Gemologist extraordinaire Antoinette Matlins asked the following question in a forum this week, “Is the world of diamonds as you’ve known it about to change forever?” The answer is of course yes.
The decline in resources will lead to a change in the diamond economy. The question that arises is in what way the industry will change. Matlins correctly listed the pending exit of Rio Tinto, BHP Billiton and the Oppenheimers from the business as well as declining supply. The decline in supply, as she and many traders have been noticing, is already manifesting itself in shortages in specific categories. This will naturally lead to price increases in the long term; a facet of the decline in supply and increase in demand.
Another, indirect, outcome of this state of expected rising prices is the increasing viability of diamonds as an investment option.
There are other, less discussed changes in the works. Every time a sector faces a problem, change takes place. In the diamond sector, the changes may be wide and deep – from exploration technology to improved manufacturing yield to the advent of lab-made diamonds.
New technologies could improve the economic viability of extracting small diamonds from tailings, the leftover piles of crushed kimberlite from diamond processing plants.
More importantly, previously uneconomic resources will become attractive. Today, most mines produce 0.5-2.00 carats per ton. Very generally speaking – the cost of production, type and size of goods and other components that impact economic viability aside – rising rough values and improved separation technologies may send miners back to abandoned exploration projects deemed uneconomical. In that respect, if you guessed that De Beers has a large database of such projects, you are right.
Finally, whenever an alternative arrives, one that looks like the original, costs less and resolves any problematic issues such as ethical ones, it has a great potential to grow, especially if marketed well. Lab-made diamonds, an abomination in the natural diamond sector, could be that alternative.
Whatever the changes may be, have no doubt that they will come. We tend to look at the diamond industry as a traditional sector. It is, but even traditions evolve over time and the diamond industry is no exception.
There has always been change in the industry. The one constant is that those that changed evolved and survived, those who didn’t, saw the rest of the pack move ahead without them.
Call it The Darwin Principal.
The secret is to not be left behind, preferably lead the change – and establish a lead.
Follow up – A TV news reporter that baselessly insinuated wrong doings in the diamond industry and its internal judicial system prompted last week’s column. That reporter was dismissed this week after she again made a report without first verifying the facts, reporting a child kidnapping that never happened.
