The Ekati Diamond Mine – Success in Canada’s North

David Agnew, President and CEO, UNICEF Canada and Director, The Empire Club of Canada; The Reverend Prue Chambers, Rector, St. Nicholas Anglican Church; Shelly Purdy, Owner/Designer, Shelly Purdy Studio; Tony Andrews, Executive Director, Prospectors and Developers Association of Canada (PDAC); Richard Molyneux, President and CEO, De Beers Canada Corporation; Fiona Blondin, Director of Public Relations, 0.1. Group of Companies and Director, The Empire Club of Canada; Bob Gannicott, President and CEO, Aber Diamond Corporation; and Tony Martino, Vice-President, Human Resources and Communications, Xerox Canada.

Introduction by William Whittaker

There are two harbingers of spring in Toronto–the school break and the Prospectors and Developers Convention here at the Royal York Hotel this week.

The reason I am chairing this meeting is that, unlike our President, Ann Curran, my children are adults! I am glad to see from our audience today that there are some people left in downtown Toronto who are not away entertaining their children and grandchildren.

The annual Prospectors and Developers Convention is part of the folklore and history of the Canadian mining industry. The ghosts of conventions past who stalk the Royal York’s corridors are legion. To name a few;

• Viola MacMillan and Windfall which resulted in the Ontario Securities Commission and its seven floors of bureaucrats in downtown Toronto;

• Stephen Roman who walked the Royal York corridors looking for investors in what eventually became Denison Mines’ Elliot Lake uranium mine;

• the legendary gold mine promoters–Noah and Leo Timmins, Gilbert Labine and Sir Henry Oakes;

• and of course Murray Pezim whose ghost still walks the canyons of Bay Street looking for bids!

What would these promoters of base metal and gold mine plays of the past think of Canada’s diamond play of the 1990s and today? They would be speechless as Canada’s diamond industry today accounts for 6 per cent by value of the worldwide production of diamonds which is soon to double to 12 per cent!

Diamond exploration commenced in the Northern Territories 20 years ago resulting in the Lac de Gras discovery in September, 1991. Seven years later, the Ekati Diamond Mine commenced production.

Jun Excell, who graduated from the University of British Columbia in 1972 with a metallurgy engineering degree, was appointed President and Chief Operating Officer of Ekati in March 1999.

His contributions to the Etaki Diamond Mine project and the north were recognized by his peers in 1998 when he was named the Alberta Chamber of Commerce’s "Resource Person of the Year."

Jim served as President of the Northwest Territories Nunavut Chamber of Mines from 1998 to 2002. He is Director and member of the Executive Committee of the Mining Association of Canada and is an active member of the Industry Advisory Committee to the School of Mining Engineering at the University of Alberta. Jim is a member of Canadian Institute of Mining and Metallurgy and a Fellow of the Australasian Institute of Mining and Metallurgy.

Jim will speak to us today about Canada’s place in the world diamond industry and the Ekati Diamond Mine story.

Ladies and gentlemen … Jim Excel],

Jim Excell

Whenever you mention diamonds to people in Canada, there are three questions they always ask:

"Are there really diamonds in Canada?" The answer of course is yes.

"If they are found in Canada they must be industrial grade diamonds?"

No, they’re world-class gem quality stones.

After the first two questions, the third question is usually: " Are there any free samples?"

BHP Billiton Diamonds Inc. operates the Ekati Diamond Mine, which is located in the Northwest Territories of Canada. Our parent company BHP Billiton has headquarters in Melbourne, Australia and London, England. BHP and Billiton merged in July of 2001 to become the largest diversified resources company in the world.

The Ekad Diamond Mine is owned by BHP Billiton Diamonds Inc., which controls 80 per cent of the project. The other 20 per cent is shared between geologists Chuck Fipke and Dr. Stewart Blusson who "discovered" diamonds in Canada and were key players in the development of the Ekati deposits. The mine, which is located 300 kilometres northeast of Yellowknife and 200 kilometres south of the Arctic Circle, is the first new mine in the Arctic in 20 years.

My talk today entitled "The Ekati Diamond Mine–Success in Canada’s North" is about the opportunities shared by the people of the North as a result of the development of the diamond industry. The success of diamond mining and to a lesser extent cutting/polishing, has been enjoyed by the Aboriginal and non-Aboriginal people of the Northwest Territories and western Nunavut, our company, and governments at the federal, territorial and municipal levels. Canadian diamonds are now reliably available at retail outlets across the country and are making inroads in diamond markets around the world where they are contributing positively to Canada’s balance of trade.

I will try to give you a picture of the industry today, four years after Canada’s first diamond mine went into production. We will talk about the development of the Ekati Diamond Mine and BHP Billiton’s approach to sustainable development. I believe our successes include the recovery of a great product, and the establishment of an exciting new industry in Canada’s North. This has been done while taking exceptional care of the environment and providing tremendous benefits for Northern and Northern Aboriginal people in the Northwest Territories and western Nunavut. The skills and support businesses left behind by the Ekati Diamond Mine will have a lasting effect on the people and the economy of the North.

First, I would like to give you a little bit of background to put things in perspective.

The unit of measure in the diamond business is the carat. A carat is 1/5 of a gram and about the size of a pink pearl eraser on a number-two pencil.

The grade of a very high-grade diamond mine in Canada is about I carat per tonne. You are looking for 1/5 of a gram from 1 ton of ore.

The diamonds were actually formed about 170-200 kilometres beneath the earth’s surface somewhere around two to three billion years ago.

The diamonds came to the surface at Ekati around 56 million years ago. Other diamond-bearing kimberlite deposits near Ekati, in the Slave Geologic Province of the eastern Northwest Territories and western Nunavut, exploded to the surface up to 250 million years ago.

The diamonds came up in very small kimberlite volcanoes that left behind carrot-shaped volcanic pipes.

As diamonds in the Ekati kimberlites are only present at 1/5 of a gram per tonne, the geologist used more prolific diamond indicator minerals, like G-10 garnets and

chrome minerals to point the way to diamondiferous pipes.

During the ice age, the glaciers ground the relatively soft kimberlite off the top of the volcanic pipes and dragged it hundreds of kilometres across the barrenlands to the southwest of Ekati.

Geologists Chuck Fipke and Stewart Blusson followed the "trains" of indicator minerals back to the pipes where they found the diamonds encased in the intact kimberlite below the level of glacial scour.

Once they had located an apparently intact diamondiferous kimberlite deposit the prospectors formed a joint venture with BHP Billiton to evaluate and as luck turned out to eventually mine the diamonds.

Around the world there are about 6,000 known diamond-bearing kimberlite pipes. Less than 40 of these pipes have proved to be economic to mine. It is now very hard and expensive to find and develop an economic kimberlite pipe. In the last 12 years there have been 12 economic pipes found in the Northwest Territories and western Nunavut. Economics are based on carats recovered per tonnes of ore processed and U.S. dollars per carat sold in the rough. The calculation is much more complex than gold for instance, which has a fixed price for an ounce. Each carat of diamonds has a different value based on the quality of the stones. At Ekati, an economic grade is currently approximately 1 carat per tonne with a rough value of US$ 100 per carat.

The fascinating history of the diamond industry goes back about 2,400 years. From 400 B.C. through the 1700s, India was essentially the only known source of diamonds. Estimates of "prehistoric" and early historic diamond production suggest that 50 to 100,000 carats per year were found, mostly in alluvial deposits in river gravels. These rare and beautiful stones filtered into the treasure troves of Indian maharajas, the hordes of Middle Eastern sultans, and eventually found their way back along the spice road to the kings of Europe to adorn the necks of their sometimes unlucky queens. The story of Marie Antoinette and the curse of the Hope Diamond live on today.

With the discovery of the new world, Brazil became a producer in the late 18th century. Tales of men moiling for sparkling stones in the mysterious steamy jungles of the upper Amazon continue to fuel the legend, but the modern industry really owes its origins to discoveries made in South Africa in the 1870s. Stories of Cecil Rhodes, Barney Barnato, De Beers and the diamond cartel have filled many books. More recently Russia entered the market in the 1960s, Botswana in the 1970s, Australia in the early 1980s and Canada in 1998. While diamond mining in the 21st century is more industrial than in the past, it remains a fascinating story. Ekati continues to have a steady stream of film and print journalists who want to tell our story.

Around the world diamond-producing regions are relatively rare. There are three major deposits and six minor deposits in Africa. There is one major and one minor in Australia. There are three major and two recent discoveries in Russia. There are minor deposits in South America and in the United States. Canada is the first significant new diamond find made in the past 20 years.

If diamonds are scarce, gem-quality stones are truly rare. Most are produced in Africa, Russia and to a lesser degree in Australia. Africa supplies about 50 per cent by weight and 70 per cent by value. Russia provides 12 per cent by weight and 18 per cent by value. Australia produces 30 per cent by weight and 3 per cent by value. By contrast Ekati is currently supplying 4 per cent by weight and 6 per cent by value. Ekati is all about the production of quality gems.

The Canadian diamond industry is growing. Diavik Diamond Mines operated by Rio Tinto with its Canadian joint venture partner Aber Diamonds Corp. is currently finishing its commissioning stage and is starting to ramp

up to full production. Significant numbers of Diavik diamonds will start to come on the market later this year. Diavik will add another 5 per cent by weight and 6 per cent by value to the world’s total production, bringing Canada’s contribution to about 12 per cent of the world’s production of gemstones by value. De Beers has two advanced exploration properties in the Northwest Territories and one in Ontario that they are looking at very carefully. One of them, Snap Lake in the Northwest Territories, is currently in an environmental assessment and it is highly probable that De Beers will take it into production in the next few years. Tahera Resources’ Jericho Project, north of Contwoyto Lake in western Nunavut, is currently in the final stages of environmental assessment. This aggressive Canadian junior is about to make the jump from exploration company to producer. While these later projects are smaller than Ekati and Diavik, they demonstrate the growing depth of the Canadian diamond-mining industry.

Canadian junior exploration companies are very active in diamond plays across the country. There are large exploration projects in the Northwest Territories, Nunavut, Alberta and Ontario, Manitoba, Saskatchewan and Quebec. Without rose-coloured glasses, one can see that in 10 years time 15-20 per cent of the world’s diamond supply could be coming from Canada.

Geologists have long known that Canada has had the right conditions for diamonds. I remember being told as a first-year geology student in 1967 that there were diamonds in Canada. While that revelation got pretty good laughs from the audience, to and behold that professor was right. His prediction of an unrealised geologic potential brings us to the story of the Ekati Diamond Mine.

Ekati’s story started about 20 years ago when geologists Chuck Fipke and Stewart Blusson found indicator minerals near Blackwater Lake on the east side of the Mackenzie River. That discovery started an 800-kilometre search following indicator mineral "trains" back along the path of the glaciers across Canada’s barrenlands. Their basic technique was relatively simple-take samples from glacial features such as eskers during the summer and analyse them for key indicator minerals during the winter. They would then plot the locations of indicator mineral concentrations and try to backtrack the directions from where these indicator minerals had originated. Their real trick was working out which way the glaciers had moved the trace minerals. Tracking glacial movement was the really hard bit. They and their Kelowna investors persevered, however, followed the trail, ran out of money, refinanced and got going again. Every year throughout the 1980s they quietly kept making progress. BHP Billiton finally got involved when they came to the end of the indicator trail and said now we need some money to really start drilling and see if we can actually delineate an economically viable kimberlite pipe. Once the joint venture was formed between BHP Billiton, DiaMet, Fipke and Blusson, our geologists moved in to work with our new partners to drill the first kimberlite pipes. The discovery is one of those Cinderella stories where Fipke found the Point Lake pipe on the last day he could afford his helicopter and then later on the very first drill hole diamond-bearing kimberlite was discovered in September of 1991. It was kept a secret for almost four months, but when the news broke North America’s largest staking rush was on. Some 40 million acres of land were staked over an 18-month period. It was an incredible time of great excitement, intrigue and speculation. It’s a fascinating piece of history and a classic story of determined prospecting against all odds. While BHP Billiton Diamonds’ name is now associated with the Ekati find, in reality it was one of the Canadian junior mining industry’s finest hours. Shortly after the Ekati Diamond Mine find, another Canadian junior–Aber Resources–staked what would become the Diavik Diamond Mine.

While finding diamonds in the wilds of the barrenlands is an exciting story, developing Canada’s first diamond mine was complicated by more than the natural adversity of the Arctic. The Northwest Territories and Nunavut are extremely complex political environments. Both territories have significant Aboriginal population including a variety of First Nations and the Inuit. There are six or seven languages in addition to English and French. There are many issues resulting from unsettled land claims, partially implemented land claims, the division of the old Northwest Territories into the modern Northwest Territories and Nunavut and the associated issues of devolution of power from the federal government to the territorial governments.

The Government of the Northwest Territories (GNWT) has put an interesting twist on public government by running counter to the rest of Canada and basing itself not on a party system but on a consensus form of parliamentary government. There are no political parties at the territorial level. While the system works, it takes time to understand the players. Finally, because there has never been a formal devolution of provincial type power to the GNWT, the Territorial Commissioner who fills the role of a Lieutenant-Governor in the provinces is still in fact a Deputy Minister in the Department of Indian Affairs and Northern Development (DIAND).

Through land claims negotiations, the federal government is making government-to-government agreements with the Aboriginal First Nations that often overlap with the "provincial-like" authorities of the GNWT. The Mackenzie Valley Resource Management Act, which flowed from the terms of the Gwich’in and Sahtu Land Claims, places a lot of what would normally be federal or provincial authority over land use in the hands of quasi-judicial boards. The federal government remains the largest landowner in the Northwest Territories. All of this and more make it a very complex place to do business.

The barrenlands, where the Ekati Diamond Mine is located, have an average annual temperature of -11 degrees Celsius. It can break -50 degrees Celsius in January and February. We have about 300 millimetres of precipitation annually, making the mine site a semi-arid environment. About half of the precipitation comes as snow, half as rain. There are no trees taller than a man’s waist and huge areas of our mineral-claim block are covered with glacial debris affectionately called bolder fields. Flora and fauna abound during the short but intense summer. Although the odd patch of dwarf willow and stunted spruce could be called thick brush, mostly it is a land of small scattered shrubs, grasses and lichen. The barren-lands host a very interesting suite of grizzly bears, wolverines, wolves, foxes, hares and the 350,000 strong Bathurst caribou herd. Seasonally, migratory waterfowl and songbirds grace the tundra wetlands. The mine sits on continuous permafrost that penetrates 250 metres below the surface. It’s not exactly the place you would expect to find an Australian mining company, but we persevered to build and now run one of the most productive and environmentally sound mines in the world.

Aggressive discovery, exploration and development programs established an economic reserve of mineable diamondiferous kimberlite ore, but before we could mine the company had to develop its own recovery process. The world of diamonds is a pretty exclusive club that is full of secret handshakes and wellguarded recovery processes. As the new kid on the block BHP Billiton had to find its own way.

A project description was eventually submitted to the Canadian government in late 1994, which started a three-year environmental review and permitting process. As part of project development, a rigorous community consultation program was undertaken to establish relationships with the seven Aboriginal communities on whose traditional lands the mine site resides. Other stakeholder groups ranged from local business people to non-governmental organizations (NGOs). I went out and listened to people’s concerns and issues and addressed them wherever possible. Eventually, the grand chief of the Dogrib First Nation began to say in public meetings: "We like your project and my people will benefit, but just make sure you look after the land, the water and the wildlife."

Our permitting efforts resulted in a suite of 11 permits and agreements that allowed BHP Billiton to build the Ekati Diamond Mine. Once we had the authorizations in place in January of 1997, we began a $700-million construction and mine-preparation program. Building Ekati is an incredible story of logistics and technological innovation. The site is totally isolated, over 300 air kilometres from the nearest all-weather road for 10 months of the year. For two months each year, BHP Billiton, Diavik Diamond Mines and Kinross Gold Corporation construct a 420-kilometre ice road and restock our mines. For the other 10 months all movement of people and resupply is done by air. The Ekati Diamond Mine has a 5,000-foot fully instrumented airstrip that can handle 727, 737 and Hercules Aircraft. Currently, there are five scheduled 737 flights and several other flights from Yellowknife to the mine each week to move people plus regular daily freight service. The facilities at the site were designed so that most people not involved in the actual open-pit or underground mining could do their jobs through the long Arctic winter without ever going outside. Our diamond processing plant, which was designed from scratch, was at the time it was built one of the most advanced fully automated diamond recovery systems in the world.

During the construction days we brought in 250,000 tons of freight by road. We brought in 85,000 tons of freight and moved 75,000 passengers by aircraft. We developed security systems which, unlike the industrial norm in other parts of the world, are intended to protect our employees. Other operations have systems to protect the product. Our philosophy is simple. If 99.9 per cent of our employees do not have access to diamonds then it will remove the incentive for black marketers to try and corrupt otherwise honest people who might simply be down on their luck. We invented the machinery to recover diamonds in our plant and we learned how to keep large mobile earthmoving equipment running at -40 Celsius. With all that going on we still brought the project in on time, on budget and with a world-class safety record that has never been seen in the North before or since.

Operations commenced in October of 1998 and production ramped up over the following few months to process approximately 9,000 to 10,000 tonnes of kimberlite ore per day. To provide the ore, the mine operations people move around 100,000 tonnes per day of ore and waste rock. The Ekati Diamond Mine now has about 780 employees. We have an in-house training system second to none. Our reputation for hiring and retaining Northern Aboriginal people is considered the best in Canada. We have a highly effective environmental management and monitoring system that is based on adaptive management. As a company, we go to great lengths to meet or exceed the regulatory requirements. Our materials management system tracks potentially hazardous products used at the mine from cradle to grave. We have our own waste-management facility to reprocess products that include used oil, waste glycol, old batteries and expended aerosol cans. All of the food waste and industrial products like oily rags are incinerated. The Ekati landfill only receives "clean" wood, metal and tires. Our sewage plant was the first secondary treatment facility in the Northwest Territories. We have recently completed six years of intense research on re-vegetation that is about to be implemented as portions of our Long Lake Processed Kimberlite Facility are filled and old infrastructure such as the original camp are progressively reclaimed. Finally, Ekati has first-class modern facilities for our employees to

live in while they work on a two-week-in/two-week-out rotation. Our camp is alcohol-free and drug free. In 2001 and 2002, Maclean’s magazine listed the Ekati Diamond Mine as one of the 100 best places to work in Canada. That is not a bad record for a fly-in/fly-out mine.

We now produce over four million carats of high-grade, high-quality gem diamonds per year. Their introduction into the world diamond market has been as successful as other phases of the project.

What exactly is the diamond market? The world rough diamonds trade is currently valued at about US$8 billion per year and sales average 80 to 120 million carats including gems and industrial quality stones annually. De Beers dominates the market with about 65 per cent of the sales.

Ekati diamonds have been well received internationally There are a number of reasons for the relatively rapid acceptance of Canadian diamonds. First, they are excellent quality. Secondly, Canada is a very stable country with a predictable political regime. And finally, BHP Billiton is a large reliable mining company with a solid international reputation. While our principal market is in Antwerp, Belgium, we also sell up to 10 per cent of our production to the cutting and polishing industry that is developing in Yellowknife. The three cutting and polishing factories in Yellowknife have led the way in specialized cuts such as the Dene Rose and brand engraving. Branding is a new trend that identifies the source of diamonds to the consumer and it is catching on internationally You have all heard of the Polar Bear diamonds, well that is Sirus Diamonds one of the Yellowknife factories. Our company is now branching out into the sale of cut diamonds with a brand called Aurias. The Aurias stones are available coast to coast amid a growing demand for our Canadian product. Canadian retailers tell us that they get phone calls from people around the world that either collect diamonds and/or simply want to buy a Canadian diamond. The introduction of the Ekati stones has coincided with this interesting new phenomenon in diamond marketing where consumers are asking for documentation on the provenience of the stone they are purchasing. This goes against 125 years of marketing practice where a diamond was simply valued on its weight and quality without reference to its place of origin.

BHP Billiton believes that we have a successful operation. We provide value to the Aboriginal community and residents of the North, and we are running one of the most environmentally sound mines in the world. We have been successful at developing a sound business in Canada’s North. So, how did we do it? Firstly, Ekati is a value-driven organization. Early on we established a strong sense of how we wanted to operate in the North based on the policies of BHP Billiton and the permits, licences, agreements and understandings we made with the people of the North. We established a vision and developed some core guiding principles, which govern the way we run our operation. We do not waiver in our resolve to perform to high standards. Safety at the mine is our absolute number-one priority. Second is our commitment to be good stewards of the environment. Third, we made hundreds of commitments for ongoing consultation regarding environmental management and community socio-economic development. We committed to help develop northern business so that Northerners would be able to take advantage of the opportunities that the operation of the mine might present for them. It has taken time, but I think most people now realize that we have walked the talk and lived up to our commitments. The Ekati Diamond Mine has not done this on its own. We have had very good support from our parent corporation, even when we pushed the envelope and raised the bar with regard to corporate social and environmental responsibility. Over the years we have seen some of our cutting-edge ideas come to form the basis of BHP Billiton’s new corporate policy on health safety, environment and community. Our management team and employees have spent a lot of time explaining the vision and talking about the values of the organization through venues such as community meetings, employee "tailgate" safety meetings and new-employee site orientations. All of the hard work has had an impact and because of it we have been able to do some wonderful things very, very quickly. To have a value-driven organization you have to have value-driven visionary people. Our people have followed through on our commitments and continue to build our absolutely essential relationships with Northern Aboriginal communities and of course government. We have been very fortunate that these relationships, which have grown over time, have helped to turn our vision of a strong northern diamond industry into a reality.

One time, after a particularly heated discussion at a community consultation meeting in a Dogrib community, a local person came around selling t-shirts that said: "Diamonds are a Dogrib’s best friend." That response typifies the relationship that has grown up between the company and the communities. We may disagree but have learned to come together at the end of the day. We have sound working relationships with Northerners and the Aboriginal people of the North. This has been built through our willingness to innovate and try new ideas.

During environmental assessment hearings in 1996, the company had to deal with the fact that the land claims of several of the Aboriginal groups with whom we work had not been settled. The federal government had made it clear that royalty sharing with the Aboriginal groups would not occur until the land claims were settled. The question facing the company was how do we make benefits flow to the Aboriginal community despite the lack of settled land claims. In the end, we established Impact Benefit Agreements, which are contractual agreements between the Aboriginal groups and BHP Billiton Diamonds covering employment, training, business opportunities, scholarships and some cash so that each group has the means to deal with the potential effects of the diamond industry in their own way. The communities have used some of these funds for impact mitigation. One group has set up drug and alcohol rehabilitation programs and topped up post-secondary scholarships for students. Another community used some of their IBA money to buy a Zamboni for their hockey rink. Other groups have invested in community economic development projects to try and diversify their local economies. In the end, each group handles these funds a little bit differently but all in all they all seem to be providing the intended benefits.

In addition to the IBAs with the Aboriginal groups, BHP Billiton Diamonds Inc. also has a Socio-economic Agreement with the GNWT. The agreement grew out of concerns expressed during the environmental assessment in 1996. The agreement lays out a framework to ensure Northerners benefit from the development of the Ekati Diamond Mine. From our perspective, the agreement has been quite successful, as it has provided us with some useful targets to judge our progress toward fulfilling our commitments. In just about every case the company has met or exceeded the expectations of the agreement.

By negotiating and implementing these agreements, BHP Billiton has contributed to the capacity of these communities in ways that let them direct their own economic, social and political development. Both the IBAs and the Socio-economic Agreement were designed to encourage capacity building. Simply handing out money is like giving a man a fish. Tomorrow it is gone. Our goal is to create opportunities for the people of the North that will provide them with the "fishing net" they need to ensure they can provide not only for their immediate needs but also provide for their future.

Ekati does not have a department that is responsible for fulfilling the contents of these agreements. It is really just a way or part of the way we conduct our business. The responsibilities are spread across a variety of responsible departments including External Affairs, Human Resources, Environment and Mine Operations, etc. The performance expectations are built into employee job descriptions and measured annually through performance appraisals.

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