Diamond production to slow down

The gap between slowing diamond supply and growing demand is expected to widen by 2020. Hence, the mining companies are searching for fresh, large deposits to fill in the gap.

De Beers warns of global diamond production to decline from 2020, in a forecast that could spell pricier jewellery for consumers. In the Diamond Insight Report-2014 released by De Beers in Hong Kong, the company has for the first time detailed the entire diamond industry from exploration to mining, cutting and polishing, marketing and retail. De Beers report states that beyond 2020, there is a risk that production levels will begin to decline unless major new discoveries are made in the coming years and rapidly developed.

A dearth of major new diamond finds means that production might not keep up with ever-increasing demand from the US, China and India, the firm claimed. “Unless major new discoveries are made in the coming years, supply can be expected to decline gradually from 2020,” De Beers said, forecasting a difficult future for the £52bn a year industry. Existing mines in Botswana, South Africa and Namibia are becoming depleted and the need to dig deeper has made operations less profitable.

By 2020, about 25 per cent of the carat production will come from projects currently under development, but much of this increase in the output comes from projected expansion at current mines such as Rio Tinto’s Argyle mine in Australia. De Beers group believes that only companies that are able to innovate and differentiate themselves will be best positioned to capture the opportunities by this supply-demand dynamic.

In its inaugural “Rough diamond production was 146 million carats last year, well off a high of 176m carats in 2005. The diamond sector is unlikely to come close to that peak again barring the find of a very large deposit” says Bruce Cleaver, executive head (strategy and corporate affairs), De Beers group.

The diamond sector has spent about US$7bn on exploration since 2000, with little to show for it. Exploration spending is a fraction of the $1bn spent in 2007, the report says. “I would be delighted to spend more. The problem is to have areas where we can explore and spend money,” says De Beers CE Philippe Mellier. De Beers is in the process of securing large land packages in SA, a country it regards as highly prospective and relatively underexplored for kimberlites, the ancient volcanic pipes that brought diamonds up from more than 100km deep.

The company had said earlier than it expects “good to very good” second quarter results in India, which has seen increasing demand for the gems. De Beers last year reported £600m in operating profit, more than double that of 2012.

Courtesy: The Guardian, Times of India