Yellowknife (May 12/06) - Another Yellowknife diamond cutting house has closed its doors amid dire forecasts from its owner about the future of the multi-million dollar industry in the NWT.

Canada Dene Diamonds, an offshoot of the Yellowknives Dene band, closed the doors to its polishing house earlier this month. - photo courtesy of BHP Billiton

Canada Dene Diamonds lost "millions and millions" during its three-year existence before halting operations at its Ndilo plant earlier this month, a company spokesperson confirmed Thursday.

The closure puts 11 polishers out of work, according to the territorial government. Canada Dene Diamonds is a joint partnership between the Deton' Cho Corp. - the economic arm of the Yellowknives Dene - and Israel-based diamond supplier Moshe Namdar. This marks the second time in the last four years the Ndilo plant has stopped cutting NWT-mined diamonds after falling into financial trouble.

"Canada is the flavour of the moment," said Abraham Silverstein, a spokesperson for Moshe Namdar. "We knew going in that manufacturing costs were higher (but) we lost millions and millions."

Canada Dene Diamonds never approached the break-even point and was forced to close before the "bloodletting" proved fatal, Silverstein said from Ramat Gan, Israel. Moshe Namdar stepped in after the predecessor of Dene Diamonds, Deton' Cho Diamonds, closed in the fall of 2002.

He placed some of the blame on international diamond-giant BHP Billiton, which supplied Dene Diamonds with gems from its Ekati mine, located 300km northeast of Yellowknife.

Those diamonds, Silverstein said, were too shoddy and too expensive for Dene Diamonds to turn a profit. "Unfortunately, as (the) expression goes: shit in, shit out. You can only do so much with what you have."

Companies like Dene Diamonds have little bargaining power when it comes to dealing with mega corporations, which control most of the market for rough stones, Silverstein said.

"What do you call a ten-foot-tall man holding a shotgun to your head at midnight? You call him sir," he said. "You take what you can get."

BHP Billiton did not return a phone message before press time. The company provides local polishers with various sizes and qualities of diamonds, amounting to 10 per cent of Ekati's output by value, according to its website.

The apparent death of Dene Diamonds began around Christmas when, according to the territorial government, the firm stopped buying rough gems. Its dozen or so Israeli workers went home in February and the company officially notified the government it would cease operations May 2.

Neil McFadden, CEO of Deton' Cho and a director of Canada Dene Diamonds, was not available for an interview.

The closure is another apparent blow to the NWT's polishing industry, which has seen three factories forced into receivership or shut down since 2004.

Still, the territorial government, which has invested millions in diamond cutting in the form of loan guarantees, grants and training courses, remains bullish on its prospects.

"We've know for some time there would be bumps in the road," said Industry Minister Brendan Bell, Thursday. "I think the general health of the industry remains strong."

An internal review of GNWT spending on diamond cutting predicted the industry would get stronger over the next five years and contribute $16 million to the economy during 2006 and 2007 combined. There are still three active polishing houses on a street beside the Yellowknife airport known as Diamond Row.

But unless the diamond mining companies are willing to part with their best stones at reasonable prices - something that might take a forceful nudge from the territorial government - the industry will be dead within a decade, Silverstein said. "The government has to ask... 'Do we want this to be a success?'"

When Deton' Cho Diamonds went under in 2002-2003, the GNWT was forced to cover a $2.6 million loan guarantee. The parent Deton' Cho Corp. though, was saddled with the responsibility of paying that back. Bell said the Dene Diamonds closure will not affect the repayment.