Diamonds in Demand

A 59.9 carat pink diamond (The Pink Star) was sold at Sotheby’s in Geneva on 13 November 2013 for a world record price of US $83 million or US$1.4m/ct.

A 30 carat rough blue diamond from the Cullinan Mine was cut to a 12 carat diamond (The Blue Moon) and has been valued at US$26 million or US$2.2m/ct.

Global diamond market growth is forecast at 5.1% for next 10 years (see Figure 1).

Currently 17 diamond mines worldwide forecast to reduce to 12 by 2015.

Continued growth forecast from China and India.

8.6% of Nabberu diamonds recovered to date are pink.

Recent Market Sentiment

Recent quotes from CEOs of major diamond companies provide some insight into current diamond market sentiment:

On 10 June 2014, Colin Fergusson, CEO of Rare Investments, said that natural fancy coloured diamonds are the most concentrated form of wealth on earth and with demand growing while supply shrinks; they are on the verge of appreciating at a rate never seen before.

“Philippe Mellier, De Beers CEO, said on 12 June 2014 that the demand for diamonds is continuing to grow and they expected this demand to push up prices by 4.5% this year.”

“In December 2013, Fedor Andreyev, Alrosa’s CEO said rough diamond prices have been on the rise in the last few months and the trend is likely to continue”

A commodity advantage of diamonds is that the weekly production can be flown directly from mine site to provide quick access to the market. There is no need for large product handling infrastructure required like train lines or wharfs as is associated with bulk commodities. Thus capital  and infrastructure are potentially lower in cost and quicker to establish.

Market Analysis

New discoveries are needed to meet the growing global demand for diamonds. Based on continued growth in China and India, global demand is forecasted to grow by 5.1% on an annual basis over the next ten years while the increase in supply lags behind by 3.1% resulting in a 2% growth. According to Bain & Company’s 2013 Global Diamond Report, rough diamond prices have increased at a compound annual rate of 13% since 2008 and are now higher than they were before the Global Financial Crisis as shown on Figure 1.

Currently, there are only 17 primary diamond mines in operation worldwide; by 2015 this number will be reduced to 12. For instance, in 2014, the world’s third largest supply of diamonds was the alluvial deposit of Marange in Zimbabwe but this deposit is running out of easy accessible diamonds and future production is likely to rapidly decline.

New supply is limited and globally there are only six new projects in development estimated to eventually produce in excess of 1 million carats a year. The proportion of new production coming online is therefore small considering that 2011 production was around 124 million carats. In addition, several existing mines are approaching depletion levels and many new projects are in west and central Africa with significant sovereign risk issues.

DRS’ project at Nabberu has recorded a significant proportion of pink diamonds (see Nabberu Project section). While considerable work is required to verify and quantify these recoveries at Nabberu, it is worth noting that for the Argyle Pink Diamonds Tender; prices achieved range from US$100,000/ct to over US$1 million/ct. These beautiful stones have an average size of about 1 carat and around 40 to 50 carats in total are sold each year. Only one carat in a million carats of diamonds from Argyle is suitable for the Pink Diamond Tenders. As Argyle is the main source of pink diamonds, the supply is decreasing as Argyle is forced to go underground. This will only increase the true rarity and price of pink diamonds.

In March 2015 the following update has been compiled from a number of Diamond News Digest articles: Growth in diamond production is set to decline towards the end of the decade, yet no real decline in demand is evident. In 2015, De Beers announced an operating profit of $1.4 billion and a commitment to spending $2 billion on developing the Ventia Mine underground. Both Rio Tinto and Alrosa are determined to maximize their exposure to the fast growing diamond jewelry market in India with Rio now committed to the new Bunder Diamond Mine in central India, and Alrosa, the world’s largest supplier of diamonds attempting to complete direct supply agreements with Indian cutters.

Bain and Company’s recent predictions remain that, supply is expected to grow by 2% annually over the next 10 years, while demand grows by 5.1% annually, driven principally by consumer demand in the United States as well as in China and India.

Figure 1 Rough and polished diamond price growth rate 2004-2013 (Data from Bain & Co).