Rough diamonds have not been mines’ best friend
Mine failures, news of pending closures and some companies missing output targets some of the issues diamond miners faced this year
The supply side of the rough diamond market had a less than stellar year, with mine failures, news of pending closures and some companies missing output targets or running into unforeseen difficulties.
In SA the going has been particularly tough. Rockwell, an alluvial diamond miner, was brought to its knees by an unpaid creditor, who brought a liquidation order against the Canadian company operating in the Northern Cape.
There is a buyer for its mining operations but Rockwell as an entity has reached the end of running them.
De Beers has put its Voorspoed open-cast kimberlite mine up for sale, drawing a line under its second-last South African operation, leaving it just the large Venetia mine in which it is investing $2bn to switching mining from an open pit to an underground mine.
There are still resources left at Voorspoed, but De Beers has no appetite for the capital required to expand the pit and reach deeper levels of the mine.
In a smaller company’s hands there is a future at the mine, including reprocessing tailings, to make it worthwhile and cost effective with a smaller overhead base, says Phillip Barton, CEO of De Beers Consolidated Mines.
There is speculation in the market that the Voorspoed mine could be grouped by possible buyers with the mothballed Lace kimberlite mine where work was suspended after particularly heavy rains and an inability to raise more capital to ease the mine over the finish line and into commercial production.
There is concern that the business rescue process for Lace has not been optimal and all directors have resigned from DiamondCorp, the owner of the mine and a rare diamondiferous kimberlite, over a disagreement with the business-rescue practitioner about the future of the nearly completed mine.
De Beers is understood to have cast an eye over Lace, but the operating parameters of the mine were too small to warrant it considering buying it or setting up a joint venture.
De Beers also told the market in November it was closing its Victor mine in Canada. The mine was always going to be a shorter-life operation compared to the monster mines in Botswana and Russia that have been working for decades.
Gem Diamonds, which has a history of unsuccessful forays to grow production outside its flagship Letseng mine in Lesotho, suspended its Ghaghoo mine in Botswana. The mine had barely come into production in the northern reaches of Botswana, with the difficulties of building a mine in a deep layer of shifting desert sand making logistics a nightmare and the construction of a mine expensive and difficult.
In Lesotho, the newly commissioned Firestone Diamonds mine, Liqhobong, has proved to be more difficult than the directors thought, missing production targets and revenue per-carat forecasts, sending its shares in London down to three-year lows.
Russia’s Alrosa, the largest source of rough diamonds as measured by carats, says it will maintain production at 36–million to 38-million carats up to 2025 despite an accident at its large Mir underground mine and it will underpin sales by tapping into unsold inventories. "Fundamentally, we view the supply and demand on the diamond market as balanced — on the one hand, retailers’ sales are increasing, on the other, we believe that 2017 is the year of peak production," Alrosa CEO Sergey Ivanov said in a nine-month results call towards the end of November.
"In balanced market conditions, we do not expect any significant increase in the prices in the near future…," he said, referring to rough diamond prices.
Alrosa would in the next three years move to selling a "higher share of relatively cheaper stones" because it is turning to increasing output from its alluvial deposits to make up for a lack of production from Mir over that period.