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Prices up: diamonds not forever, miners findMining for diamonds.
Rising affluence in India and China is pressuring dwindling sparkling stocks, reports Leonie Wood. Geologist Wolf Marx says nothing compares. In 1967, a team from the De Beers diamond company stumbled on a fabulously rich diamond deposit, the giant Orapa find in eastern Botswana. Mr Marx, the Melbourne-based managing director of exploration company Tawana Resources, says no other deposit like Orapa has been found.
Diamonds may be forever, but despite more than $A680 million of exploration spending this year, double 2002, fresh resources are running out, so prices are rising. Uncut diamond prices have risen about 50 per cent in the past three years, and the big players - De Beers, BHP Billiton and Rio Tinto - expect they will keep rising. Mr Marx says that in more than 30 years, he has not seen such favourable pricing. "It's the question that people asked when the Oppenheimer family and the Botswana government privatised De Beers (in 2000): why do it? It seems what they knew at the time was that supply and demand in the diamond market was getting out of whack," Mr Marx says. The Diamond Trading Company, the sales arm of De Beers, the South Africa-based diamond group that once dominated the world industry, raised prices twice this year: up 3 per cent in January and again in June. There was also a 5 per cent rise in August last year. At the same time, consumer demand for diamonds of all colours and grades is rising, especially in India, the Middle East and China where middle-class affluence and changing tastes have altered cultural gift-giving. De Beers claims 80 per cent of brides in China, where the retail diamond market is valued at $US1.4 billion ($A1.9 billion), now accept diamonds for their wedding. The US jewellery market buys more than half the world's diamonds. But demand in India is rising about 15 per cent a year and in some cities it is galloping at twice that rate. It is the combination of tight supply, the prospect of higher prices and low-cost mining methods that spurred Rio Tinto this month to commit $1 billion to extend the life of its Argyle diamond mine in the Kimberley region of Western Australia. It marks one of the biggest single mining investments in Australia. And it comes 20 years after Rio, then known as CRA, and former joint-venture partner Ashton Mining commissioned a $450 million mine that today yields about 32 million carats a year, more diamonds than any other mine, or about one-fifth of world output. Australia exported 32.56 million carats valued at $650 million in 2004-05. Australian Bureau of Agricultural and Resource Economics forecasts suggest the value of exports will rise 10 per cent this year as volumes increase only 6.5 per cent. "There are no world-class discoveries in the offing to be turned into mines in the next 10 years or so," Doug Ritchie, managing director of Rio Tinto Diamonds, says. "So the supply side is really quite tight. And markets in China, the Middle East and India have really taken off in the past couple of years - you are looking at growth rates of 6, 7, 8 per cent, and that's pretty encouraging." But Argyle is not the world's richest gem mine. That mantle rests with De Beers' huge open-cut mines in Botswana and South Africa that yield brilliant-white diamonds, the diamonds most in demand. But Argyle's marketing teams are promoting yellow and brown diamonds. Once diverted to the industrial market, they are now described as "champagne" or "cognac", and are highly fashionable. Mr Ritchie says Argyle's rarest diamond, an intense pink stone, fetches a premium 20 times that of a similar-quality white diamond. "If you had a good-quality one-carat white, you might get $US20,000, and a good-quality one-carat pink will sell for $US400,000," he says. Sixty Argyle pinks sold at tender in New York, London and Paris this year to just 23 customers. In the past two years, rough diamonds have changed hands for more than cut and polished stones. There are several reasons: a shortage of supply that is likely to worsen; speculation and hoarding; the perception an uncut diamond offers more artistic potential than a cut stone, and the rise in the number of wholesalers that want to cut and polish. There is so much competition that they are bidding more for rough stones but cannot recoup the cost from retailers. Elite retailers, such as Tiffany's, are enjoying boom conditions because of strong demand for diamonds of three, four and five carats, and more. But sellers of small diamonds are making less money than they were 10 years ago, partly because hot competition from diamond sellers trading over the internet has brought retail prices closer to wholesale prices. Online traders have almost no marketing costs, no shop rents and low staff costs, but they do have some credibility issues. NEED TO KNOW The price of diamonds is surging as production tightens and markets, particularly in in China and India, take off. There are no major new diamond mines on the horizon and the prospect of higher prices has prompted Rio Tinto to invest $1 billion to extend the life of its Argyle diamond mine in the Kimberley region of Western Australia. NEED TO KNOW MORE?
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Q:
And that is one of the problems in the diamond industry. With production at
some of the biggest mines in Africa falling, geologists are making plenty of
expensive forays into remote areas in search of the gemstones. Cartels hungry
for another huge find are trawling the jungles and plains of southern Africa.
But they have had little luck. Even some of the world's newest mines - 