Diamonds Update

The state of 2013 global rough diamond supply | Resource Investor

Rough diamonds achieved record prices in the summer of 2011, but prices have since slipped back to 2010 levels on global macroeconomic worries.  However, current prices are still higher than historic levels reached in the summer of 2008, and new supply is estimated to fall short of new demand over the next two decades, which could take prices back to new highs. According to a December Bain and Co. report, “The Global Diamond Industry: Portrait of Growth,” global diamond demand is expected to grow at 5.9% annually through 2020, while supply is only expected to grow at 2.7% over the same period of time.  (I think it is worth noting that when discussing diamond supply/demand, the demand is typically end user or purchaser demand of polished diamonds, while supply is typically rough diamond supply from mines.  There are sometimes divergences between rough and polished diamond prices, but generally speaking they are symbiotic.)

Modest-at-best new supply growth over the next 17 years can be attributed to mature mines approaching non-economic depths, and a lack of new projects to offset the diminishing production of the aging mines. Even with annual supply growth of 2.7% through 2020, the supply in 2020, estimated to be 157 million carats, will still not equal pre-financial crisis supply of 177 million carats produced in 2005.

Two of the largest diamond mines in the world, Canada’s Ekati and Diavik mines, have exhausted open pit resources and now are both underground mines. The need to convert a mine from an open pit operation to an underground operation typically results in curtailed production given the geology of kimberlite pipes (the geologic formation of the resource is shaped like a carrot, and gets narrower at depth). Ekati’s production declined 28% year-over-year (YOY) in 2012, and Davik’s production is estimated to decline 17% YOY in 2013.  Three more of the world’s largest mines are set to go underground over the next few years, as Russia’s Udachny mine is expected to be converted to an underground operation in the next two to four years, and Botswana’s Jwaneng and Orapa mines are expected to go underground shortly thereafter. 

Given that it can take more than a decade and $1billion to take a diamond project from discovery to production, there have been a very limited number of significant new projects in development since the mid-1990s.  Projects expected to come online in the next five years, with estimated annual production of 1 million carats or more are Canada’s Renard and Gahcho Kue projects, Botwana’s Ghagoo project, and Russia’s Grib, Lomonosov, Botuobinskaya, and Lomonosovsky projects.  Two other projects worth noting are Canada’s Chidliak and Star-Orion projects, which have the potential to be large mines, but are not likely to commence production any time soon.

The intention of this study is to focus solely on the new supply of gem-quality rough diamonds through mine production.  The mining of industrial grade (non-gem-quality) diamonds exclusively is not economic, thus, an estimated 98% of industrial grade diamond demand is supplied with synthetic (lab grown) diamonds.  However, mines do produce industrial grade diamonds, but only as a by-product.  On average, gem-quality diamonds only represent approximately 25% of a mines production, but account for 95% of the value of diamonds produced. It is important to understand that diamond mining is not just about the quantity of carats produced, but also the quality of diamonds produced. That said, for purposes of simplicity, this study is based on the assumption that the supply of rough diamonds is based on the quantity of carats produced, not the value of carats produced.

Global 2012 rough diamond production is estimated to have been 127 million carats, 2013 production is estimated to be 130 million carats.  The below chart details the production of the most significant diamond mines in the world, estimated to produce a combined 113 million carats in 2013 (or 87% of estimated 2013 supply). The balance of 2013 global rough diamond production (or 13% of estimated 2013 supply) not included below is composed of small-scale or informal mining operations, where production data is opaque or not available.  For example, the Democratic Republic of the Congo (DRC) is the third largest diamond producer in the world by volume, but there is only one commercial producer in the country, so the majority of DRC production data on a project basis is unreliable or not available at all. 

 via www.resourceinvestor.com

Denny's Comments

Like most industries, the price of diamonds is product of the balance between supply and demand.  This is especially true now that there are many diamond producers and no De Beers monopoly.  The lead time to bring on new diamond production is long and requires great investment so we can expect to see prices increase until this investment in new mines is justified.

A diamond sells for $11 million at auction | NDTV.com

Hong Kong: The biggest briolette-style diamond ever to appear at auction set an $11 million record when it sold to an anonymous Asian buyer in Hong Kong on Tuesday, auctioneer Christie's said.

The 75.36-carat briolette - a gem cut into a three-dimensional waterdrop shape - is suspended on a chain of diamonds. Although it fell short of a top pre-sale estimate of $12.5 million, it beat the $10.8 million record set by a 10.48-carat fancy deep blue briolette sold by Sotheby's last year.

The Type IIa diamond - similar to the Koh-i-Noor diamond set into British Queen Elizabeth's crown - is exceptionally rare, according to Christie's jewellery specialist Chiang Shiu-Fung.

"Briolette is so special because we have to find a piece of rough that is big enough to cut (into) a briolette style," Chiang said.

The diamond arrived at American diamond dealership, William Goldberg, as a 160.5-carat rough and was shaped into a 75.51 carat briolette diamond.

This was certified by the Gemological Institute of America (GIA) as the largest briolette-shaped, flawless diamond graded at the time, according to William Goldberg's database.

Earlier this month Christie's set a $26.7 million record in Geneva for a pear-shaped colourless diamond that was the largest ever offered at auction.

The 101.73 carat "Winston Legacy" diamond was the centrepiece of the Magnificent Jewels auction and was bought by jewellery and watch firm Harry Winston.

© Thomson Reuters 2013

 

via www.ndtv.com

Related articles

Diamonds.net - Christie's Hong Kong Jewels Sale Features 75-Ct. Briolette Diamond

Why Diamonds Could Be the New Golden Investment

For more than 100 years, unless you were an industry insider or had connections to DeBeers, the prospect of investing in diamonds was completely out of reach. However, for the first time in history, diamond prices are no longer manipulated and are now a product of true market forces, providing investors with a long awaited opportunity.

Diamonds are not just a “girl’s best friend,” they’re also the next golden opportunity for millions of individual investors seeking safety and performance in this uncertain global economy. Investors can now buy, take physical delivery, track real-time prices, and liquidate their investment-grade diamond positions effortlessly.

And even better – prices are expected to spike soon.

So what happened over the last 100 years to make such an opportunity possible? The short answer is that natural economic forces will always prevail over any one company’s power and influence.

It all started in the second half of the 20^th century when DeBeers began to lose its control over the diamond market as a result of major mines being discovered in Australia, Canada and Russia. These discoveries made it difficult for DeBeers to purchase all of the rough diamonds on the market, in turn weakening their ability to influence supply and prices in their favor.

Over time, more and more diamond producers began to bypass the DeBeers cartel by selling their supply directly to the market. By the late 1990’s the DeBeers market share had eroded to 60 percent, a far cry from the 90 percent share it enjoyed in the 1980’s.

By 2004, the DeBeers stockpile was depleted, allowing diamond prices to trade on supply and demand fundamentals, just like any other commodity. Currently DeBeers has a market share of less than 40 percent.

So why should an individual investor care about these major structural changes to the diamond industry? Well… because allocating diamonds to their investment portfolio may well be one of the best investment decisions they can make.

According to a study released by Bain and Company in 2011, it is projected that there will be an additional 276 million middle class households in China and India by 2020. This influx of consumers is anticipated to fuel record setting diamond demand for years to come.

via www.valuewalk.com

China inflates diamond prices - Jeweller Magazine: Jewellery News and Trends

Locally-based diamond experts are convinced that China’s new-found obsession with diamonds, combined with a burgeoning middle class, are forcing up prices globally.  As Chinese consumers grow increasingly enamored with luxury goods, they are buying diamonds so quickly that it’s inflating the price of stones around the world.  Since 2000, it’s estimated that 230 million Chinese have moved into cities to work for wages, creating a massive middle class that aspires to own diamonds.

As the demand grows for “affordable” stones, prices are being inflated under the rules of supply and demand. 
While prices for 1-carat internally flawless “top white” diamonds have risen about 7 per cent in two years, according to PolishedPrices.com – an independent diamond information website – an SI stone of similar size and colour has increased by 24 per cent.

Australian diamond expert Garry Holloway, said: “the same thing happened when Japan entered the diamond market in the 1980s.” China surpassed Japan in 2011 to become the second largest diamond-buying nation, behind the US.  “Japan demanded, and got, better cut quality diamonds,” Holloway added. “This raised the price of better cut diamonds, which in turn became more readily available, but at a higher price.”

Diamond dealer Robin Sobel of Protea Diamonds agrees with Hollaway, saying the price has definitely increased recently. He says he is paying between 5-7 per cent more for some diamonds.  He says mainly SI1 stones are very strong while VVS and VS1 stones are weaker due to Chinese purchasing power.  "The price has gone through the roof for these SI1 diamonds because they have become so scarce. I have clients waiting to purchase good quality stones and I can't find them. It's crazy," he said.

According to Anglo American Plc (AAL), owner of De Beers Buyers, China and the US accounted for about 20 per cent of global diamond demand in 2011 and that will rise to 28 per cent in 2016 as the market grows from US$23 billion to US$31 billion.

Initially, affluent Chinese would consider only purchasing the highest quality diamonds, but as the middle class has pushed into the diamond market, that requirement has disappeared.  However, it appears there is still sufficient activity in the top end of the market to ensure prices remain high.

Financial news analyst Bloomberg reported that even as shoppers go down-market in China, the gap to VVS stones was still large. The report suggested that a flawless 1-carat “top white” round diamond would cost about US$28,800 from online retailer Blue Nile, while a typical middle-market SI1-category diamond of the same size and colour would cost about US$7,200.

www.jewellermagazine.com

Diamond Mining in Africa - Resource Investing News

Africa, the world’s largest producer of diamonds, has produced half of all diamonds. With 1.9 billion carats produced, the continent has mined about $158 billion worth of the gems.

Diamond mining in Africa dates back to 1866, when the child of a Dutch farmer found a 22-carat diamond in what is now South Africa — that was the first known diamond discovered on the continent. When an 83-carat diamond was found three years later, it drew a rush of miners into South Africa.

The first four mines in Africa were dug in 1871 in areas around the Vaal River. The largest was Colesberg Kopje, nicknamed “the Big Hole,” in Kimberly. The wealth produced by these mines triggered industrial development, with modern shipping ports, along with travel and communication networks springing up throughout the subcontinent. That ultimately lead to two wars between the Dutch settlers (known as the Boers) and the British from 1880 to 1881 and 1899 to 1901. Over the next century, Africa continued to lead the world in diamond production.

The majority of Africa’s diamond empire is controlled by De Beers. The company controlled the flow and pricing of the diamond market for a large part of the 20th century after forming Anglo American Corporation in 1917 and establishing a central selling organization to stabilize sales.

Major diamond mining companies

De Beers is a holding company for various companies that explore for, trade in and produce diamonds; it is the world’s biggest diamond producer. Total sales decreased in 2012 by 16 percent, to $6.1 billion, though rough diamond sales increased 15 percent, to $5.5 billion. De Beers is predicting moderate growth in 2013 and the company expects strengthened fundamentals as diamond production plateaus and demand increases.

Anglo American (LSE: ALL) is an 85-percent shareholder in De Beers. Last year, the company saw an underlying operating profit of $496 million in diamonds alone, with a total underlying profit of $6.2 billion and $2.8 billion underlying earnings. The company predicts that robust demand for industrial commodities will boost growth for 2013.

Rio Tinto (LSE:RIO,ASX:RIO,NYSE:RIO) is another leading diamond producer that is active in mining, sales and marketing. The company reported $9.3 billion in underlying earnings for 2012. However, it recorded a net loss of $3 billion. New incoming CEO, Sam Walsh, who will officially take control of the company in July, said Rio will reduce its capital expenditure to $13 billion this year.

While Africa remains the center of global diamond production, Russia recently revealed a massive diamond mine of its own that may loosen the continent’s tight grip on the industry. Alrosa (MCX:ALNU) is a Russia-based company that explores, mines, manufactures and sells rough diamonds. The company accounts for 25 percent of global diamond production and 94 percent of Russia’s overall diamond output.

A popular way to invest in diamonds is by physically holding them. Returns for diamonds beat those of equity for much of the last 15 years, according to the Financial Times. Three-carat diamonds increased by 145 percent and 5-carat diamonds increased by 171 percent between 1999 and 2011. However, it’s worth bearing in mind that diamond trading is an unregulated market. With De Beers retaining much of the trade, it can be difficult for private investors to break into the market. With the still relatively new diamond discovery in Russia, it is hard to say if the diamond market of today will be recognizable in years to come.

Source: http://resourceinvestingnews.com/55144-diamond-mining-in-africa.html

==DENNY'S COMMENTS========================

This is a nice overview of Diamond Mining in Africa and how it has evolved to its current status.

Diamonds.net - Christie's Hong Kong Jewels Sale Features 75-Ct. Briolette Diamond

RAPAPORT... Christie's Hong Kong will hold its magnificent jewels sale on May 28, offering 290 jewels for a presale estimate total of  $74 million (HKD 590 million). The top lot of the sale is diamond pendant necklace (pictured) with a marquise-cut purplish pink diamond suspending  a 75.36-carat, D, internally flawless, type IIa briolette diamond and a presale estimate of $8.5 million to $12.5 million.

Christie's Hong Kong will auction an emerald and diamond necklace by Boucheron, circa 1950s, that features eight emeralds set with a line of  graduated old European and cushion-cut diamonds, alternating with baguette-cut diamonds. The presale estimate for this piece is $3 million to $5 million and Christie's stated that jewels of this high caliber are typically owned by extraordinarily affluent collectors. 

Another top lot is a diamond and ruby ring by James W. Currens, featuring a natural 8.88-carat center oval ruby with a high degree of transparency, joined by pear and marquise-cut diamonds for a presale estimate of $2.3 million to $3.5 million.

A limited supply of high-quality jadeite is driving strong prices for these pieces in China and other locations, according to Christie's, which is why the auction house expects good buyer demand from this category. Christie's is offering a suite of jadeite and diamond jewelry consisting of a ring, earrings and a necklace set with 14 oval jadeite cabochons of brilliant green color and high translucency, enhanced by brilliant-cut diamond spacers for a presale estimate of $2.3 million to $3.5 million.

The pearl category of the sale is led by an exceptional double-strand natural pearl and diamond necklace, featuring 150 saltwater pearls set with a diamond and emerald clasp and it has a presale estimate of $1.5 million to $2.25 million.

On May 29, Christie's Hong Kong will present its spring auction of important watches, including a collection of John Stainton, and featuring 540 lots along with a presale estimate of $13.4 million (HKD 105 million).

via www.diamonds.net

Rare Blue Diamond Fetches Record $9.6 Million : Discovery News

A stunning blue diamond broke a world record today, fetching a price of 6.2 million British pounds (about $9.6 million), or about $1.8 million per carat, according to auctioneer Bonhams.

The diamond is a brilliant blue and is set in a ring made by Italian jeweler Bulgari around 1965. The high price likely comes from the diamond's unusual color as well as its posh setting: Bulgari is a company beloved by the Hollywood glitterati, and blue diamonds are rarely up for sale. This particular blue diamond also happens to be a large chunk of ice at 5.3 carets.

The diamond is a "fancy deep-blue" stone, terminology that describes its intensity of color. The blue sheen comes from boron atoms intermixed with the carbon that makes up the diamond's structure. According to Bonhams, less than 1 percent of all diamonds mined are blue diamonds.

"Blue diamonds, especially those over 5.00 carats, are extremely rare to see on the market and continue to be highly sought-after," Jean Ghika, the director of Bonhams' European jewelry department, said in a statement. "We are honored to have handled the sale of such a unique gem."

The previous record for the price of a diamond per carat was $1.68 million, according to Bonhams.

The most famous blue diamond in the world is the Hope Diamond, which now resides at the Smithsonian Natural History Museum. Crudely cut, the Hope Diamond was 112 and 3/15 carats and likely came from a mine in Golconda, India, according to the Smithsonian. King Louis XIV bought the diamond from a French merchant who picked it up in India and later had it recut into a 67 and 1/8-carat stone. The diamond remained in the hands of French royalty until 1792, when it was stolen during an episode of unrest and looting.

The diamond's path then becomes foggy until 1839, when it popped up in the gem collection of banking heir Henry Philip Hope. The diamond then passed through the hands of multiple private sellers, gracing a tiara at one point before being set as a pendant. The Hope Diamond was donated to the Smithsonian in 1958. Three-hundred-plus years of recutting has whittled its weight down to 45.54 carats.

Blue diamonds aren't the only unusual color out there. Very rarely, miners unearth red diamonds, which are sometimes mistaken for garnets or rubies. Only three red diamonds weigh more than 5 carats, including the Kazanjian Red Diamond, which went on display at the American Museum of Natural History in 2010.

via news.discovery.com

Learn more about blue diamonds...

Diamonds.net - Princie Diamond Sets Record, Christie's Jewels Sale Tops $81M

Christie’s New York magnificent jewelry sale garnered $81,358,700 on April 16, with The Princie Diamond ‎setting a record for a diamond sold by the auction house in the U.S. The auction sold 91 ‎percent by lot and 82 percent by value.‎

The Princie Diamond, a cushion-cut, 35.65-carat, fancy intense pink Golconda diamond sold for ‎‎$39.32 million, or $1.135 million per carat to an anonymous buyer. Christie’s stated that the sale ‎also marked a new record for a Golconda diamond sold at auction.  ‎

‎“A major event took place in the global auction industry with the record breaking sale of The ‎Princie Diamond at Christie’s New York,” said Rahul Kadakia, head of jewelry at Christie’s ‎Americas and Switzerland. “Aside from Christie’s sale of the legendary Collection of Elizabeth ‎Taylor, this was the most successful jewelry auction ever held in the United States and ‎Christie’s was proud to have orchestrated the sale of such an historic gemstone.”‎

The second top lot was a rectangular-cut, 30.32-carat, D, VVS1 diamond that sold for $4.4 ‎million, or $146,300 per carat, to a private buyer. A marquise-cut, 23.3-carat, D, VVS2 diamond ‎ring by Harry Winston was bought by Graff  for $3.3 million, or $140,000 per carat and ‎a diamond necklace by William Goldberg sold for $1.9 million to Essex Global Trading. The fifth ‎top lot was an oval-cut, 11.08-carat, ruby and diamond ring, which sold for $1.7 million.‎

‎ ‎

via www.diamonds.net

Petra Diamonds finds rare 25.5 carat blue stone - Telegraph

The diamond is a rare blue colour and Petra says the stone is considered to be a “high quality gem diamond of top colour”.

The Cullinan mine is renowned for its large diamonds, with many stones discovered there now set within the Crown Jewels. These include the Great Star of Africa which was discovered at the mine in 1905.

“Blue diamonds are the rarest of all diamond and Cullinan is one of the largest producers of the stones,” Jeremy Dibb, an analyst at broker Canaccord said. “Cullinan produced an important blue stone following the acquisition by Petra Diamonds.”

This previously discovered 26.6 carat fancy vivid blue stone was cut into an internally flawless 7.03 carat polished stone.

This blue diamond was sold at auction at Southeby’s in May 2009 and achieving a record price per carat for any gemstone sold at auction, hitting $9.49m or $1.35m per carat.

Coloured stones are in demand because of their rarity, with a pink stone breaking record at an auction at Christies in New York earlier this week. The 34.65 carat stone sold for $39.3m, or $1.13m per carat. Named the Princie Diamond, it was purchased by an anonymous collector bidding by telephone.

Petra Diamonds, a member of the FTSE 250 index, saw its shares rise 0.6p to 108p following the discovery.

via www.telegraph.co.uk

The most famous blue diamond is the Hope Diamond housed in the Hall of Geology, Gems and Minerals at the National Museum of Natural History.

'Largest' Diamond Mining Ship In The World Launched

Diamond company De Beers announced the launch of what they are claiming is the largest sea-going vehicle in the world for mining diamonds, Rough and Polished reports. Otto Shikongo, chief executive of De Beers Marine Namibia, said that the latest addition to their fleet will harvest more ore and generate more revenue than any of their other ships. The boat, dubbed the MV Mafuta, will be the fifth in DebMarine's arsenal, but will soon be single-handedly responsible for a full 30% of the firm's annual diamond production.

The vessel is capable of mining for rough diamonds underwater for over four days without taking a break. Within a year, it is able to recover approximately 350,000 carats of precious gems, according to Rough and Polished.

Source: The Israeli Diamond Industry