Canadian production on the rise

With Gahcho Kué and Renard now officially under construction, I think it’s fair to say that in four years’ time, Canadian diamond production will look significantly different than it does today.

In July, Stornoway Diamond (TSX: SWY) completed a $964-million financing package to fund construction of Renard, in Quebec. Mountain Province Diamonds (TSX: MPV) closed a $100-million equity financing in September, and is in the final stages of arranging US$370-million in debt to fund its portion of Gahcho Kué’s capital costs.

Canada currently represents an estimated 14.2% of the world’s diamond production in value, and 8.7% in carat volume. The two new mines, set to begin production in 2016/17, are expected to boost Canada’s global market share to 25.2% in value, and 15.1% in volume by 2018. That would give Canada the highest compound annual growth rate of production (20.2% in value and 17.4% in volume) among the world’s eight largest diamond-producing nations over the next four years.

Outside of Canada, there are only three other large-scale commercial mines scheduled to open within the next four years: Lace, Botuobinskaya, and Bunder, all of which have annual production profiles below that of both Gahcho Kué and Renard.

DiamondCorp’s (LSE: DCP) fully financed Lace project in South Africa is estimated to produce up to 500,000 carats annually, with first run-of-mine production slated for late next year. Laurelton Diamonds, a wholly owned subsidiary of Tiffany & Co, has an offtake agreement in place for the project’s mine life, expected to last for more than 25 years. Lace produced approximately 750,000 carats between 1901 and 1931, until the Great Depression rendered the mine uneconomic.

Alrosa’s (RTS: ALRS) Botuobinskaya mine is nearing completion, and first mining is planned for the middle of next year. Located in Russia’s Sakha region of northeastern Siberia, Botuobinskaya is expected to produce 1.5 million carats annually and has a resource of over 70 million contained carats.

Rio Tinto’s (NYSE: RIO; LSE: RIO) Bunder project represents the first diamond discovery in India in 40 years. Bunder could be in production by 2017, with a production profile of 700,000 carats annually, and a resource of 27 million carats.

Lukoil’s (RTS: LKOH) Grib mine, which began production this summer, and Alrosa’s Karpinskogo, mine which started production in October, are the first two non-alluvial diamond mines with annual production of greater than 1 million carats to be put into production since Canada’s Diavik mine came onstream in 2003. The mines, located in Russia, are expected to produce 4 million carats per year and 2.2 million carats per year, respectively.

As Gahcho Kué and Renard are being built, some of the largest mines in the world are being exhausted. In Botswana, Orapa and Jwaneng, arguably the world’s two most important diamond mines (mines with 50+ year lives), have less than 15 years of production left at current economics.

In Australia, the Ellendale mine, which is the largest producer of fancy yellow diamonds in the world, is set to go on care-and-maintenance by year-end as reserves have been exhausted.

At the alluvial Marange fields in Zimbabwe, a site estimated to produce 8 million carats of diamonds this year, much of the easily accessible loose surface gravel has been mined. That leaves mostly hard conglomerate rock requiring additional capital spending to continue operations, an investment that most of the miners there have indicated they will not make.

It’s worth noting that in addition to Gahcho Kué and Renard starting production in the next four years, a further boost to Canadian production will come from Ekati, where a new mine plan is estimated to take production from 2.2 million carats annually worth US$630 million, to 5.9 million carats worth at least US$1.2 billion, by 2018. The primary source of additional production will come from Ekati’s Misery pipe. Ekati is majority owned by Dominion Diamond (TSX: DDC), which upped its stake in the mine to 90% in July.

— Paul Zimnisky is an independent diamond industry analyst and consultant. He can be reached at paul@paulzimnisky.com.

Information in this article is strictly for informational purposes and should not be considered investment advice.