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Now that that pit has reached its bottom, miners are digging a network of tunnels to extract what remains of the carrot-shaped deposit of kimberlite that they have been pulling from the ground for nearly a decade. (JOHN LEHMANN/JOHN LEHMANN/GLOBE AND MAIL)
Now that that pit has reached its bottom, miners are digging a network of tunnels to extract what remains of the carrot-shaped deposit of kimberlite that they have been pulling from the ground for nearly a decade. (JOHN LEHMANN/JOHN LEHMANN/GLOBE AND MAIL)

Mining

The North scrapes bottom Add to ...

Ninety metres below a gaping hole in the subarctic Barren Lands, a huge square tunnel ends at a wall of dark rock. Overhead, water drips from Lac de Gras, the epicentre of Canada's diamond boom.

The dripping is a reminder that the lake's shores were moved to make way for an open-pit mine. Now that that pit has reached its bottom, miners are down here digging a network of tunnels to extract what remains of the carrot-shaped deposit of kimberlite that they have been pulling from the ground for nearly a decade. In the light of their lamps, the rock looks black as coal.

Hidden inside are the diamonds that have shaped the fate of the Northwest Territories for the past 20 years. Between Diavik and other diamond mines, the wealth at Lac de Gras, about 300 kilometres north of Yellowknife, accounts for nearly a quarter of the territorial economy. Diamonds have pumped billions into local businesses and bank accounts, and have been a catalyst for remarkable social change, including dramatic increases in graduation rates in some aboriginal communities as economic success is passed from generation to generation.

View more photos from the mine

But the fact that miners are working 90 metres underground, and not still scraping away the surface, points to the end of the boom. A place already rocked by the global downturn now faces the reality that its payday resource is running out.

One former government official warns that a looming lack of jobs may create a "lost generation"; another refers to the coming years as Exodus 4, the latest painful chapter for a territory that has witnessed severe busts before.

It is a bitterly dramatic transformation for a place that not long ago held abundant promise. People flocked north for plentiful, high-paying jobs and a pristine landscape that invited outdoor play.

Now people are leaving, businesses are looking for work elsewhere, and both executives and leaders warn that the NWT could find itself severely pinched in the years to come. A push to create a diamond-polishing industry has largely failed, with only a few remaining polishers left in Yellowknife. Efforts to boost tourism have similarly floundered.

Many have lost hope that the Mackenzie Valley natural gas pipeline, which was seen as the territory's ticket to self-sufficiency, will be built any time soon.

As for the dwindling diamonds, both Diavik and BHP Billiton's Ekati, the other big mine, officially will stay open for another decade. But executives privately worry that operations will be scaled back as early as 2016.

"I would draw the analogy to harvesting an animal," says Bob Gannicott, the chairman and chief executive officer of Harry Winston Diamond Corp., the luxury retailer that owns a 40-per-cent stake of Diavik. (The 60 per cent owned by mining giant Rio Tinto PLC.) "We've already had the T-bone steak and we've already had the prime rib roast of this particular animal. We now have to move on to the hamburger and the chuck steak."

The diamonds dry up

The NWT has stared down death before. In the late 1980s, when Yellowknife's founding gold mines were closing, the diamond rush suddenly swept in, more than filling the void.

"The North has been good to a lot of people," says Erik Marsden, who runs the ice roads that serve the diamond mines, and is Diavik's longest-serving employee, with 14 years under his belt. "There's always something that comes over the horizon and takes the place of something else."

Few people have the negative perspective of Mr. Gannicott, who has spent three decades in the North and was a key force in the discovery of Diavik. Despite Harry Winston's New York face, Mr. Gannicott spends significant time in Yellowknife, where he keeps a home.

Watch videos about the mine on Diavik Diamond Mines Inc.'s website

"We're past high noon here now," he says, as he sits overlooking a ski plane runway that has grown strangely quiet in the past year. Like many here, he knows that several small NWT mines are under development. Avalon Resources Ltd. is pursuing a rare-earth minerals deposit. De Beers, which runs the smaller Snap Lake diamond mine, has also revived its effort to build a second mine, called Gahcho Kue. And exploration could soon begin in the Arctic offshore, where BP PLC and Exxon Mobil Corp. have committed to $2-billion in spending.

Mr. Gannicott, however, doesn't see anything on the horizon that could replace the diamond mines that are, he says, "the linchpins of the economy up here. So what happens after that?

"When they close, all those people that have now got training, are used to being in that wage economy and are doing very well in it - they're frankly going to have to move out of the NWT to be able to carry on doing what they're currently doing for a living."

Some have already begun doing exactly that. Last year, the NWT population declined, and employment fell by 5 per cent.

The economic crisis, of course, played a major role, forcing suspensions of diamond production and causing a huge cutback in spending among junior exploration companies whose sources of capital dried up. Exploration spending in the territory, which once led the country, fell to $29-million last year from $148-million in 2008.

Diavik's transition to underground mining will mean fewer jobs - paralleling the experience at Ekati, where underground mining started in 2002 - and also fewer profits.

At Diavik, it costs about $80 per tonne to process ore from open pits. Underground mining will raise the cost 50 per cent to $120. Most of the underground mining will come from a location that produces on average two carats per tonne - well below the 3.5 and five carats per tonne at the pits. Production volume will substantially decrease.

Worse, the chance of finding more diamonds to sustain further operations has largely faded.

"Both BHP and ourselves have had exploration programs for a number of years and not found anything else that's economical," Mr. Gannicott says.

But for a place that, by the numbers, looks like it's in dire straits, it's tough to see much sign of worry in Yellowknife these days. The NWT has seen a 23-per-cent contraction in its economy in the past two years - a far greater plunge than any other jurisdiction in Canada - but real estate in the northern capital continues a seemingly inexorable rise and the most expensive restaurants still fill up even on weeknights.

Long-time residents are confident it will continue this way. Government, which by some estimates supports 40 per cent of the economy, is not going anywhere, meaning Yellowknife will always have a strong base. Ideas for new infrastructure hold the promise of extending the territory's economic lifelines - including that of the diamond mines.

Pipeline hopes die

The decline in diamond mining has thrown the NWT's other great hope into stark relief. The Mackenzie Valley pipeline, intended to bring natural gas to hungry southern markets from offshore drilling in the Arctic, has long been a divisive symbol of northern development.

The project was first bruited in 1970. When a federal inquiry headed by Justice Thomas Berger recommended a go-slow approach to the pipeline in 1977, it was a milestone victory for the environmental and native rights movements.

But over time, resistance by some of the native bands along the pipeline route changed to an embrace of the project - so long as native people themselves had a say and a stake, which came to pass via the Aboriginal Pipeline Group. The settlement of land claims by most of the aboriginal groups along the pipeline route was part and parcel of the new attitude.

But the revival of the pipeline idea has stalled as the massive cost of the project, as well as the relative contributions of the federal government and participating energy companies, has been weighed against changes in the natural gas market. Moreover, one native group - the Deh Cho, who have not settled their land claim - has opposed proceeding.

The delay is a source of frustration to Joe Handley, the former NWT premier who pushed for the $16.2-billion megaproject, because it would pour billions into the territory and open its frontiers to petroleum exploration like it's never seen.

But Mr. Handley has largely lost hope. The proliferation of shale gas supplies in southern Canada and the U.S. has reduced the need for Arctic gas - and slashed the prices the project would depend on.

"You look at the cost of the Mackenzie Valley pipeline's $4 or $5 gas and it just doesn't add up," he says. "You're not going to make much money on it, if any. You might lose money on the thing."

It could be many years before the pipeline is built, Mr. Handley says. He believes the impact of looming hard times is already visible.

"You don't find people spending the way they used to. If they do have that disposable income, they're being very careful with it," he says. "And I see that happening for a long time, until people become much more optimistic about where things are going."

Pipeline supporters like Fred Carmichael, the chair of the Aboriginal Pipeline Group, have grown angry with the argument about shale gas. He believes that the exploitation of shale gas will be limited by environmental problems, and that the Mackenzie line will be needed to satiate society's growing energy appetite.

"We're going to need all the gas we can get," says Mr. Carmichael, who has spent years advocating for the project. "We see this as a first step toward economic self-sufficiency for our people and to bring us out from depending on the social welfare system."

"We have nothing else," he says.

'Not open for business'

Gary Vivian looks down at a series of aluminum cases the size of large suitcases and shakes his head. "This is about a $275,000 instrument that hasn't really done anything in two years," he says. "We were looking at buying another one two years ago. I'm glad we didn't."

Mr. Vivian is president of Aurora Geosciences, a firm that was once at the heart of the scramble for the NWT's mining resources, but which now finds itself desperate for work. Mr. Vivian, who first started working in Yellowknife in 1976, has lately contemplated moving his company out of town. Last year, Aurora's gross revenue fell 75 per cent.

"Everybody in the NWT wants to keep blaming it on the global recession, but we all know it's not the global recession," he says, pointing to the Yukon and Nunavut, which saw nearly six times more exploration spending last year than the NWT. The reason, he says, is that the NWT has thrown up so many obstacles to investment that people simply aren't interested any more.

"It's permitting, it's land claims, the fact that we're just not open for business," he says. Aurora has begun looking for work elsewhere, and now runs an office in Alaska. Other businesses are doing the same. Discovery Air Inc., the only public company headquartered in Yellowknife, has watched its stock fall to penny territory as it trimmed its helicopter fleet to 55 from 78, laid off staff, and started to drum up business in Ontario, where exploration has taken off, and Peru.

"We're not staying put waiting for the NWT economy to become more robust," says Chuck Parker, Discovery's executive vice-president of northern business services.

In Yellowknife, hope - and, among environmental groups, dread - prevails that the federal government will streamline the territory's thicket of regulations and woo business back.

Others are pinning their hopes on big federal expenditures: The territory is pressing Ottawa to invest in a Mackenzie Valley road; others think Canada could rekindle the northern economy by building a large hydro project, or an Arctic port that would drive mine development. Each carries an enormous price tag.

"So there are some huge 'asks' potentially on the table," says Premier Floyd Roland, who draws an analogy to federal outlays in the Hibernia offshore oil project and the Trans-Canada Highway. "It is the time in Canada's history now to make those similar types of investments in the North."

Take hydro, for example. One of the biggest costs of running the diamond mines is the diesel fuel they must import by ice road. If the mines were able to access cheaper electricity, the impact could be significant.

"There are lots of resources up there, but a lot of those are not currently on mine plans because of the operating costs. And that's mainly linked to energy cost," says Ricus Grimbeek, the former president of the Ekati diamond mine, now the global vice-president of health, safety, environment and community at BHP Billiton. "Once you've solved that, you've got diamond mines for the next 50 years, easily."

Absent a fix to power costs, those who worry about the territory's future say the social gains of the past few years - especially in income and education among first nations communities - could easily be squandered.

"The single-biggest indicator of whether or not a young person gets a job is whether or not his or her father has had a job. If your parents are in the situation where employment is just not possible, then you're in a generational issue after that, I believe," says Doug Matthews, a former high-level bureaucrat who now consults on energy issues for the territory.

"You can lose a generation very easily if you're not careful here."

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