Tapping Canada's Riches Up North

Northwest Territories Premier Stephen Kakfwi has a message for America: It's a story about diamonds. It's about oil and gas

The Northwest Territories, which covers 452,460 square miles of Canadian wilderness and is home to fewer than 43,000 people, is a treasure trove of natural resources. It has the continent's only two active commercial diamond mines and is set to become a major producer of oil and gas as well -- possibly outstripping neighboring Alaska. Northwest Territories Premier Stephen Kakfwi spoke with BusinessWeek Associate Editor Diane Brady about the area's potential and the issues of development during a Sept. 8 visit to New York. Here are edited excerpts of their conversation:

Q: What brings you to town?


I've come to New York City to bring a message about the Northwest Territories. It's a story about diamonds. It's about oil and gas. It's about the northernmost part of the continent, which brings up issues of security. We are prepared to help in bringing oil and gas to market, and contribute to the continental energy policy. And, of course, we have North America's only diamond mines. We're already the third-largest diamond producer in the world.

Q: How much money do you make from diamonds?


One mine is producing about $1 million of diamonds a day. We didn't start developing these diamonds until the early 1990s. It has taken a while for even Canada to realize it's a diamond producer. And other mines are under development.

Q: Are Canada's diamonds as attractive as gems from other countries?


Diamonds have been associated with revolution, guerrillas, and other subversive activities. Increasingly, consumers are concerned about these so-called blood diamonds. People want to know if the diamonds come from Angola, South Africa, or Siberia. About 60% of the world's diamonds are sold by De Beers (see below).

Q: You sound pretty down on De Beers.


It's a private company, and it can be very tough to deal with. De Beers doesn't want any one else to supply diamonds. They want to open up mines in the Northwest Territories. I don't see it as a welcome thing.

I find them difficult to deal with. I prefer to deal with companies that are publicly traded. And they don't want to deal with us. We say that we want some of those diamonds to be cut and polished in the Northwest Territories, like what Tiffany (TIF ) is doing, and they don't want that. We want some diamonds that are certified to be Canadian.

Q: De Beers won't do that?


No. They don't want to differentiate between diamonds from Angola, Siberia, or Northern Canada. But they have to do business with us, so we'll see.

Q: You've said Canada could become the world's largest diamond producer. How so?


The Northwest Territories is largely unexplored. Ontario and Quebec are also on the verge of finding diamonds as well.

Q: Why aren't you developing more of what you have?


We have a lot of resources that the markets want. One of the hitches is that we're still treated as a colony in which the government of Canada controls the resources from thousands of miles away in Ottawa. They also collect the revenues. We don't get a share of the resources in our own backyard.

If we had more control of the oil and gas, for example, there might be more development. There are only 40,000 of us. We only need so many jobs. After that, what's in it for us?

Q: Are you getting the resources you need?


I've been the premier for four years, and in spite of all the wealth we've created, we've had very few additional resources from Ottawa. We're on a fixed budget. We have, for example, 8,000 or 9,000 heavy trucks come North every year from the South to supply the mines. They're busting up the roads, but we don't have the money to fix it.

We may have to put in speed limits and load limits. If that happens, we might not be able to resupply the mines. It would be better if Ottawa said: "Here's $100 million, fix those roads, and keep those revenues coming."

Q: How accessible are the gas and oil reserves?


Alaskan gas seems uneconomic at this time. The Mackenzie Valley pipeline [in the Northwest Territories] could have gas to market soon. It could be finished by 2006. It will facilitate other exploration up and down the valley. All these formidably remote areas will suddenly become very attractive.

Q: You mentioned security. What's the issue there?


We're on the northernmost part of the continent. We're the front line, so to speak. We want to be part of North American security, whether it's military presence, infrastructure, or surveillance. Bush talks about Star Wars and technology. You know, if anything is intercepted, the debris will probably fall on us.

Q: What about the environment?


We're aboriginal. About 80% of us were trapping 20 years ago. Now we're into diamonds. We're into oil and gas. But we're still concerned about the wildlife -- what happens with the Arctic wildlife refuge and things like that. Bush is an oilman. To him, the land is just for exploration. We want to develop carefully.

Q: You come here at a time when Canada-U.S. relations seem to be at a bit of a low. Bush has certainly noticed the lack of support from Prime Minister Jean Crétien. Have you noticed it?


That stuff is between our politicians. Business is business. Americans are interested in diamonds and a new supply of oil and gas.

Editor's Note: A spokeswoman for De Beers responds that it does not purchase diamonds from anyone in Africa; that all its African diamonds come from mines in which it has a financial interest. It doesn't differentiate diamonds by country of origin, but it doesn't have any supply from Angola at the moment. The company is in negotiations with the government of the Northwest Territories to operate mines that would contribute to the economic development of the region.

Edited by Beth Belton

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