A bit of excitement: Diamonds in Canada Editorial

Not long after Lucara Diamond installed a large diamond-recovery circuit at its Karowe mine in Botswana last year, the mine produced a record-breaking stone.

The 1,109-carat Lesedi La Rona is the largest gem-quality stone recovered in over a century — the 3,106-carat Cullinan diamond, found in South Africa in 1905, being the only one to surpass it.

The Type IIa stone hasn’t yet been sold, but it’s sure to fetch a price as exceptional as the diamond itself. What’s even more interesting than this particular diamond is Karowe’s larger potential. Lucara is now installing a mega-diamond recovery circuit at Karowe, meant to avoid breaking diamonds over 1,000 carats. At US$15-18 million, the cost is tiny compared to the value of the stones it could recover.

Lucara’s story is a bit of good news in a sector that could use some excitement right now.

In our last issue, I wrote that the diamond market was in wait-and-see mode. Now that the typically busy holiday season is behind us, we can clearly see that the market is in oversupply. Major producers responded to the imbalance in the second half of 2015 by holding back inventory from the market and cutting production. But that wasn’t enough to stop rough prices from sliding 12-15% for the year.

The good news is that there was strong buying over the holidays in the U.S. — still the world’s biggest market for diamonds.

As about 40% of U.S. buying happens over the holiday season, the healthy demand has started to clear out inventories in the middle pipeline.

In addition, Dominion Diamond’s executive vice-president Jim Pounds noted on a recent conference call that Chinese retailers, which have been absent from the market as they tried to sell down their inventories after overestimating the growth in demand last year, are starting to come back to the market.

While the Hong Kong and Macau markets remain weak “as a result of the slowing mainland tourist trade,” Pounds remarked that the mainland Chinese market was changing from a luxury-driven market to one that’s being driven by an expanding middle class.

Prices have been stronger than expected in the first few months of 2016. De Beers’ sights have so far increased progressively in value, from US$540 million to US$610 million and finally US$660 million.

But don’t expect a recovery in prices in the short-term. Despite a strong start to the year, BMO Mining Analyst Edward Sterck thinks we’ll see a softening market through the end of the year.

He projects it won’t be until 2017 and beyond that we start to see 5-7% annual increases in rough prices (see Page 8).

In the meantime, Canadian-listed diamond miners, developers and explorers are setting themselves up for big gains when the market does return (See page 12).

In closing, we’d like to extend a big congratulations to Pat Sheahan, who was honoured with the Prospectors & Developers Association of Canada’s Distinguished Service Award in March. In 1972, Sheahan founded a worldwide technical information service for explorers that has become “indispensable” for diamond explorers. She was profiled in the November 2011 issue of Diamonds in Canada.

Congratulations also goes out to Lucara Diamond, which won the PDAC’s 2016 Environmental & Social Responsibility Award.