www.miningmx.com | diamonds Growing deficit buoys diamond prices

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Growing deficit buoys diamond prices
Allan Seccombe
Posted: Wed, 16 May 2007

[miningmx.com] -- DIAMOND prices will remain firm for up to five years as demand outpaces supply, while no major diamond mine is forecast to begin production in that period, RBC Capital Markets director of global mining research Des Kilalea said.

�Given the forecast shortage of diamonds and the prospect of higher prices (we forecast some 2% to 5% in real terms per year with upwards of 10% in better qualities), we expect exploration spending to continue to run at a high level,� he said in a research note dated 11 May 2007.

Gareth Penny, managing director of De Beers, the world�s largest producer of rough diamonds, said in February the lack of major new discoveries meant demand would outpace supply for at least five years.

prospect of higher prices

BHP Billiton�s president of Diamond and Speciality Products said just weeks later rough diamond supply could decline for the next 10 years because of falling production and the lack of sizeable new discoveries to replace those carats.

Diamond supply and demand trends, synthetic diamonds and investment opportunities will be discussed at RBC�s first diamond conference in London on Thursday.

Exploration spend will top $800m this year, more than triple what it was five years ago, but although kimberlites, carrot-shaped plugs of ancient magma, are found not all have diamonds and those that do not all can be economically mined.

With less than 40 kimberlites out of more than 6,200 kimberlites generating a mine, it is not hard to see why there is an increasing focus on alluvial diamond deposits, Kilalea said.

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Alluvial deposits are quicker and cheaper to bring into production than the five years it takes from discovery of a kimberlite to first output. Increasing attention is being focussed on southern Africa, where there is not only favourable geology, but kimberlite production costs are just a fraction of those in Canada, for example.

After the opening of the Diavik mine in Canada in 2003, exploration spend in that country has topped $1bn but no new mine has opened since then, he said.

African Diamonds has the AK6 kimberlite pipe in Botswana and BHP Billiton/Petra�s Alto Cuilo project in Angola are likely to begin adding meaningful quantities of diamonds to global supply, he said.

However, to keep up with growing demand and declining production from mature mines in five year�s time, the equivalent of BHP Billiton�s 2.56 million carat Ekati mine in Canada is needed every year, he added.

Synthetic diamonds, which are not of quite the same standard as natural diamonds, are unlikely to pose much of a threat to diamond producers. However, diamond cutting centres like India could turn to synthetic diamonds as producing countries insist rough diamonds are cut and polished domestically, Kilalea said.

BHP Billiton estimates synthetic diamonds could account for five percent of the global diamond supply in the next five years.

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