Star DIAM & Rough Prices Review (Fri, 25 Mar) - Will PurcellDiamond miners look to boost production to meet demand, but Star Diamond still plods slowly. The recent dip in rough diamond prices slackened last week and reversed direction this week, according to Paul Zimnisky's global rough diamond price index. Nevertheless, the drop through late February and early March leaves prices 0.6 per cent below their mid-February all-time high. The rebound may be related to increased supply worries now that the United States government and several other nations have imposed sanctions against importing rough from Russia.
The potential impact of the sanctions is not clear, as India, where most of the rough is consumed, is still buying diamonds from Alrosa, but there are concerns that tighter constraints on supply will open a door for increased acceptance of synthetic goods in jewellery manufacturing.
As well, tightening supply has been prompting diamond miners to step up exploration and development. For years, the sector showed more worry than effort despite the loss of nearly 30 million carats of production since 2016, although the 2020 closure of the prolific Argyle mine in Australia, which produced over 10 million carats of mainly lower-grade rough per year, did get the miners moving toward finding new deposits.
Mr. Zimnisky now predicts that production from existing mines will rebound by several million carats over the next year or two and he identifies several new deposits coming on stream during the 2020s that could add another 10 million carats to annual production. Of those, the big Luaxe kimberlite pipe in Angola, being developed by (shudder) Alrosa and the Angolan government, is expected to add up to six million carats annually starting in the mid-2020s.
Mr. Zimnisky is also optimistic that the Star-Orion South project in central Saskatchewan, a joint venture between Rio Tinto and its 25-per-cent co-venturer, Star Diamond Corp. (DIAM), could be up and producing up to 1.7 million higher-quality carats by the "late 2020s plus" -- the plus being a sign suggesting his optimism does not extend to predicting a firm start-of-production date. (With news as rare as diamonds and with its progress as slow as ever, Star Diamond was unchanged at 28.5 cents on 408,000 shares today.)
Meanwhile, Rio Tinto is cheering another diamond project that did not make Mr. Zimnisky's list -- the huge Chiri kimberlite, once worked by Gem Diamonds Ltd. Details are sparse, but Rio Tinto concluded two years of negotiations with the Angolans last year with a five-year renewable agreement. The deal covers the 60-hectare pipe, which has a projected life of 35 years -- at least if one succumbs to the hype supplied by the Angolans, who suggest a mine is likely to be completed by 2024.
Rio Tinto is more circumspect, stating that it will "embark on a staged program of evaluation that will take a minimum of five years to determine if the project will progress to development" -- a timeline suggesting that a late 2020s target for Chiri would also warrant one of Mr. Zimnisky's worrisome pluses. Further, Angolan enthusiasm aside, there is much to evaluate, starting with the fact that while previous explorers determined encouraging grades and continuity to depth, along with diamond prices perhaps topping $300 (U.S.) per carat today, they also noted that much of Chiri contained fine-grained kimberlite of minimal interest.
De Beers is eagerly seeking a return to Angola as well, but investment in the area comes with its challenges. Just ask Isabel dos Santos, daughter of former Angolan president Jose Eduardo dos Santos, who had acquired Chiri and other exploration licences by hook or by crook -- in Angola, one never knows which, but it is often safe to assume both. Either way, in 2018 the government relieved her of the projects in what was described as a crackdown on family monopolies, with the intention of offering them to foreign investors.