Diamond Markets

MINING EXPLAINED

— The following is an excerpt from Mining Explained, published by The Northern Miner.

What sets diamonds and other gems apart from metals is the fact that the value of a company’s production over a given period of time depends not only on volume, but on quality. In other words, gold is gold and copper is copper, but there are over 14,000 price categories of rough diamonds. The quality and, thus the value, of a diamond is based on four parameters known as “the four Cs”: crystal shape, colour, clarity and carat weight.

Diamond projects are evaluated not only by the average dollar value per carat of the diamonds produced, but also by the grade (carat per tonne) and tonnage in a kimberlite or lamproite, the two most common host rocks for diamonds. These factors vary from mine to mine. The large Argyle mine in Australia has high grades, but the value per carat is low at well below US$20.

Canada’s first diamond mine — Ekati in the Northwest Territories — compares favourably with the world’s best mines in terms of dollar value per carat (an average of US$85 per carat) and grade (1.09 carats per tonne), but the tonnage is generally lower than in some other kimberlites. To compensate, Ekati exploits five kimberlite pipes, rather than one. It produces 3.5 million to 4.5 million carats of diamonds per year, about 6% of current global production by value. Canadian production will increase to 12-15% of global production as other nearby mines are developed.

Diamonds make their way from mine to jewelry store via the “diamond pipeline,” which is still largely controlled by the world’s most powerful and successful monopoly: De Beers of South Africa. De Beers set up its Central Selling Organisation (CSO) in 1930 and, for the next seven decades, the CSO promoted the sale of diamonds from De Beers’ own mines and from associated producers. Even up to the mid-1990s, the CSO was involved in the sale of more than 80% of the world’s diamonds.

However, in the past few years the construction of several new diamond mines in Australia and Canada by De Beers’ competitors has loosened the CSO’s monopolistic grip. De Beers has responded by changing the name of the CSO to the “Diamond Trading Company,” and by changing the focus of the organization towards marketing De Beers diamonds specifically rather than all diamonds generally.

The turn of the millennium also brought with it the issue of “conflict” or “blood” diamonds — that is, diamonds that are mined in civil or tribal war zones and, by their sale, allegedly help accelerate and prolong these conflicts, most especially in Angola, Sierra Leone and the Congo.

Not wanting their luxury product tainted, diamond producers have adopted measures to identify the point of origin of diamonds, and have pledged not to buy diamonds from artisanal miners and diamond brokers in war zones.

Whether or not those lofty goals are attainable, the concern over conflict diamonds has already proved beneficial for the Canadian diamond industry, with its strict auditing of all diamonds produced, paucity of independent rough diamond dealers, and great distance from the world’s war zones.