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SOMBA K'E/YELLOWKNIFE - In Yellowknife, there is a row of fenced-in, unassuming buildings on a road dubbed Archibald Street, located near the airport.

Crossworks employee Ho Luu works inside the company's new factory, located inside the Cascom building in downtown Yellowknife - a departure from Diamond Row's larger factories. - NNSL file photo

While few of these buildings have signs beyond the small two-by-three boards marking their address, most Yellowknifers know them as the factories that encapsulate the city's hopes of turning the secondary diamond industry into an economic juggernaut: "Diamond Row."

Perhaps former mayor Dave Lovell said it best in 1999, after Yellowknife's first diamond plant opened.

"It is crucial to keep this viable secondary industry in the North ... With extraction, we must have manufacturing, not just for Yellowknife, but for the territories and Canada," Lovell told Yellowknifer a decade ago.

Current Mayor Gord Van Tighem said it again in 2003, when, arguably, the industry was at its peak with four operating plants: "This is an important industry for Yellowknife ... It's important that the diamonds don't just fly over Yellowknife ... They are a huge part of our economic diversification plan."

Hopes for the industry, however, have almost been as big as its struggles - if not bigger.

"It's been such a difficult time making a go of it at times," said Bob Bies, operating manager of lately-troubled cutting and polishing plant, Arslanian Cutting Works Ltd.

"You have to say that the Arslanian factory has had more success than any other factory within the history of mining in Yellowknife - that goes without saying," he added. "We're here still."

"It's been 10 years now. We've been able to get through all the difficult times," said Bies.

Since the industry's inception 10 years ago with the opening of the first factory, Sirius Diamonds, the secondary industry has found it hard to establish an economic foothold in the NWT. Indeed, the number of plants opened in the NWT is nearly equal to the number that have closed, the most recent of them Tiffany and Co.'s Laurelton Diamonds, which announced its shutdown in January.

Arslanian, which operates the former Sirius plant next door, since renamed Polar Bear Diamond, is the lone survivor on the row and Arslanian brass have not been shy about stating the factory is in trouble. The bruised and battered economy has shrunk the market's appetite for the Yellowknife factory's main fare - big, expensive, quality diamonds - leaving Arslanian unable to move much of its inventory off the shelves.

Over the past months, the company has laid off 13 of its 50 workers, and if Arslanian and its sister factory close, they will become the fifth and sixth cutting and polishing plants to do so since the industry took off a decade ago. Arslanian's sale to Sirius goes into the books as a closure.

While it's tempting to blame much of the secondary diamond industry's woes on the economic meltdown, even at the industry's peak, from 2003 to 2006, the cutting and polishing industry was not processing anywhere near the (up to) 10 per cent, by value, allotted to it by the three producing diamond mines, as stated in the "gentleman's agreements" each mine has with the territorial government.

At its peak, the four factories - Arslanian, Sirius, Laurelton and Canada Dene Diamonds - employed roughly 200 people and accounted for as much as 65 per cent of the territory's overall manufacturing shipments in value, if not more, according to a 2008 report prepared by Yellowknife-based Impact Economics for the NWT/Nunavut Chamber of Mines and the Mining Association of Canada.

While the amount of diamonds cut and polished by the factories is not public, using the 65 per cent figure, it's possible to get a fairly good idea of how much rough, by value, the polishing plants process. Very roughly, in 2006, the polishing plants produced close to three per cent, by value, of the $1.57 billion worth of diamonds mined in the NWT.

In 2007, the plants produced about 1.7 per cent, by value, of the $1.75 billion worth of diamonds mined in the territory, and in 2008 about 1.3 per cent, by value.

"The 10 per cent has never really been achieved," said Bies. "However, I would probably would have to point the finger at us more than the mines."

While Arslanian has definitely had its share of troubles over the years - the company went into receivership in June, 2004 around the same time as Sirius - it is also the only factory left standing of the original three: Arslanian, Sirius, and Deton'Cho Diamonds, later closed and reopened as Canada Dene Diamonds.

"For various reasons, the industry has difficulty making a go here and they haven't been able to purchase all of the rough that's been available," said Bies, referring to the amount of rough processed by the diamond plants, which he guessed to be at about five per cent at its peak - but said he wasn't surprised Yellowknifer found it to be lower.

For Bies, there are four factors to running a successful diamond industry in Yellowknife - and "if you're not able to achieve any one of those four, you could be out of business."

Tops on Bies' list is manufacturing expertise, "because it's absolutely imperative you get the optimum value out of every rough diamond."

This especially counts considering most diamonds produced by the factories in Yellowknife are high value - the difference between a 30-point diamond that sells for $800 and a two-carat diamond that sells for $36,000 - and high quality.

So for example, when the Deton'Cho factory was using top-quality diamonds for training, it was a recipe for disaster and one of the reasons the company folded, according to another industry insider who asked not to be named.

Reportedly, another point of failure for Deton'Cho was the company's lack of a good marketing plan, which is, incidentally, next on Bies' list to success.

"It doesn't matter how good you are at manufacturing ... if you cannot sell (the diamond) at the right price you also have no chance of succeeding," said Bies.

"Anyone can sell diamonds, but to be able to sell at the right price is extremely difficult," he added.

So, again, it's important to make sure that $36,000 diamond sells for all it is worth.

Next is a strong output to be able to offset the overhead costs of manufacturing in the North, which compared to worldwide cutting and polishing hot spots, such as India, is extreme, said Bies.

Which brings the list to its last check: deep pockets.

Cutting and polishing plants in the North have the opportunity to buy diamonds every five weeks. The factories must purchase the diamonds up front with cash, tying up millions of dollars. In addition to processing the rough stones, each diamond is certified by a grading lab, which can take an additional three to four weeks. Then, of course, it must be sold.

"It really can take up to six months before you see any money back from the rough that you paid cash with earlier," said Bies.

While it is one thing to examine what makes a successful factory, it is another to look at what makes a successful industry. And that list is limited to one big thing: a competitive advantage.

In a sense, the territory's secondary diamond industry is one of artificial creation. If the territorial government had not bargained early on with BHP Billiton, De Beers and Rio Tinto, then Diavik, there would be nothing to draw the industry here.

"You have to have something that other people don't have. In the case of the NWT, what they have is the diamonds," said Pierre Leblanc, founder of Canadian Diamond Consultants Inc.

Since moved to Ottawa, Leblanc's company opened 2003 in Yellowknife and advises on all facets of the diamond industry.

"Most of the individual diamonds are polished in India and their competitive advantage is very low cost wages," explained Leblanc.

Or as Bies puts it: "It's easy for someone in India to set up a shop, work on a dirt floor, work in an environment that's dangerous for its staff and hire children to cut diamonds."

The NWT on the other hand, pays its workers top dollars and operates in one of the highest-cost living jurisdictions in Canada. So while a Indian factory produces a diamond at $15 a carat, a Yellowknife factory will produce it at $100 a carat.

"If you can take the example of a cup: I produce the cup at $15 per cup, you produce it at $100 per cup. When both of us go on the marketplace who do you think is going to sell first?" said Leblanc.

He has often likened the secondary diamond industry to growing potatoes in Nunavut.

"Can you grow potatoes in Nunavut? The answer is yes, you can find soil, gather it somewhere, have greenhouses, warm them up when it's -40, train Inuit to grow potatoes.

"Can you compete with PEI? No way."

So is the secondary diamond industry in Yellowknife set to remain a wilted shrub in a forest of both better-backed, wealthier cousins - Antwerp, New York and Tel Aviv - and lower-cost operating, and still wealthier ones - India, China, Thailand and Namibia?

Maybe.

But is it doomed?

Not at all, according to Dylan Dix, worldwide marketing director for HRA, which recently opened the newest cutting and polishing plant in Yellowknife, HRA Crossworks.

Crossworks, which celebrated its grand opening late last November, employs 11 people and is located in the same building that houses Cascom - a departure from Diamond Row.

"I think we're realists ... we're not very glamorous in the way we set up," said Dix. "We like to be small, keep expenses low, make it profitable, then let's grow it."

HRC has a cutting and polishing plant in Vancouver, the only plant in Canada to continuously operate over the past decade without a bankruptcy, said Dix.

The company also recently opened a 50-employee factory in Sudbury, Ont., hoping to duplicate its success there.

"We're sort of a walk-before-you-run approach," he added. "Whereas I think when you look at some of the others it's a run-before-you-walk (approach)."

Dix said Crossworks in Yellowknife manufactured $10 million worth of diamonds in its first quarter, adding based on where the company is right now, he would like to see the company hit somewhere between $40 million and $70 million of processed diamonds per year.

"We've taken it easy in the first quarter of this year. But we're looking to ramp up significantly starting in summer. Our goal (is) to really push it at Christmas," he said.

For him, there needs to be one more check on the list of running a successful diamond industry in Yellowknife: a commitment to the North.

The secondary diamond industry "is a viable business, but you really have to be ... a great international manufacturer and you have to have an interest in Canada," he said.

Dix said it's important to ensure companies operating in Yellowknife are not here just to gain access to rough they can sell anywhere in the world - but not manufacture in Yellowknife.

"Otherwise why do you need to give (rough) to me? ... Like what's the point then? You're not going to have manufacturing here because I'll be able to sell all my rough (globally) anyway," he said.

And if that happens, Diamond Row will be nothing but a line of empty factories, the glitter of diamonds in Yellowknife lost to the ghosts inside.