The 2008 economic crisis, COVID-19, and sanctions on Russian goods have set the stage for an interesting decade for natural diamond supply.
Like coal, oil and gas, diamonds are a non-renewable resource. Molded by a combination of intense heat and pressure over billions of years, they are neither easily formed nor easily replaced.
“For every diamond you take out of the ground, there’s one fewer to be found,” Gemological Institute of America research scientist Evan Smith says.
Still, the industry has not reached a point where the Earth has no more diamonds to give. There are large pockets of land all around the globe that could be diamond targets, Smith says, and exploration is ongoing in remote places like the Melville Peninsula and Baffin Island in the far northern reaches of his home country, Canada.
There are more diamonds believed to be buried deep in another bitterly cold climate, Siberia, and beneath the ocean floor.
South of the Equator, one African nation is poised to become the only country in the world where the three largest diamond miners—Alrosa, De Beers Group and Rio Tinto—all have a presence: Angola.
The question facing the industry is how economically, and in some cases politically, viable is it to get to the ones that are left?
“We aren’t necessarily out of natural diamonds,” industry analyst Paul Zimnisky says. “We’re out of economic deposits at current prices.”
Adding another element of uncertainty is the future of Russian supply, with one of the world’s biggest producers, Alrosa, effectively barred from doing business in one of the world’s biggest diamond markets, the United States.
Heat
Global diamond supply figures maintained by the Kimberley Process (KP), which date back to 2004, show production peaked in the early aughts, climbing to 176.7 million carats in 2005.
It stayed above 160 million carats in 2007 and 2008 before dropping off by more than 25 percent in 2009 (120.2 million carats) in response to the global economic crisis.
Olya Linde, a partner with Bain and Co.’s Energy & Natural Resources practice and one of the authors of the company’s global diamond report for 2020-2021, said prior to the 2008 crisis, the industry had expectations of strong growth.
There was a new middle class coming up in China and India, as well as other Asian countries, that diamond companies were eager and hopeful to capture as their next consumers, bringing growth the industry believed it could not cultivate in the already-mature U.S. market.
These high hopes resulted in “lots of projects in the pipeline,” Linde says, but those projects were put on ice when diamond demand and prices softened during the 2008 crisis.
As the world recovered, the industry benefitted from what Zimnisky describes as a “boom” in diamond buying by Chinese consumers. The surge pushed diamond prices to historic levels in 2011 and rallied investor support for projects that had been paused during the downturn.
In 2016 and 2017, three new large commercial diamond mines came online.
The largest of these was the Gahcho Kué mine in Canada’s Northwest Territories, a joint venture between De Beers Canada and Mountain Province Diamonds. The mine was forecast to produce 4.5 million carats per year but, according to De Beers, surpassed 5 million carats in its first 10 months of operation in 2017.
There was also the Renard mine in Québec, operated by Stornoway Diamonds, and the Liqhobong Diamond Mine in Lesotho, operated by Firestone Diamonds (75 percent interest) and the Lesotho government (25 percent).
Photo © De Beers.
