In the next decade, the demand for diamonds will be more than what the industry can supply through its current mining trends and available working mines, says diamond miner De Beers.

This was the highlight of the launch of De Beers’ first ‘Diamond Insight Report 2014’ last month at De Beers’ headquarters in Johannesburg. The report aims to address industry issues and encourage other industry role-players, from exploration to retail, to contribute to understanding diamond industry longevity.

The report is set to become De Beers’ official yearly view on the global diamond industry, drawing on the company’s extensive proprietary data and its insight, as well as on other industry sources. It also provides a view on the diamond industry’s future, its current and expected performance, as well as threats to the industry and key trends and areas of particular interest in the diamond industry.

De Beers South Africa CEO Phillip Barton says diamond production – in terms of upstream trends – will decline slowly after 2020, with a low likelihood of large, economically viable new finds. “Our view is conservative in that we do not expect any surprises, with no major new production coming on stream in the near future.”

He adds that De Beers has taken into account all known sources of production, current diamond production, mine expansions and new projects in the pipeline in compiling the report.

Barton adds that existing diamond mines are ageing and that it is becoming increasingly difficult and costly to find new deposits. “However, finding new diamond mines in the first place is far from being the only challenge, as diamond mines take several years – usually about seven – and a large amount of capital to bring to production.”

Although rough diamond production in 2013 increased by 7% to 146-million carats, compared with just over 135-million carats, this remains well below the 2005 peak of about 175-million carats.

Further, Barton does not believe that the few new operations due to come on line within the next few years will result in any marked increase in total production levels.

Hide and Seek
Barton says the lack of major new deposits being discovered is “certainly not for want of trying”.

He highlights that about $7-billion has been spent on diamond exploration since 2000, which delivered only meagre results. “Only one deposit of significant size – the Bunda mine, in India – was discovered during this period,” he says.

Diamond supply is, therefore, expected to plateau in the second half of this decade, before declining after 2020. Expansion projects are set to stabilise at the end of 2014, with little growth in 2015. New projects will steadily increase to a maximum in 2017, after which they will also stabilise and then begin to decline by 2030. Existing operations are also expected to decline by 2025 and to stabilise towards 2030.

“Even though diamond companies continue to invest in exploration, the likelihood of finding another Tier 1 mine – such as Jwaneng, in Botswana – does not appear high,” asserts Barton, adding that attention appears to be more on brownfield projects and expansions than it was during the “exploration bonanza of the 2000s”.

To emphasise his point, Barton explains that, over the past 140 years, about 7 000 kimberlite deposits have been discovered and, although this seems impressive, only one in seven discoveries actually contains diamonds. Only about 60 of these 7 000 discoveries have been sufficiently rich in diamond content to make them economically viable, with only seven of these discoveries being Tier 1 mines, including the Jwaneng and Orapa mines, in Botswana, the Venetia and Cullinan mines, in South Africa, the Catoca mine, in Angola, and the Udachny and Mir mines, in Russia.

Barton describes exploration as a complex business. “First of all, you need to be on the right real estate,” he says, adding that key kimberlite deposits worldwide need to be identified and focused on. “Our 126-year competitive advantage has stood us in good stead in terms of exploration methodologies we can offer today. However, exploration is always going to be competitive and with the huge gap opening between demand and supply, we need to maintain our competitive edge and find the Tier 1 mines first,” he says.

Barton adds that De Beers committed increased funding in 2014 to greenfield exploration in South Africa. He explains that the processing of applications for survey flying permits and exploration rights from the Department of Mineral Resources varies from province to province, with some encouraging signs, which, if continued, will be good for the South African mining sector’s reputation – be it the private or the public sector of the industry.

Meanwhile, deposits continue to be depleted with the costs of mining increasing. Further, the cost of factors such as labour and electricity have also been increasing over the past ten years.

Venetia Converts to Underground
De Beers director Mpumi Zikalala, who is also VP of De Beers Sight Holder Sales South Africa, commented at the launch of the ‘Diamond Insight Report’ that De Beers enjoyed security of supply in South Africa to maintain its steady flow of diamonds to the local and international diamond cutting factories by virtue of its building an underground operation at its Tier 1 mine – Venetia. She added that, in 2021, the openpit operation at the Venetia mine, in Limpopo, would convert its production to the new operation. Construction of the underground operation beneath the currently operating openpit mine started in late 2013, with underground production continuing into the 2040s.

The underground mine is expected to produce about 4.5-million carats a year.

Industry Adaption
Zikalala notes that the ‘diamond dream’ – a De Beers notion that diamonds signify the highest expression of affection – requires nurturing and protecting the quality of the stones through the implementation of best practices throughout the diamond value chain to ensure its legacy is upheld.

One of the key trends affecting this legacy is a recent spike in diamond reselling and recycling and, while this activity has been continuing for some while, she notes that the spike is a result of an increase in the scale of economics after the economic downturn, coupled with the increase in gold prices and, subsequently, the sale of gold jewellery.

However, Zikalala notes that consumers who have recently attempted to resell their diamonds have reportedly been dissatisfied with their experience, owing to a perceived lack of transparency and objectivity in the pricing of the diamonds they want to sell.

“The industry clearly needs to examine other structures through which the reselling experience could be improved so that the activity does not undermine consumer trust in the industry and the innate value of their diamond purchases,” she says.