Snap Lake Q&A: What De Beers and the GNWT said

Snap Lake
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Top officials addressed the media in Yellowknife on Friday as production ground to a halt at the NWT’s Snap Lake diamond mine.

De Beers Canada chief executive Kim Truter, NWT Premier Bob McLeod and a host of senior public servants spoke to reporters.

“As a territory, we have been through this before and survived it,” said McLeod, as he and other officials acknowledged the significant impact of De Beers’ decision while insisting the long-term future was not necessarily bleak.

On this page we have set out answers given on Friday to various key questions about Snap Lake, the future of mining in the NWT and the prospects for employees affected.

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In full: Snap Lake closing indefinitely, mining stops

Reaction: ‘There were warning signs’ say experts


Why did De Beers decide to stop mining at Snap Lake?

Snap Lake has been a “troubled operation” since the onset, according to Truter. Operating costs for underground mines like Snap Lake are high compared to open-pit mines, while the mine also experienced a costly groundwater problem that forced an amendment to its water licence.

Truter said that, combined with a market downturn, made the “economic viability of the operation untenable in the short term”.

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He added that market conditions were the biggest factor but Snap Lake had always been borderline in terms of its profitability.

Following the resolution of regulatory problems over groundwater at the mine, the company began investing in underground development again and a number of operational improvements resulted – but the market collapse happened so quickly that, to quote Truter, Snap Lake became unviable for “many years to come”.

You might wonder why, given Snap Lake’s inability to turn a profit, De Beers decided to open the mine in the first place – at a cost of more than $2 billion in its seven years of life so far.

Truter said a typical diamond mine takes two decades to develop, and nobody can accurately forecast the market 20 years in advance. But he also said Snap Lake had proved far more expensive to build than originally anticipated and was “fundamentally a very difficult business to run”.

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One mining insider suggested to Moose FM that Snap Lake came into existence partly as a marketing ploy: to offer De Beers a Canadian diamond mine (its first outside Africa) when Canadian diamonds became a desirable symbol of responsible mining.

How many people are affected?

Approximately 500 employees and contractors will be “affected negatively,” to use Truter’s phrase. Of those 500, roughly 100 are contractors and 400 are permanent employees.

Around 200 additional employees have the chance to keep their jobs: 70 will perform care and maintenance activities, and up to 130 will be transferred to the under-construction Gahcho Kue mine.

Truter said he attended briefing sessions with staff on Friday morning. He added  that news of forthcoming redundancies was generally received “very well” and he had been “humbled” by the positive response from staff.

What compensation will workers receive?

Truter says affected staff have been placed on a suspension notice for the next 16 weeks, during which they’ll be entitled to full salaries and benefits. Once that 16 weeks is up, they’ll officially be terminated and can receive severance entitlements.

Why 16 weeks? According to the territorial government, that’s the legal minimum for a company and mine of that size.

“An employer that’s planning an event like this has to notify the Employment Standards Office of their intention,” said David Stewart, deputy minister of education, culture and employment.

“The legislation lays out how much notice is required. In this case, the notice period is 16 weeks.

“Whether or not they work is a separate issue. It’s not required that they actually be at the site doing work, but they do need to get paid for that period.”

Kim Truter
Kim Truter, De Beers Canada’s chief executive, talks to reporters in Yellowknife.

Not all staff are northerners. How is the North specifically affected?

Of the 400 permanent employees affected, roughly 100 are northerners – the vast majority affected are southern-based employees. Of the 130 people expected to be transferred to Gahcho Kue, De Beers is trying to predominantly select people from the North. The same applies to those being retained for care and maintenance activities.

De Beers said it had spoken with all employees and contractors before making a public announcement.

What will be the economic impact of Snap Lake ceasing production?

Premier Bob McLeod was blunt. “The pausing of a major project like Snap Lake will have an effect on the economy,” he told reporters.

As an example, McLeod cited the $865 million De Beers has spent to date with Aboriginal firms and joint ventures. “These are not amounts that are easily replaced,” he said.

According to Peter Vician at the Department of Industry, Tourism and Investment, Snap Lake’s present situation “will have a direct impact on the economy and the businesses that support the mine site, and those businesses’ contribution to taxes and other payments to government”.

He continued: “It’s pretty evident that a payroll tax implication exists. To the issue of corporate taxes and any other returns to government, I wouldn’t be in a position to disclose that.

“We’re currently tabulating, based on the short period of time we’ve had, the implications of the fiscal impact.

“The gross domestic product for the diamond sector is in the range of about $400 million, direct. However, other sectors contribute – it can be in the range of up to 40 percent of our economy. As to Snap Lake’s impact, I can’t give you the exact value.”

The government also says it cannot reveal specific royalties collected by the GNWT, but it’s widely assumed that territorial royalties would have been minimal given the mine’s inability to generate a profit since opening in 2008.

Is the closure permanent?

All parties involved have taken care to stress that the closure is not final – yet.

In its initial news release, De Beers committed to continually reviewing the global market in order to assess whether Snap Lake could once again become a viable place to mine.

“This is being characterized as a suspension or a pause in operations,” said McLeod.

In the future, he predicted, “there will be a high demand for diamonds that will not be met by existing supply and, when this happens, diamond prices are forecast to rise again. At this time, De Beers would look at resuming operations at the mine.”

However, one source with knowledge of Snap Lake told Moose FM De Beers would be unlikely to resume work at Snap Lake once it entered the planned “care and maintenance” phase next year. One possibility would be the sale of Snap Lake to another interested party, though it’s not clear who any frontrunner to acquire the mine might be.

Is the environment at risk if work stops at Snap Lake?

De Beers is retaining approximately 70 staff to keep the mine in its care and maintenance state, which includes ensuring all existing regulatory requirements are met.

“De Beers has a detailed interim closure and reclamation plan,” said Department of Lands deputy minister Mark Warren.

“De Beers has acknowledged its commitment to maintaining and abiding by all the terms and conditions of their various permits and authorizations. There is not a direct impact associated with temporary shutdown – all their licences and permits are still in place and they’re obligated to abide by those. We’re obligated to inspect the mine and we continue to do that.”

According to Warren, Snap Lake’s most recent inspection revealed no significant issues.

“The mine is within all of its regulatory limits that have been set. They run a very clean, efficient operation from an environmental perspective,” said Warren. “Most inspection reports would have the odd follow-up item, but we had none.”

Bob McLeod
Bob McLeod responds to De Beers’ suspension of mining at Snap Lake.

When did the territorial government find out?

This is not an ideal time for the territory to be grappling with suspension of operations at a diamond mine, given the present gap between two sets of politicians.

“The government was formally notified this week of the decision,” said Peter Vician, deputy minister of industry. “I myself received an official letter yesterday of the decision, but I can say De Beers had provided a verbal indication of this intention earlier in the week.”

MLAs-elect were briefed on Friday morning, but territorial officials would not elaborate on what they were told. A new minister of industry, tourism and investment – on whose desk the diamond industry’s plight will land – will be chosen later this month, as will a new minister of finance.

The present industry minister, Dave Ramsay, holds his brief until a new minister is selected. Ramsay declined to comment on the Snap Lake announcement.

How is the territorial government responding?

First, said NWT Premier Bob McLeod, the territory will ensure De Beers continues to meet its regulatory and environmental requirements at the Snap Lake site.

“We will be taking steps to address the necessary obligations and commitments De Beers has made to make sure they are honoured,” McLeod told journalists.

“As a government, our priority is individuals and their families directly affected by this decision and the impact on NWT business owners and our communities. We are working with the company to respond to the needs of the resident employees.”

Peter Vician sought to play down the potential long-term consequences for the territory.

“History has shown us commodities have a cycle. We happen to be at the bottom of that cycle. That’s history over decades,” he said. “We anticipate that, as the world market continues to ebb and flow, those markets will provide us with an opportunity to compete.”

However, Vician and other public servants declined to discuss questions such as how this will impact the NWT’s financial situation – one already likened to a “fiscal cliff” by outgoing finance minister Michael Miltenberger.

“We’re not in a position to respond at this point,” said Vician. “A new finance minister and government structure will emerge. At that point in time, that’s the question to present to them.”

Are any of the NWT’s other mines in trouble?

Not to the territorial government’s knowledge.

“At this point we have had no discussions with Dominion or Diavik with regard to viability of their operations,” said Peter Vician, deputy minister of industry, tourism and investment. “We have no signal that anything has changed.”

In fact, Diavik has been experiencing an altogether happier week. The mine’s president, Marc Cameron, was at Kensington Palace on Wednesday to showcase Diavik’s discovery of one of Canada’s largest-ever diamonds.

There can be no question that uncertainty in the diamond industry will affect all NWT mines to some extent. However, the territory’s other mines did not face the same groundwater issue experienced at Snap Lake – which compounded the latter’s lack of profitability.

One MLA-elect, Cory Vanthuyne, speculated earlier in the week that the future of expansion projects like Ekati’s planned Jay pipe could now be in doubt.

On that front, the Premier simply said: “A decision on Ekati’s Jay pipe is continuing to move through the regulatory process.”

Peter Vician
Peter Vician, from the Department of Industry, Tourism and Investment, responds to De Beers’ suspension of mining at Snap Lake.

Will Gahcho Kue, the territory’s newest diamond mine, still go ahead?

Absolutely, according to Truter. One of the benefits of withdrawing product out of the market – by suspending mining at Snap Lake – is that the supply and demand equation ought, theoretically, to swing back in De Beers’ favour.

Gahcho Kue is an open-pit mine, which is expected to make it much cheaper to operate than underground mines. It also is anticipated to generate a greater volume of diamonds, meaning it will earn more revenue to cover operating costs.

“The company assured the GNWT that the decision pertaining to the Snap Lake mine had no consequence on the Gahcho Kue mine site, aside from the opportunity that some of the workers would move to Gahcho Kue operations,” said deputy minister of industry Peter Vician.

Bob McLeod said: “We have been assured there will be no consequences on the Gahcho Kue project. Construction there is 70 percent complete and production is still scheduled for late 2016.”

What additional help is on offer for northern employees affected?

“There are a variety of programs that would support the employees impacted by the announcement,” said David Stewart.

“The first would be career development services – everything from career counselling supports and alternative training; job search assistance that would typically be provided; and then there are also financial programs.

“We are working with the Government of Canada to get information to impacted staff around applying for EI and other income support programs that the government has, should they become necessary.

“We’re hoping to have information sessions for folks so they can know about all the various services. We’ll firm those up and roll them out at the appropriate time.”

When will De Beers reassess the viability of Snap Lake?

De Beers has committed to going back to its board one year from today (December 4) to re-examine the economics of the project and ways of bringing the business back into operation.

But, the company cautioned, that will be dependent on market recovery. If the market hasn’t recovered significantly in a year’s time, it’s unlikely that the mine will come back online.

 

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