Yellowknife (Oct 01/03) - In the back room of a small building just west of the airport, Clyde McIssac hovers over a rough diamond as two paper-thin circular saws slowly cleave the precious gem in half.

The room he's standing in is filled with a melodic humming, sparked by a symphony of cutting machines that cautiously dice thousands of dollars worth of diamonds each day at Sirius Diamonds.

"Pretty neat, eh," says McIssac as he moves from one diamond cutter to the next, making sure the finely tuned machines don't run amok with what has become the NWT's most precious natural resource.

McIssac is one of nearly 200 Yellowknifers who work in the fledgling diamond polishing industry, a sector of the economy that's expected to pump more than $13 million in wages into the city next year.

It's an industry the government of the Northwest Territories has fought hard to establish, insisting mining companies like BHP Billiton and Diavik provide some of their rough diamonds to local polishers.

"Since 1998 ... the government has worked toward the establishment of a secondary diamond industry. It's good for the economy and good for the North," said Jim Antoine, Minister of Resources, Wildlife and Economic Development.

But while government officials have high hopes for diamond polishing in the North, the industry has been plagued by high production costs, a shortage of skilled workers and the realization that it may never live up to expectations.

Four years into this ambitious exercise, some companies are still trying to keep their heads above water while others have already been swept under, begging the question: Where does the industry go from here?

Cost of doing business

"This is the most expensive place in the world to polish diamonds," says Peter Finnemore, manager of Sirius Diamonds -- one of Yellowknife's four polishing houses. He's been in the business for 36 years.

"Our costs are much higher than other places ... and the mining companies aren't doing us any favours (price wise)."

Most of the world's diamonds are polished in developing countries like India, Sri Lanka and Thailand, where labour and equipment costs are substantially lower than the NWT.

As a result, so far, Northern manufacturers have been unable to compete with their Third World counterparts when it comes to price.

"The polished (diamonds) are not as competitive as the rough," said Joseph Schlussel, a New York based gem retailer who runs Diamond-Registry.com.

"Eventually they may be, but for now they are not."

Clean Canadian gems

Given the high production costs, many in the industry say the key to drumming up demand for Northern diamonds is savvy advertising.

"It's all about marketing," said Hillary Jones, the director of Arslanian Cutting Works, a polishing factory that employs 58 workers. Arslanian is partly-owned by the Dogrib Rae Band.

"It's the reason you buy Coke instead of the no-name brand cola. The same principle applies to the diamond industry. Market your product well and sales will follow."

A big part of that advertising strategy is accentuating the fact that Canadian gems are "pure", a not so subtle jab at African producers who have occasionally used diamonds to finance horrific civil wars.

"Canadian diamonds are covered in ice, not blood," said Finnemore bluntly.

That edge is being diminished by the launch of the Kimberley Process, a certification scheme to renew consumer confidence in Third World gems, by certifying diamonds don't come from conflict zones.

"The premium we're getting could end ... once consumers have confidence that Third World diamonds are non-conflict," said Finnemore.

Others in the industry don't think that will be a huge hurdle to overcome.

"Their quality is excellent and they are neighbours (to the USA). Even if they no longer fetch a premium, they can be competitive."

In order to carve out a niche on the world market Northern polishers have begun etching tiny trademarks on the girdle of their diamonds, realizing the key to success is brand recognition.

In 1999, Sirius launched the first branded diamond in Canada, the Polar Bear, complete with four legs so as not to infringe upon the GNWT's trademarked three-legged polar bear logo.

Finnemore said the diamond has enjoyed a great deal of success.

"Sales in the U.S. doubled in the last year."