Peak DiamondSupply Shortages May Herald in era of ‘Peak Diamond’
Marketing strategy or market reality? Diamondgiant De Beers has been outspoken recently, saying that long termdiamond supply is in decline. Call it ‘Peak Diamond’. The idea is muchlike the ‘peak oil’ theory that asserts the world is currently runningout of oil, and consequently, prices will shoot into the stratosphere.
De Beers, whose financial statements have been hurting since theeconomic downturn, has announced that it will cut production from 48million carats in 2008, down to 40 million in 2011. In 2009, De Beerslost $743 million as it slashed production to just 24 million carats.
The move may be a marketing ploy from the company that created theengagement diamond frenzy with arguably the most famous marketingslogan of all time, ‘A diamond is forever.’ De Beers has been creatingdemand for their luxury goods worldwide with this slogan. They havemoved their campaign to China where tradition reigns supreme.
Customarily, the Chinese gifted jade and gold as tokens of maritalbliss, but now diamonds are becoming the symbol of love. As a result,China is now the world’s second largest consumer of diamonds. “If youlook back 20 years there was no diamond acquisition culture in China .. . But today in Beijing, Shanghai, and Guangzhou there is an obviouslaunchpad: 40 percent of brides in those cities are getting diamondengagement rings. It was zero 15 years ago,” stated Gareth Penny, the Chief Executive of De Beers.
However, the company may be speaking the truth, and looking toextend the life of their mines by cutting production. “Between 1980 and1999 the global diamond supply doubled as huge new mines like Argyle inAustralia and Diavik in Canada came on stream… Since then nothingcomparable has been found, except for the Marange diamond field inZimbabwe, which could be the next bonanza deposit if economic stabilityreturned to the country. The cold war-era diamond stockpiles held bythe US and the old De Beers cartel have also been sold off,” reported William McNamara, for the Financial Times.
Reports from the Diavik mine do not look promising either, as themine has moved from an open pit to an underground operation. This is abid to extend the life of the dwindling mine till 2020. “We’ve alreadyhad the T-bone steak and we’ve already had the prime rib roast of thisparticular animal. We now have to move on to the hamburger and thechuck steak,” said Bob Gannicott, chairman and chief executive officer of Harry Winston Diamond Corp.
Whether this is a marketing ploy or not, one thing is for certain,the cut in production from the world’s largest mines will drive up thecosts of stones. “Assuming the move moderated production, rough diamondprices could rise by at least 5 percent per year for the next fiveyears,” according to Des Kilalea, analyst at RBC Capital Markets.
As dire as De Beers statements may sound there is good news forfuture supply. There are new mines coming into production and otherpromising exploration projects worldwide.
Future Diamond Prospects
One of the largest prospects for future supply is Stornoway Diamond Corporation’s [TSE:SWY]Renard project, with a potential for 20 to 40 million carats. The mainbenefit from Canadian stones is the political stability of the country,as opposed to ‘conflict or blood diamonds’ from fields such as theMarange field in Zimbabwe. A more complete report of the Renard Project was reported here on Diamond Investing News last month.
Canadian-based Lucara Diamonds [CVE:LUC][PINK:LUCRF]is exploring its AK6 project in Botswana. “The new resource updateestimates an indicated resource of just over 51 million tonnes at anaverage grade of 22 carats per hundred tonnes (cpht) and an averagemodeled diamond value of US$194 per carat, and an inferred resource ofapproximately 20 million tonnes at an average grade of 19 cpht and anaverage modeled diamond value of US$183 per carat,” stated a press release from the company.
“AK6 and Renard are the two most promising kimberlite projects thatare currently in development, with AK6 scheduled to come on stream inlate 2011 and Renard after 2013. Their timing may be perfect as demandis slowly increasing and the global economic recovery is helping themarket return to its former long-term outlook, wherein demand easilyoutstrips supply,” says Des Kilalea, analyst for RBC Capital Markets.
Peregrine Diamonds [TSE:PGD]has also released new information on their Nanuq diamond project,located in Nunavut, Canada. The company has started it $3.5 millionexploratory program. “The project has great exploration potential andour three diamondiferous kimberlite discoveries there in 2007 give usoptimism that large kimberlites . . . We are very fortunate to have thediamond exploration one-two punch of our Chidliak and Nanuq projects,two of the most promising diamond districts discovered worldwide since2007,” remarked Brooke Clements, Peregrine’s President.
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