Diamonds: Loss not cast in stone
The global diamond industry has had a tough couple of years, which has squeezed prices of smaller stones, perhaps permanently. But top-end diamonds are as much in demand as ever, says an expert
The financial woes of some mid-level diamond mines in SA in recent years aren’t the death knell of the country’s diamond mining sector, industry veteran John Bristow says.
With the right management, a supportive regulatory framework and a greater focus on growing entrepreneurial mining skills, SA’s mining companies can continue to provide jobs and foreign earnings for many years, since the country still has an estimated US$2.5trillion of resources in the ground. But a new approach is needed.
Bristow, former CEO of Rockwell Diamonds and Incubex, is a geologist who is now part of an association of specialist mining and financial advisers called the Global Diamond Network.
At least three mines have faced difficulties lately. Towards the end of last year Lace Diamond Mine, owned by DiamondCorp, applied for business rescue after its infrastructure was damaged by flooding. Rockwell Diamonds is defending an application for provisional liquidation from a contractor who has not been paid for several months. And two years ago the company Manhattan Operations Douglas in the Northern Cape went into liquidation. It is now the subject of a buyout proposal from its biggest creditor.
Bristow says Southern Africa still has many examples of technically innovative, well-run mining and services companies, such as Petra Diamonds, Lucara Diamonds in Botswana, Lucapa in Angola, Consulmet and Master Drilling.
Though SA’s mineral resources are well mapped, there are still attractive opportunities to build new mines, Bristow believes.
Applying new approaches to exploration, drilling and processing in less-explored areas could also yield new discoveries.
De Beers has renewed its exploration efforts in SA. Finding diamond deposits able to produce more than 5mcarats/year is becoming more challenging, but smaller mines can also be economically viable, with focused management and the use of modern recovery technologies.
Fundraising has been hard for some smaller companies, though Petra Diamonds raised the money it needed for its C-cut extension and a new treatment plant at Cullinan, and has managed to service debt and expand throughout a period of weaker diamond prices, Bristow says.
Demand from China is recovering, but the country has not been the growth engine for the diamond industry many had hoped it would be.
Rough diamond prices were affected, together with other commodities, by the global financial crisis and again in 2014. This was felt most keenly at the lower end of the market, where demand for stones of up to 1ct has not fully recovered to 2014 levels. Bristow says the prices of diamonds of 0.5ct to 1ct may take another year to return to 2014 levels, and he doubts whether stones below 0.5ct will ever recover, because there is no shortage of supply and they increasingly compete with synthetic gem diamonds.
In the middle tier of the market, prices are expected to benefit from falling supply following the exhaustion of near-surface deposits at Marange in Zimbabwe, the closure of De Beers’ Snap Lake mine in Canada and diminishing supply from Canada, the halting of development at Bunder in India and the deepening of old mines in Australia, Russia and SA.
The top end of the market, particularly for fancy pink, blue and yellow stones and exceptional white diamonds above 2ct, has remained resilient. This is partly because of their scarcity and partly because diamond companies such as De Beers have been marketing their own brands, such as Forevermark, that focus on the larger stones.
Demand from China is recovering, but the country has not been the growth engine for the diamond industry many had hoped it would be, Bristow says. Chow Tai Fook, the Asian retailer that is closely monitored as an indicator of Chinese jewellery offtake, has closed key stores in Macau and Hong Kong and slowed the rollout of new stores.
Indian jewellery demand has been hit hard in the short term by the ban on higher-denomination bank notes that was imposed in an effort to curtail corruption. However, Bristow believes this will be positive in the longer term. He says there is still upside for diamonds in India, as it has a long tradition of adornment and jewellery purchasing.
In the US, president-elect Donald Trump’s policies, which could stimulate spending, are expected to be good for precious metals and jewellery consumption.
That Rio Tinto’s new CE, Jean-Sébastien Jacques, has said one of his priorities is to add more diamond assets to the portfolio is another good indicator of the sector’s improving prospects, Bristow says.