultaneously. How do you manage all that as well as your roles as President of CIM and chair of the Mining Association of Canada? What prompted you to take on these additional roles?

Gowans That’s an interesting question. It is very busy and a couple of things allow me to do that. Most significantly, we have an incredibly talented staff at De Beers Canada. I don’t have to be here on a day-to-day basis and I am totally comfortable that things are moving along at a high speed and going very well. I’ve always been a member of CIM and when I came back to Canada, they asked me if I would like to be involved again. CIM is a national organization for networking and knowledge sharing. As a senior person in the mining business I felt it was time to give back and continue to work and build those relationships.

I believe the Canadian mining industry is one of the leading mining industries in the world, with Toronto being its financial center. Canadian mining companies are well known globally for being very culturally sensitive, and, for the most part, we project those values into our exploration. That’s what the CIM is a symbol of. If we can build on the strength of the mining industry – and some of us have the opportunity to step up and do it – then we have served the industry well.

The Canadian mining industry is also very tight and inclusive in terms of helping each other in resolving technical issues. That is a rather unique situation and CIM, MAC and other organizations are important components of that. To give you an example, Jim Carter, who is currently heading the Alberta Carbon Capture and Storage Development Council, became a good friend of mine through just such an exchange. The friendship stemmed from the help he extended a number of years ago when he was operating Syncrude. At the time, I was doing a safety audit, and, as they are a world leader in safety and health, I asked him if we could take a few of our people to the Syncrude facility to learn about how they were achieving this. He was extremely helpful and gave our team the full tour. Afterwards, he even flew his top two safety and operating people to our offices to give a presentation to our board and senior executives. That’s the kind of thing that companies in the Canadian mining industry do, they pull for each other and help each other to become world class.

CIM: Looking forward, how do you see De Beers’ future projects and development activities leading the industry in addressing environmental issues in general and with a specific focus on the communities in the Territories?

Gowans: Our strategic plan at De Beers Canada is to focus on financial and profitable growth, on nurturing a culture of excellence within our organization and diligently maintaining our reputation. I don’t think you can do the first two without having the third one in place. That goes back to our values in terms of how we have managed relationships with the communities and our focus on the environment. In the early stages we were able to complete all of our projects and explorations by operating at ISO 14001 environment standards; even during the construction phase. We put a lot of rigor into maintaining very high standards and this focus on excellence will not diminish in all of our future projects. We will continue to have challenges on the economic side because wherever we go there is likely to be little or no infrastructure in place and we have to employ the technologies and logistics to get around that. We will also continue to build strong relationships with the communities around us. We have been in the business for a long time and expect to continue for a lot longer, so our commitment too is very long term.

Environmentally, if you look at the footprint of the Victor and Snap Lake mines, they are incredibly small and, and that too is very important to us. We are conducting biodiversity studies and even working with the World Wildlife Fund to learn what we can do to lessen the impact on the great caribou herds of NWT and Nunavut. We’ve made those connections with the WWF to ensure that mining coexists very successfully with some of the challenges we have of maintaining our planet.

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