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Race hots up for African diamonds
David McKay
Posted: Tue, 12 Jul 2005
[miningmx.com] -- IT costs an average $500m to find a commercially mineable kimberlite, the geological structure that hosts diamonds. If that sounds expensive, it’s worth considering that time is an important part of the equation. Kimberlites are hellishly rare to find. Of the 4,450 known kimberlites, less than 1% are mineable as commercial ventures.
Yet there’s no shortage of newly established junior miners looking for diamonds. Petra Diamonds in Angola and African Diamonds in Botswana, are typical of the UK listed diamond hopefuls.
“We were in the right place at the right time having set up business in Botswana,” says Mark Scowcroft, executive director of African Diamonds. Scrowcroft, a former De Beers employee, applied for property once prospected by De Beers in Botswana’s Orapa region. “When you’re looking for elephants you’ve got to be in elephant country,” Scowcroft says. A
bankable feasibility study in underway at a kimberlite pipe known as AK6, about 9.5 hectares in size and grading at 25 carats per 100 tons mined.
Against this background, it’s important for a company like De Beers, which also has the added pressure on finding replacement carats, to establish itself wherever kimberlites are found in volume. In its 2003 financial year, the SA group switched exploration focus away from Australia to Africa and has more recently raised a flag over Russia.
Angola, in particular, has been an important destination for the group, an area from which De Beers has been banned for the past four years. Exploration in Angola was suspended in 2001 after Endiama and De Beers failed to settle differences on the renegotiation of a former agreement signed in the early 1990s. The decision meant that Israeli company, the Leviev Group, had exclusive rights to market Angola’s legitimate diamond output.
The new agreement, however, provides for a
joint venture that will be granted exclusive mineral rights for the mining and marketing of diamonds from economically mineable deposits. Commenting on the strategy, Gary Ralfe, De Beers MD, says: “There is a greater degree of flexibility in De Beers and we want to converge rather than diverge. A big imperative is to define our strategic partners as we have in Angola.”
The agreement with Endiama allows De Beers to examine land holdings in discrete 3,000km2 parcels in the Lunda Norte province. But it has competition. Petra Diamonds has already established roots in Angola and now has the support of BHP Billiton.
De Beers has to find more carats. Its control of the world market has slipped from about 65% in recent years to about 50%, but now finds the diamond market approaching a massive supply deficit. It believes demand should rise about 50% from 2002’s $9bn to $14bn by 2012, more than the combined
productions of Botswana and Russia, the world’s two largest producers. “So where is $3bn net coming from by 2012?” says Picton. “That’s the equivalent of almost another De Beers”.
The outcome is that diamond prices are expected to continue their upward drive. Rough diamond prices have risen over 20% on average during 2003 and 2004, and must rise another 30% in real terms by 2012.
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