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SOMBA K'E/YELLOWKNIFE - Discussions between brass at Yellowknife polishing and cutting plant Arslanian Cutting Works and the territorial government broke down last Wednesday morning, prompting the company's key funder to reconsider his investment.

Arslanian employee Gennadiy Tereshko works in the factory's fancy cuts department. He is one of many skilled workers Yellowknife could lose if Arslanian closes its doors for good. - Lauren McKeon/NNSL photo

While the halted talks aren't the only thing worrying New York City-based Gary Barnett - certainly the dismal economic market for diamonds is a major factor - they are high on his list of reasons to pull funding from the project.

Over the past months, Barnett's company, which is currently building the $434 million Diamond Tower in Manhattan's diamond district, has been operating Arslanian as managing partner.

Barnett, who is a former diamond trader and owner of Extell Development, one of NYC's most active real estate development firms, signed a letter of agreement to fund the factory's operation with Montreal-based owner Ron Basal a year ago - and has been losing money since.

"We've been paying for the merchandise, we've injected a lot of capital and we've been operating it. And we've been taking significant losses," said Barnett.

Last month, Arslanian laid off five workers and warned more lay offs could be on the way - the factory has now laid off a total of 13 workers - if the government didn't step in to negotiate changes to the territory's regulations regarding polishing plants and the buying and selling of rough diamonds.

For Arslanian, that means allowing the plant to sell diamond rough it doesn't have the capacity to process to another company that may have a shortage.

Currently, it must manufacture 100 per cent of its allocation in the NWT - a hard task in a shrunken market with little appetite for diamonds.

While things initially looked promising, with the GNWT agreeing to enter into discussions, those same talks ended - and abruptly, depending on who you ask.

When pressed for news of the negotiations by Great Slave MLA Glen Abernethy at last Wednesday's legislative assembly meeting, Bob McLeod, Industry, Tourism and Investment minister, called Arslanian's demands "threats."

"We have a long-established diamond policy in the Northwest Territories and we're not going to take a knee-jerk reaction to some threats that were made on a moment's notice," he said.

"It's important we don't lose more employees in the Northwest Territories. We need and should have a secondary diamond polishing industry and I think the government needs to work with our businesses," said Abernethy.

"We're always willing to negotiate but what was presented to us this morning was not negotiations," responded McLeod, who said he was prepared to work with Arslanian to ensure the company can continue.

When Yellowknifer later attempted to contact McLeod it was told the minister was out of town and unreachable while he was on holiday.

Drew Williams, acting communications co-ordinator for the cabinet, said McLeod has been in close contact with Arslanian up until the time he left for vacation.

As for whether or not the government will budge on letting Arslanian sell its rough: "The GNWT remains supportive of (the company) and committed to the secondary diamond industry and has committed to reviewing the diamond policy with members of the legislative assembly," said Williams.

Barnett agreed the government is trying: "The government wants the factories to succeed - they're not cavalier about it - they are trying to be co-operative," he said.

While he added some suggestions by the GNWT were "perfectly reasonable" he also said, "They have not been able to respond as quickly as we like or as positively as we like."

Barnett said his company will decide in the coming weeks whether to walk away from Arslanian.

Arslanian currently employs 37 people between itself and the factory next door, the old Sirius plant renamed Polar Bear Diamond, which share employees and are both owned, run and funded by the same group of people.

If Arslanian and its sister factory close, they will become the fifth and sixth cutting and polishing plants on "Diamond Row" to do so in less than a decade, after the recent closure of Laurelton Diamonds.

"We're going to be making our decisions over probably - maximum - the next several weeks, and maybe sooner. But that will be as long as it takes because every day we operate there it's painful," said Barnett.

Bob Bies, director of operations at Arslanian's factory, emphasized the factory has been in Yellowknife since 2000 and is "still trying to make a go of it."

"We're trying to survive," he said. "We have 37 families here ... if we close down some of them may have to leave the country."

Arslanian employs many Armenians, who were brought to Canada for their expertise in the diamond cutting and polishing trade.

Bies added Yellowknife is not only poised to lose Arslanian employees, but the workers' spouses - who have jobs in the community - and their children, some of whom were born here and have never been to their parents' home country.

"It's more than just 37 people. (The potential closure) probably affects 100 people," he said.

Bies added each day he can see the fear in the eyes of his staff, wondering when - and if - they'll lose their jobs.

"They see me and they want to smile (at me)," said Bies. But sometimes it's hard for Bies to muster one in return.

Lately, for him, it's often, "I don't feel like smiling today," he said.

Barnett was careful to say Arslanian could still survive if his company stops funding it, but it will mean Basal has to take over financing operations once more.

"I think there's essentially two choices. Either the Basal Group steps in and operates it once again or they say it's not for them either, in which case it probably does get shut down," said Barnett.

Basal said he doesn't want to see Arslanian gone - "I've put my heart into this business" - but added the factory's fate hinges on how the government handles the factory's requests.

Like Barnett, he believes the territorial government does not want to see the factory close.

"It's all about the government. If the government comes to us and says no problems (with the company's requests) then we're okay, we have no issues," he said.

However, "If they tell us 'listen we can't do what you request' ... in this case we'd probably consider closing the factory. This is the truth. In this case it will be the ending of a long era," Basal added.