TORONTO (miningweekly.com) – Global diamond output is expected to hit 135.5-million carats this year, analysis of the world's 54 largest diamond mines has shown.
Independent industry analyst and consultant Paul Zimnisky, who undertook the research, said three new diamond mines expected to start production this year, with only one expected to shutter, mainly underpinned the potential 3.3% year-on-year growth.
In terms of the value produced, 2015 output was estimated at $14-billion compared with an estimated $13.8-billion in 2014.
Zimnisky noted that the world's ten largest mines by production value were estimated to account for 61% of global output, and the 54 largest mines would probably account for about 85% of global output, with the balance coming from informal artisanal miners mainly in Africa.
Among the three new mines starting production this year, Russian diamond miner Alrosa’s Botuobinskaya mine, in north-east Russia’s, Republic of Sakha, was expected to start operations in the fourth quarter, adding about 1.5-million carats a year to the world’s largest diamond producer by carat volume’s profile.
According to LSE-listed DiamondCorp, the company’s Lace mine, in South Africa, was on schedule to start mining operations in the second half of the year. With a 13-million-carat resource, yearly output at Lace was expected to be to 500 000 ct/y.
Further, ASX-listed Kimberly Diamonds had indicated that the company’s Ellendale mine, in Australia, would cease operations in May, as the company would focus all of its resources on its Lerala mine, in Botswana. Ellendale was known for producing about 50% of the world’s fancy yellow diamonds in conjunction with Tiffany & Co's subsidiary, Laurelton Diamonds.
Zimnisky explained that 2015 would mark the first full-year of production for the Grib, Karpinskogo-1, Ghaghoo, and Lulo mines. Grib was the only large-scale commercial diamond mine in Russia not owned by Alrosa. The mine, 100% owned by Russian oil major LUKoil, was expected to produce 1.5-million carats worth $165-million in 2015.
A noncore asset for LUKoil, the mine had been up for sale since production started in June 2014. Output at Grib was scheduled to peak at 4.5-million carats a year starting in 2016, with a mine life of 17 years. Also in Russia, Alrosa’s newest mine, Karpinskogo-1, was estimated to produce 750 000 ct worth $79-million in 2015.
The mine started production on October 6 last year and produced 266 000 ct through year-end.
Ghaghoo, an underground mine owned by Gem Diamonds in Botswana, was estimated to produce 200 000 ct this year. Production at Ghaghoo started in September 2014 and had, to date, recovered notable 20 ct and 17 ct white diamonds, and a 3 ct fancy orange diamond.
Further, ASX-listed Lucapa Diamond’s Lulo mine, in Angola, started production last month. The operation was expected to produce 55 000 ct this year. The alluvial project had recovered some notable stones during bulk sampling last year, including a 131 ct white diamond and fancy coloured pinks and yellows.
Beyond 2015, Zimnisky pointed out that the most anticipated diamond development projects included the Gahcho Kué and Renard projects, in Canada; Liqhobong, in Lesotho; Bunder, in India; and Verkhne-Munskoe, in Russia.
Through the end of last month, construction at Gahcho Kué was more than 50% complete and the project was on schedule to start production in the second half of 2016.
Gahcho Kué was expected to produce 53.4-million carats over a 12-year mine life, producing diamonds worth an estimated $150/ct, which would make it one of the world’s top-ten largest diamond mines by value produced. The project is located in Canada’s Northwest Territories, 90 km east of diamond giant De Beers' eight-year-old Snap Lake diamond mine, which was estimated to produce 1.2-million carats at $105/ct this year.
Gahcho Kué is 51% owned by De Beers and 49% by Canadian-listed Mountain Province Diamonds.
Meanwhile, TSX-listed Stornoway Diamonds’ Renard project, which would be the first diamond mine in Quebec, was more than 10% complete by the end of January. Favourable weather conditions in the second half 2014 allowed construction to progress ahead of schedule.
First output was slated for the second half of 2017, with yearly production estimated to reach 1.7-million carats at $180/ct.
Zimnisky added that last year Canada’s diamond output could more than double in the next four years, underpinned by the Gahcho Kué and Renard projects.
Zimnisky said, based on analysis of the world's 54 largest mines, the global average price a carat for mined diamonds in 2015 was expected to be $103/ct, down 2% year-on-year from estimated 2014 prices.
“Last year, prices were down an estimated 3% to 5% as the closure of Antwerp Diamond Bank in October led to industry-wide liquidity concerns for rough diamond buyers. In addition, a slower-growing Chinese economy, deflationary pressures in Japan and the European Union, and multiple geopolitical tensions, led to downward pressure on rough prices which is expected to carry over into the first half of 2015,” he advised.
Zimnisky highlighted that the strong US dollar also played a role in recent diamond price weakness, given that diamonds were typically denominated in dollars.
However, this foreign exchange effect would also have a positive impact on miners that accounted for operating expenses in dollars. For instance, wages paid in local currency were relatively “less expensive” when converted to dollars. A lower oil price should also have a favourable impact on miners as haul trucks, generators and some grids were powered by diesel.
Zimnisky said it was also worth noting that Alrosa had been selling additional diamond inventory on top of regular sales, which was impacting global supply.
In the last quarter, Alrosa sold 1.08 ct for every carat produced.
“This is most likely in response to current economic weakness the Russian federation is facing following a collapse of oil prices and sanctions implemented by the West following the Crimean crisis. Alrosa recently provided 2015 production guidance of 38-million carats, which represents about 28% of global production volume,” Zimnisky noted.
The analyst said technological advances in synthetic diamond production would result in about one-million carats of marketable gem-quality synthetic, or ‘lab-created’, diamonds entering the market for use in jewellery this year.
According to Zimnisky, this was a relatively insignificant number on a global scale, given that it represented only about 1% of mined gem-quality diamonds. However, within the last two years, the market had seen the first 1 ct+ VVS (very very slightly included), colourless synthetics being produced.
“The economics of synthetically producing this quality of diamond are not yet favourable enough to significantly compete on a price level with the natural equivalent and the synthetic diamond jewellery industry lacks a developed distribution system; but as technology progresses, less-expensive, larger, higher-quality synthetics are inevitable,” the analyst predicted.
At the moment, the industrial-quality segment of the synthetic diamond industry offered the most favourable margins for producers. An estimated five-billion industrial-quality synthetic carats would be produced this year, mainly in Asia, representing more than 99% of industrial-quality diamond supply.
Mined industrial-quality diamonds represented less than 1% of the market, as they were strictly produced as a by-product. Most industrial diamonds were used as abrasives, but high-tech application was one of the fastest growing segments of the industry, as a diamond’s high thermal-conductivity characteristics made them ideal for use in processor chips and sensitivity sensors.