Mid-tier diamond miners: From the bottom up

With a focus on building a strong niche rather than trying to dominate the entire diamond mining sector, the mid-tier diamond miners are having an increasingly important influence as sources of rough diamonds in the world today. A few companies in particular have grown in prominence in recent years and warrant a closer look. Floroscent highlights the role and latest achievements of these smaller exploration companies.

Over the past three decades the global diamond industry has undergone a sea change and the rough diamond supply chain has diversified a lot. With increasing demand for diamonds and diamond jewellery, a new breed of diamond miners have emerged trying to gain a good portion of the global rough diamond production pie. Having control of some of the most productive diamonds mines, these mid-tier diamond miners are slowly gaining the market share and are playing an increasingly important role in the production of rough diamonds.

Making the cut

Today, diamond mining has becoming more fragmented than ever and single-asset mining companies are becoming more commonplace. Since big diamond producers lost their monopoly grip, numerous new players have entered the supply chain.

The top diamond producers including, Alrosa, Anglo American (De Beers) and Rio Tinto accounts for an estimated 63 per cent of annual global diamond production by volume in 2017. Alrosa alone controls about 27 percent of the market, with De Beers about 22 percent, Rio Tinto about 14 per cent. While the mid-tier producers namely  Dominion Diamond, Petra Diamond, Mountain Province, Gem Diamond Plc,  Stornoway, Lucapa Diamond Company, Diamcor Mining Inc, Firestone Diamonds plc, Lucara Diamond Corp, Otkritie and others supply the remaining 37 per cent, which amounted to US$ 5.7 billion in 2017.

Finding value in a difficult market

In recent years, the diamond industry has faced much volatility. Questions were raised that the diamond industry has reached peak supply and there are very thin chances of mining companies finding any further large diamond deposits. However, negating the thought that the best resources have been discovered, smaller miners worked in giving new life to the existing mines and bringing new projects into production.

Petra diamonds holds a portfolio of four ex-De Beers South African mines. Petra is forecasted to grow company-wide production by over 40 per cent to 5.3 million carats by 2019 with growth primarily coming from underground expansion projects at Finsch and Cullinan mine which will result in higher production as higher concentrated ore is accessed.

Gem Diamonds owns 70 per cent of the Letšeng mine in Lesotho and 100 per cent of the Ghaghoo mine in Botswana. The Letšeng mine in Lesotho is estimated to produce just over 100,000 carats at US$ 1,800 per carat. The mine is famous for the production of large, top colour, exceptional white diamonds, making it the highest dollar per carat kimberlite diamond mine in the world.

Lucapa Diamonds’ Lulo alluvial mine in Angola that has made headlines in recent months with multiple exceptional diamond discoveries is estimated to produce the highest average-price-per carat diamonds in the world in 2017 at US$ 2,400 per carat.

Similarly, Lucara’s Karowe mine ranks as the third largest diamond mine in Botswana by value produced. The mine is only estimated to produce 300,000 carats this year, but at an average price-per-carat of almost US$ 700 carat making Karowe’s diamonds the second most valuable in the world.

Mountain Province’s Gahcho Kué mine, which declared commercial production on 1st March, 2017 has recovered approximately 4,306,000 carats on a 100 per cent basis. Similarly, Stornoway expects that its Renard mine will produce an average of 1.6 million carats per year over an initial 14-year mine life, representing some two per cent of global supply.

Winning formula

As a smaller company these mid-tier miners have got advantages over other larger competitors such as De Beers, Alrosa and Rio Tinto. They don’t have to follow specific policies and can concentrate on the market.

Moreover, if we look at some of the recent developments then it has been observed that large miners have reduced their exploration expenditures and have partnered with smaller producers who are exploring new diamond projects. For example, in Canada, De Beers is a 51 per cent shareholder in a joint venture with Mountain Province Diamonds on the Gahcho Kue project in the Northwest Territories.

Another factor that leads to the emergence of smaller miners is their focus on large and exceptional diamonds. For example, Gem Diamonds, which operates Letseng in Lesotho and Lucara Diamond Corporation, which opened its Karowe mine in Botswana in 2012, are in a very different business from big miners. With large stones their core business, rather than an unexpected windfall, they’re trying new scanning technologies to reduce accidental breakage.

According to Bain & Co, a consulting firm in Boston, the global rough diamond demand may climb more than 6 per cent a year in the decade to 2020, exceeding growth in supply. Quite obviously, the mining world will witness the continuous growth and importance of smaller miners.

Big Gains

Recently, several mid-tier miners issued third-quarter and full-year 2017 production reports, with some reporting better-than-expected profit with record diamond production.

The sales from Gem Diamonds’ Letšeng mine was increased by 19 per cent to US$ 48.1 million in the third-quarter. Diamond production was up 26 per cent to 30,774 carats.

In its ninth diamond sale, Mountain Province sold 288,000 carats for gross proceeds of US$ 19 million. In the first nine months of 2017, the miners’ revenue amounted to US$ 73 million. The miner is well on track to meet its current full-year 2017 production guidance of 5,500,000 carats. Stornoway has earned revenues of US$ 33.4 million in the second quarter. The miner has sold a total of 350,159 carats mined from its Renard diamond mine in Quebec, Canada at an average price of US$ 87 per carat.

Firestone Diamonds has sold a total of 195,330 carats of diamonds in the third quarter at its Liqhobong Mine. Since commencement of production in Q4 CY2016, Firestone has sold all 505,706 carats recovered, for US$ 41.3 million, at an average value of US$ 82 per carat. Lucara Diamond achieved revenues of US$ 77.9 million or US$ 1,161 per carat in the third quarter. In its operating guidance for 2018, the miner has forecasted revenue of US$ 200 million.

Quite obviously, the mining of diamonds have changed significantly in recent years and this has had important implications on the industry and the power of companies within it. With more money through generic promotion of diamonds being pumped into the system to generate interest in diamond amongst the consumers, the diamond industry will see more new miners entering the market in future that will have a direct impact on the prices, quality and demand of diamonds.

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