by Doug Ashbury
Northern News Services

NNSL (May 01/98) - There will be no choking of the mule.

"The government of the Northwest Territories has agreed that there will be no new taxation or other demands" on BHP Diamonds Ekati project, the GNWT said Wednesday in a press release.

In return, BHP confirmed that it will build a small-scale diamond-sorting plant in a Northern community instead of at its mine site.

In addition, the company and the government will co-operate to ensure potential customers of BHP's rough diamonds are qualified and have viable business plans.

The government has also suspended its efforts to become a rough diamond marketer. Instead, it will shoot for a larger share of federal royalties from BHP diamonds, Premier Don Morin said.

To help create a secondary diamond industry in the North, the GNWT had proposed buying $50 million worth of rough diamonds from BHP, which is expected to begin mining this fall at its Ekati site near Lac de Gras.

The company has consistently refused to sell rough diamonds to the GNWT, but it strongly hinted early last month that it would build a small valuation plant in a Northern community.

It remains to be seen where BHP will locate the operation, though both Yellowknife and Hay River are lobbying hard for the handful of jobs that come with it.

Initial valuation is required for federal royalty purposes. It is not the same as sorting for market, which is much more complex.

BHP has indicated the scale of the Northern diamond valuation could expand as skills and expertise are developed.

"It is anticipated that more detailed sorting for marketing for marketing purposes and product sales would be carried out at the facility as required skills and expertise are developed," the company announced.

Jim Rothwell, president of BHP Diamonds, said the arrangement with the GNWT should encourage development of a secondary diamond industry in the NWT.

"Establishing a sorting and valuation facility in the North is the key step that provides the opportunity for other value-added activities to be pursued over time if they are sustainable, and as required expertise is developed."

The agreement between the territorial government and BHP is intended to put an end to what Rothwell last month called "additional demands by the GNWT and the use of threats."

From Morin's perspective, his government's two final objectives have been met. "BHP has agreed to build a sorting and valuation facility in a Northern community," he said. "They have also agreed to facilitate the sale of rough diamonds for manufacturing in the North."

Morin also said it is up to government and diamond-related manufacturers to invest in infrastructure and training to make a secondary industry viable.

This, added Morin, is the first time BHP has officially confirmed it will build the facility off-site. Originally, the company had planned to build it at Ekati.

BHP spokesperson Graham Nicholls confirmed it is the first time BHP has publicly stated it will build the facility off-site. Prior to the agreement, the company had only indicated it was considering such a plan.