BY BONNIE MODIAKGOTA
Rough diamond prices may possibly surge in the next two decades as the number of mines is expected to plummet strangling supply and rising demand for the limited commodity – a leading diamond industry analyst and consultant predicts.
In his latest research report “Don’t Give Up on the Diamond Industry Just Yet”, Paul Zimnisky says despite challenges facing the industry such as lab-grown diamonds, otherwise known as synthetics, the future existence of a robust natural diamond industry lies within the industry itself and its ability to continue to convey the intangible value that natural diamonds can bring to consumers.
Zimnisky says the mounting arguments that natural diamonds are not as rare as the miners would like the public to believe leaves a lot of things out of context, and as such, those arguments will fizzle out when more diamond mines close and fewer new mines are opened.
“The relative rarity of natural diamond can quite clearly be seen in future supply projections. If the industry is successful in maintaining or growing demand for natural diamonds in the longer term, the question of insufficient future supply is legitimate,” Zimnisky said in the report.
“There is only one new large-scale mine in development globally and only one pre-development project that is likely to reach production-stage within the next ten years, while close to 20 existing diamond mines will reach exhaustion within the next decade,” he added.
According to the report, at current diamond prices, the global portfolio of diamond mines will shrink from over 50 commercial mines today to an estimated 14 by 2040, consequently production in carat volume will fall from 145 million carats to roughly 60 million carats.
Amongst the mines to close in less than two decades is Debswana’s key flagship asset, Jwaneng mine, which happens to be the world’s richest diamond mine by value, and is expected to fold in 2043. However, the Orapa mine is expected to survive until 2064.
Zimnisky writes that in order to maintain what is currently a $90 billion natural diamond jewelry industry, “diamond prices would have to more than double and/or jewelry margins at the end-consumer level would have to increase, in part by decreasing diamond content, in order to maintain even a nominal zero growth environment in dollars.”
He says higher prices would theoretically improve economics of undeveloped assets and also lead to improved profitability for existing miners, something which might spark shareholders to provide funding for new exploration and development undiscovered diamond deposits.
Zimnisky’s analysis might give temporary reprieve to the diamond dependent Botswana economy, which has relied on unearthing the stones to fuel what has been termed a miracle economic growth ÔÇô transforming Botswana from one of the world’s poorest country at independence to a middle income country frequently cited as a testament to what natural resources can do for its country and citizens when prudently managed.
The blight to the almost too good to be true story is Botswana has failed to diversify its economy since the discovery of diamonds shortly after independence in 1966. The country’s diamond sector contributes about 30 percent to the GDP, over one-third to revenue, and more than 90 percent to exports.