Diamond exploration hits a new low — even as rough prices soar

There are few things that are more alluring and exciting than a diamond — but one of them is a significant new diamond discovery. Now those are truly rare.  

In Canada, we haven’t had a significant diamond discovery for years — and the current lack of spending on exploration makes one less likely to happen in the future.  

Globally, exploration for diamonds has nearly ground to a halt. In Canada last year, coal exploration attracted more spending than diamond exploration ($61 million vs. $50 million), which fell 21% from the previous year, hitting a 20-year low. 

Adding to this downward momentum, in June, Rio Tinto suddenly pressed pause on its 75%-owned Fort à la Corne (Star-Orion South) diamond joint venture in Saskatchewan. After pouring more than $180 million over the past six years into a bulk-sampling program and other work to evaluate the project, Rio Tinto told JV partner Star Diamond it would not be spending more money this year “beyond what is necessary for care and maintenance.” Star Diamond, which holds 25% of the large but low-grade project, said that Rio also advised that it “intends to conduct a near-term review of its alternatives regarding the project, including its potential exit.” 

It’s not clear yet what Rio Tinto will ultimately decide to do. But further investment, rather than pulling back, would have given the sector a much-needed shot in the arm. And the company, which saw its Argyle mine in Australia close in late 2020, certainly needs to replace that production and would be motivated to make the project work, if possible. 

While the diamond trade and diamond prices were devastated by the pandemic, prices have made a strong comeback (in part benefiting from uneven efforts globally to avoid purchasing diamonds mined by Russia’s Alrosa). De Beers reported a 58% rise in its average selling price to US$213 per carat for rough diamonds in the first half of the year, and its rough price index rose 28% compared to the same period of 2021. 

That’s not likely to help revive exploration immediately, however. 

The fact is that there have been too many surprises in diamond development around the world, which have shattered investor confidence. 

During the online portion of this year’s Prospectors and Developers of Canada conference, independent diamond consultant Andy Davy shed some light on why this has been the case. 

First, Davy gave several examples of projects where mined values have been very different from predicted values — both for better and worse. 

In Canada, diamond values for the 5034 kimberlite at De Beers’ and Mountain Province Diamond’s Gahcho Kué mine in the Northwest Territories, were estimated at US$132-142 per carat at the feasibility stage. But the achieved cumulative price after three years of production was about half that, at US$69 per carat. The Renard mine in Quebec, meanwhile, (which began production in 2016 and has since been taken over by Stornoway Diamonds’ creditors) achieved prices of US$93 per carat after two years of production, vs. the preproduction estimate in the range of US$121-US$194 per carat. 

Some mines, notably those that host large, high-value diamonds that can cause a nugget effect, have surprised on the upside. At Lucara Diamond’s Karowe mine in Botswana, achieved prices have been about twice the US$243 per carat predicted in the feasibility study. 

“That’s a great result for the owners of Karowe and the shareholders of the Karowe project, but of course it highlights an issue: Why wasn’t the price estimated at US$600 a carat at the time of the feasibility?” Davy asked. 

For the examples shared, it took between three and five years for achieved prices to level off and for the long-term price to emerge. 

Evaluating diamond deposits is inherently more complex than other types of deposits. Not only are there the usual considerations of tonnage and grade, but both diamond size distribution and diamond value estimates are hard to get right, and quality and size distribution are not consistent throughout an orebody. 

There are also disconnects between the information available to qualified persons doing the technical work on evaluating a project and the diamond valuators, who use proprietary price books to conduct valuations of diamond parcels from a project — which may or may not be representative of the diamonds in a particular orebody. 

Part of the issue in accurately estimating diamond prices is that they can be based on too small a parcel size: 5,000 to 10,000 carat parcels are more reliable than 3,000 carats and under, but also more expensive to collect. Parcels also need to be big enough to be representative of major geological units within an orebody. 

“Each kimberlite is unique and requires different levels of sampling for reliable results,” Davy said. 

The consultant and others in the tight-knit diamond sector believe that both explorers and investors need clearer guidance on reporting for diamond valuations and resources. To that end, an industry committee co-chaired by Davy and Malcolm Thurston, who recently retired as head of geoscience and mineral resource management for De Beers, has been formed to review and improve CIM guidance for evaluation and reporting of diamond resources. The committee’s work will include how to clearly communicate the complexities of diamond valuation modelling to investors and will be reviewed by the CIM and potentially incorporated into their resource guidance in the future. 

One challenge for the committee is to improve certainty around disclosure without making it impossible for juniors to report on earlier stage discoveries — for example by making minimum size parcels a requirement even if they’re out of reach for smaller companies. 

However dark it looks right now, explorers like Brooke Clements, who led the teams that discovered both Chidliak in Nunavut in 2008 and Renard in 2001, are hopeful that the diamond sector’s fortunes could see a revival. After all, even the big players need new discoveries and mining is a cyclical industry where the best returns come from investments made during the troughs. 

“Even though man-made diamonds keep getting cheaper, mined diamonds are still at all-time highs,” Clements notes. 

Clements, who runs private exploration company Craton Minerals, says that while it’s a far cry from the peak of diamond investment in Canada in 2006, when $350 million was spent on exploration, De Beers and Rio Tinto, juniors Arctic Star Exploration, North Arrow Minerals and several more in Ontario and Quebec, including RJK Exploration and Tres-Or Resources are still actively looking.  

“If you’re an explorer and you’re able to raise some money, it’s kind of a nice time because you don’t have any competition.”