$1B mine on track to begin commercial production in 1st quarter of 2017
By Guy Quenneville, CBC News Posted: Aug 03, 2016 1:28 PM CTLast Updated: Aug 03, 2016 1:28 PM CT
$1B mine on track to begin commercial production in 1st quarter of 2017
By Guy Quenneville, CBC News Posted: Aug 03, 2016 1:28 PM CTLast Updated: Aug 03, 2016 1:28 PM CT
Will rare pink diamond auction sparkle for investors?
Pink diamond tender comes as wealthy Asian buyers spur rise in the precious stonesRio Tinto, the world's second-largest mining company, has launched its latest rare pink diamond auction in Australia as prices for the most sought after of precious gems stones are expected to surge. The 2014 Argyle Pink Diamonds Tender collection which is going under the hammer comprises 55 diamonds, including 51 pink and purplish red diamonds and four Fancy Red diamonds.Only 13 Fancy Red diamonds have been included in the annual tender in the last 30 years.Diamonds are becoming an increasingly rare item as fewer mines remain in operation and new discoveries dwindle. According to Petra Diamonds there are only around 30 operational diamond mines still working around the world. De Beers estimates there is only a 1pc chance of finding a profitable diamond mine.Rio Tinto controls the market for pink diamonds from the Argyle mine in Australia. Around 65pc of the world's diamond supplies come from the Cullinan mine in South Africa. Jean-Marc Lieberherr, Rio Tinto Diamonds managing director said: "Decades ago, no one would have believed that Australia held the secret of diamonds, let alone virtually the world's entire source of rare pink and red diamonds."The pinnacle of the production from Rio Tinto's Argyle mine, the annual pink tender diamonds are now celebrated internationally as amongst the rarest and most valuable diamonds in the world. We have seen and continue to see sustained demand and price growth for Argyle pink diamonds." Investors have until October 8 to submit bids for the diamonds, which will be showcased in New York, Sydney, Perth and Hong Kong.According to Rio Tinto, the market for pink diamonds is quite separate to white diamonds, and due to their rarity, pink diamonds typically command prices far in excess of white diamonds. The world's biggest certified diamond is the 3,106-carat Cullinan, found at the mine near Pretoria in 1905. It was cut to form the Great Star of Africa and the Lesser Star of Africa, set in the Crown Jewels of Britain. However, most of the new demand for diamonds is now coming from the Asian market.In 2000, the whole of Asia made up 8pc of global diamond jewellery sales, while in 2012 China and Hong Kong alone made up 13pc, with the expectation that this will rise to 18pc by 2017. Bain's 2013 diamond report found that the stones have strong spiritual resonance in China, where diamonds are associated with eternity and high status. And the country's affluent middle class is predicted to grow by 60pc, or 200m, to a total of more than 500m over the next six years..
122.52 Carat Blue Diamond Found at Cullinan
Based on the analysis below, 135 million carats of rough diamonds, valued at $17.8 billion, will be mined in 2014, which would represent an increase of approximately 3% over 2013 estimates. The 50 mines itemized below are estimated to account for 90% of global rough diamond supply in 2014, with the balance coming from private or small-scale operations, where production data is unreliable or not available at all.
Image 1: Rough diamonds at the Mirny Sorting Center, Republic of Sakha, Russia. Source: ALROSA.
The Marange diamond fields, a 300 square-mile alluvial deposit in Zimbabwe, was ranked the worlds largest source of diamonds in 2013 in terms of total carats produced, estimated to have produced almost 17 million carats or 13% of global supply. However, It appears that 2013 production levels will not be sustained in 2014 as grades have decreased and easily minable loose gravel has been rapidly depleted leaving more difficult-to-mine conglomerate stone. While Marange is a relatively new project with formal mining commencing only 5 years ago, alluvial projects like Marange tend to have a much shorter life span than open-pit or underground diamond mines, as the economic resource is limited to the easily accessible surface stones; mining deeper solid conglomerate rock is not economic in a lot of cases. None of the 7 private companies operating in Marange provide specific production guidance, but representatives of the companies have publically expressed frustration with decreased operating economics resulting from depleted resource. In 2014, Marange production is estimated to drop to 8-12 million carats or less.
Image 2: Orapa processing plant 2. Source: De Beers Group.
In 2013, Botswana’s Orapa mine was the worlds largest diamond mine in terms of total value of carats produced. In 2014 Orapa is again estimated to be the worlds largest by value estimated to produce $1.9 billion worth of diamonds. In 2014, the Orapa mine is also estimated to be the worlds largest in terms of carats produced with 12.9 million carats. De Beers’ and Botswana’s joint venture portfolio, Debswana, realized a 17% increase in production in Q4 2013, highlighted by higher grades realized at Orapa and the Orapa One processing plant resuming operations following unplanned maintenance in Q3 2013.
Australia’s Argyle mine, known as the worlds largest producer of fancy colored diamonds, including elusive pink and red diamonds, is estimated to produce 12.6 million carats in 2014, making it the second largest diamond mine in the world in terms of carats produced. While Argyle has a history of producing some of the most precious colored diamonds in world, unpopular brown diamonds, most of which are classified as industrial quality, account for the majority of Argyle’s production making the mine’s average carat value produced among the lowest in the world.
Image 3: ALROSA’s Mir mine. Source ALROSA.
The Russian government-run super-major ALROSA has 9 primary diamond mines, 10 alluvial mines, and 2 mines in development, accounting for approximately 95% of all Russian diamond production. ALROSA’s mines represent 8 out of the top 15 largest producing diamond mines in the world in terms of carats produced. ALROSA’s Jubilee and Nyurbinskaya mines are both estimated to produce over 9 million carats in 2014 making them the fourth and fifth largest projects in the world according to 2014 projections.
Jwaneng, the second largest diamond mine in Botswana, is nearing completion of the Cut-8 expansion, which will extend the mine life to at least 2025. Cut-8 will provide access to approximately 95 million carats of high quality diamonds, making Jwaneng the most valuable diamond reserve in the world. Jwaneng successfully recovered from a slope failure in Q2 2012, and is estimated to produce over 9 million carats of diamonds worth $1.3 billion in 2014.
Image 4: The Jwaneng mine, Botswana. Source: Debswana.
Venetia, South Africa’s largest diamond mine, realized a production increase of 57% in Q3 2013, on higher volumes and grades following recovery from flooding earlier in the year. A plan to convert Venetia to an underground mine received environmental approval in October 2013 and the project build is scheduled to commence shortly, which will increase the mine life beyond 2040. Venetia is estimated to produce over 3.5 million carats in 2014 with production valued at over $500 million.
Lesotho, a landlocked country within South Africa, is home to the Letseng mine, which has a history of consistently producing the most valuable diamonds in the world on an average per-carat basis. Letseng is estimated to produce only 110,000 carats in 2014, but the average price of carat produced is estimated to be around $2,200, which is significant considering the global average price per-carat of rough produced is around $130.
Image 5: The Leseli La Letšeng is a 478 carat D color diamond that was recovered from Gem Diamond’s Letšeng mine in September 2008. It was sold via tender in Antwerp in November 2008 for $18 million. Source: Gem Diamonds Ltd.
2014 will mark the first full year of production at Russia’s Grib mine. Estimated to produce 4 million carats annually once fully ramped up, Grib has a reserve of approximately 75 million carats and a mine life of approximately 20 years. Currently owned by Russian oil-major LUKoil, the company has publicly expressed interest is selling the asset, which lies outside of the oil company’s core strategy.
Botswana’s Ghaghoo mine is expected to commence production in the second half of 2014. Once production is fully ramped up, Ghaghoo is estimated to produce 750,000 carats annually worth an estimated $200 per carat.
Image 6: Ghaghoo development. Source: Gem Diamonds Ltd.
The most anticipated diamond development project in the world, Canada’s Gahcho Kué, continues to move forward as permitting is expected to be approved in the second half of 2014, with mechanical completion of the processing plant and cold commissioning anticipated to start as early as 2015. Once fully ramped up, Gahcho Kué is estimated to produce 5 million carats of diamonds annually worth an estimated $185 per carat.
Figure 1: Global ranking of diamond mines by estimated 2014 production in terms of carats and dollar value.
Diamonds might be a girl’s best friend but from next year they could also be an investor’s best friend thanks to a global decline in the production of quality gems from mines in Russia and Canada, and rising demand, particularly in China.
Not a recommended investment for everyone because of the difficulty in valuing individual stones there is evidence that the top end of the diamond business is starting to stabilize after a sharp fall in gem prices in 2011.Like some other luxury goods, diamond prices were pushed higher in the wake of the 2008 Lehmann Brothers collapse as rich investors diverted a portion of their capital into non-monetary, and highly-portable, assets.
Between mid-2009 and early 2011 industry indices which track the value of the highest quality diamonds rose by 70%, but crashed by around 30% last year as fear faded.
The latest assessment of the diamond market, according to an analysis by Citigroup C Markets, is that improving economic conditions, structural social trends in China and a decline in the rate of newly-mined gem quality diamonds is setting the stage for a sustained price recovery.
Because diamonds are tricky to value, and the same stone can generate widely different opinions, they are a commodity best left to professionals, and even then only after receiving expert advice.
But, what analysts at Citigroup have detected is a change in the outlook for diamond demand, a significant decline in the rate at which kimberlites (the host rock for most diamonds) are being discovered, and the drying up of a diamond stockpile once kept by the industry leader, De Beers.
“Diamond prices are weaker than they were two years ago and demand does not yet appear to be strong enough for the limited mine supply to create a significant shortage,” Citigroup said in report titled Diamond Price Outlook which was circulated to clients this week.
“It is therefore likely that prices will stabilize at the lower levels through 2013 and 2014, but that the mine supply trend, the structural shift in China, and a slowly recovering global economy should see diamond shortages making their mark on prices in 2015-to-2010.”
Of the major factors in the diamond market the three most important are the melting of the De Beers stockpile, the development of a diamond-ring buying habit by engaged couples in China, and the failure of the mining industry to discover big new deposits of gem-quality stones.
The De Beers stockpile was a critical factor in controlling prices for much of the 20th century when the London-based company drip-fed diamonds into the market via an arcane process that caused it to be viewed as a monopoly engaged in unacceptable trade practices.
A changed marketing policy by De Beers has seen it behave more as a conventional business, but the sell-down of its stockpile has reduced the buffer-effect so that when the next shortfall in mined diamond supply occurs there could be significant upward price pressure.
Catching The Engagement Ring Habit
In China, a growing middle-class has seen the development of a diamond-buying habit with Citigroup reporting that 62% of engaged coupled in Shanghai now buy a diamond ring, roughly double the 33% rate in the 1990s. In Beijing the gift of a diamond ring currently extends to only 40% of couples.
In the mining world, despite a worldwide search, there has been a very low rate of kimberlite discovery with mine production of diamonds peaking in 2006 at an annual rate of 175 million carats, and currently down to 130 million carats a year.
“New discoveries could see industry production reaching 160 million carats in 2018 but if economic growth has normalized by then, diamond demand should be far greater than that level at that time.”
“It’s Canada’s next diamond mine, and it’s basically ready to build now.” The burgeoning mine in question belongs to Stornoway Diamond Corp (TSE:SWY), whose chief executive, Matt Manson, is rather forthright on the subject of the company’s 100 per cent owned flagship asset, known as the Renard diamond project
Proactive Investors spoke to Manson a matter of days after the road to Stornoway’s production site had broken through; that is, right after the four segments composing the 240km long road – 97 km of which Stornoway was responsible for, the rest coming care of the ministry of transport of Quebec -- were all linked up.
It is an auspicious event, because “that’s the last thing to achieve before final project financing and starting construction of the mine”, Manson points out. The road is to allow year-round access to the site, and the schedule on which it was constructed bodes well too: the plan was to get the road open by the fourth quarter of this year, and the company managed that by the end of August.
Stornoway’s plans, as established in the January 2013 optimization study, include plant commissioning before the end of December 2015, with commercial production to be achieved by mid-2016.
From there, the numbers are dizzying, with the mine set to average about 1.7 million carats a year at about US$190/carat, yielding revenues between $300 and $450 million.
According to the NI 43-101 compliant report for the site released in July of this calendar year, total indicated resources stand at 27.09 million of contained carats, with a further 16.85 million carats classified as inferred and 25.7 million to 47.8 million carats of total exploration upside.
The resource estimate for the project, which is located approximately 350 km north of Chibougamau in the James Bay region of north-central Québec, showed a 14 per cent increase in indicated resources as compared to the previous report, by converting 2.3 million carats of near-surface inferred mineral resources to the indicated category.
Unlike almost every other commodity, Manson points out diamonds have gone up in value and “the supply and demand story for diamonds is very strong.”
And the case to be made for the calibre of the project itself is strong indeed.
“It has an 11-year life based on the reserve; it has a 20-year life based upon the resource, and it has a 30- to 40-year life based on how much we can reasonably see is there.”
Clearly, the Renard project is a development in which the government of Quebec sees some significant potential, as clearly demonstrated by the act of pledging $77 million to Stornoway for the completion of the company’s segment of the road. “They see this as an anchor project in the region that will employ multiple generations of local people,” says Manson, “so it’s a big deal.”
It is also set to be Quebec’s first diamond mine ever. And, as Manson says, only two other new diamond projects of any scale exist anywhere in the world: Gahcho Kue in the Northwest Territories and the Grib project in Russia, set to be in production by the end of this calendar year.
Certainly, the project is high profile in La Belle Province.
“We get a lot of media coverage in Quebec,” says Manson. “Everybody knows the project.”
And while media relations have had their role to play, Manson emphasizes the importance of Stornoway’s relationship with the local community.
The road itself is a case study in community engagement. As director of investor relations for the company, Orin Baranowsky, says, all the contractors
'We and Japanese colleagues have arrived at very interesting conclusions,' said Nikolai Pokhilenko, director of the Sobolev Geology and Mineralogy Institute of the Siberian Branch of the Russian Academy of Sciences, reported Interfax.
Their 'high abrasiveness' is 50% to 60% superior to natural or synthetic diamonds, he said.
The impact diamonds from the crater also have exclusive polishing characteristics. 'It is possible to make ideally smooth surfaces. Even nano-size crystals of a regular diamond scratch surfaces, but these diamonds polish so well that you won't see any scratches even with an electronic microscope,' he revealed.
This bodes well for potential applications in high-precision optical systems in satellites, jewellery and other industries, new composite materials, borers and cutting tools, Pokhilenko said. Further studies of the impact diamonds from the vast site - with reserves 10 times bigger than the world's known diamonds - will continue in cooperation with the Kyiv Institute of Super-Solid Materials, Alrosa's subsidiary Almazy Anabara and De Beers' synthetic diamond subsidiary Element Six, and Baker Hughes.
'The precious stones were created by the impact of a space projectile crashed into the Earth 35million years ago, leaving the 100km wide crater'. Pictures: Republic of Sakha information portal
An expedition to the Popigai crater has been planned for 2014.
'We will collect samples of impact rock from the discharge area: large pieces, up to 1.5 centimetres, spewed from the crater after the impact,' Pokhilenko told Interfax. He estimated the world market capacity for the new type of diamond raw materials at approximately 3 billion carats.
'The scope of diamond use in industries is growing rapidly in contrast to rare earths, the consumption of which is growing 10-15% per annum,' he said.
'The output of synthetic diamonds has reached 14 billion carats and the new materials (impact diamonds) have their own niche and will eventually force out synthetic diamonds because they are more efficient.'
The precious stones were created by the impact of a space projectile crashed into the Earth 35million years ago, leaving the 100km wide crater.
'The first results of research were sufficient to talk about a possible overturn of the entire world market of diamonds', said the scientist a year ago.
The crater is located above the Arctic Circle northeast of the most northern Russian city of Norilsk. The nearest stepping off point is the outpost of Khatanga from where it is accessible by helicopter. The Popigai crater is an icon to paleontologists and geologists. But for decades the region was 'off limits' due to diamond mines constructed by Stalin's gulag prisoners. Designated a Geopark by UNESCO, it was created by either an 8 km (5.0 mile) diameter chondrite asteroid, or a 5 km (3.1 mile) diameter stony asteroid, say experts.
Graphite in the ground was instantly transformed into diamonds over a vast territory. Several scientific expeditions to the crater in the 1990s furthered understanding of its origins and potent
Rio Tinto’s (ASX, LON: RIO) Argyle mine in Western Australia will play a key role in meeting China’s growing and changing demand for diamonds, thanks to the mine’s new underground section and its unique gems collection, said the firm Monday.
As the miner’s multi-million-dollar Argyle rare red, blue and pink gems debuted in Hong Kong, the chief executive of the company's diamonds and minerals division, Alan Davies, said demand for diamond jewellery in China is expected to grow strongly into the next decade.
Currently, China is the world’s second-largest diamond market, according to consulting firm Bain & Co., but Rio says Chinese tastes in diamond jewellery are shifting from an emphasis on large white gems to more coloured rocks for everyday wear.
And to ensure the new demands are met, Rio has opened its doors to about 100 carefully selected gem enthusiasts in Hong Kong, who will be able to see —for the first time in the 30-year history of the Argyle diamonds exhibit— three “fancy red” rocks, including the famous 1.56-carat Argyle Phoenix.
Jewellery makers, connoisseurs, collectors and investors – by invitation only – will view the 64 diamonds of this year's tender, which have a combined weight of 54.99 carats.
The company is hoping they will sell for more than $1 million per carat.
Due to their shortage, red diamonds are extremely hard to estimate in price. Earlier this year, a 1.92-carat red diamond sold for over $3.2 million, or $1.6 million per carat, at a Christie’s auction in Geneva. The sale set a record for a red diamond on a per-carat basis.
Other highlights at the tender include a 3.02 pink diamond named the Argyle Imperial. According to Rio Tinto, pink gems fetch on average 20 times the price of white diamonds of equivalent size.
Rio Tinto’s Argyle mine is home to 90% of the world’s new pink diamond production, said the company, even though pink diamonds account for less than 0.01% of its total production at the mine.
Image from Argyle Pink Diamonds
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.
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.