The state of global rough diamond supply in 2014

Global production of rough diamonds in 2014 is expected to reach roughly 135 million carats valued at US$17.8 billion, an increase of 3% over last year. The world’s 50 largest mines are estimated to account for 90% of global supply, with the balance coming from private or small-scale operations, where production data is unreliable or not available at all.

The Marange diamond fields, a 300-sq.-mile alluvial deposit in Zimbabwe, was ranked the world’s largest source of diamonds in 2013 in terms of total carats produced. It was estimated to have produced almost 17 million carats or 13% of global supply last year. However, it appears that those production levels will not be sustained in 2014 as grades have decreased and easily mineable loose gravel has been rapidly depleted, leaving more difficult-to-mine conglomerate stone. While Marange is a relatively new project with formal mining starting only five years ago, alluvial projects like Marange tend to have a much shorter life span than open-pit or underground diamond mines, as the economic resource is limited to the easily accessible surface stones. None of the seven private companies operating in Marange provide specific production guidance, but representatives of the companies have publicly expressed frustration with decreased operating economics resulting from depleted resources. In 2014, Marange production is estimated to drop to 8 to 12 million carats or less.

Botswana’s Orapa mine is the world’s largest diamond mine measured by value of production and by volume. It’s expected to produce 12.9 million carats worth US$1.9 billion this year. Orapa’s owner Debswana, a joint venture of De Beers and the Botswana government, realized a 17% increase in production in last year’s fourth quarter, highlighted by higher grades realized at Orapa and the resumption of operations at the Orapa One processing plant following unplanned maintenance in the third quarter.

Australia’s Argyle mine, known as the world’s largest producer of fancy coloured diamonds, including elusive pink and red diamonds, is forecast to produce 12.6 million carats in 2014, making it the world’s second largest diamond mine in terms of volume produced. While Argyle, owned by Rio Tinto (NYSE: RIO, LSE: RIO), has a history of producing some of the most precious colored diamonds in world, unpopular brown diamonds, most of which are classified as industrial quality, account for the majority of Argyle’s production making the mine’s average carat value produced among the lowest in the world.

The Russian government-run super-major Alrosa (MICEX: ALRS) has nine primary diamond mines, ten alluvial mines, and two mines in development, accounting for roughly 95% of all Russian diamond production. Alrosa’s mines represent eight out of the top fifteen largest diamond mines in the world by volume. Alrosa’s Jubilee and Nyurbinskaya mines are each forecast to produce over 9 million carats in 2014, making them the fourth and fifth largest projects in the world.

De Beers has completed construction of the Cut-8 expansion at Jwaneng, the second largest diamond mine in Botswana. Full ramp-up of Cut-8, which will extend Jwaneng’s mine life to at least 2025, should be realized sometime this year. Cut-8 will provide access to around 95 million carats of high-quality diamonds, making Jwaneng the most valuable diamond reserve in the world. Jwaneng recovered from a slope failure in the second quarter of 2012, and is forecast to produce over 9 million carats of diamonds worth US$1.3 billion in 2014.

Venetia, Another De Beers mine and South Africa’s largest diamond mine, realized a production increase of 57% in the third quarter of 2013. The improvement came as a result of higher volumes and grades following recovery from flooding earlier in the year. A plan to convert Venetia to an underground mine received environmental approval in October 2013 and construction, which will increase the mine life beyond 2040, began shortly thereafter. Production at the mine this year is forecast at 3.5 million carats valued at over US$500 million.

Lesotho, a landlocked country within South Africa’s borders, is home to the Letseng mine, which has a history of consistently producing the most valuable diamonds in the world on an average per-carat basis. Letseng is forecast to produce only 110,000 carats in 2014, but the average price of carat is expected to be around US$2,200, compared with a global average price of US$130 per carat.

Russia’s Grib mine will see its first full year of production in 2014. Estimated to produce 4 million carats annually once fully ramped up, Grib has a reserve of roughly 75 million carats and a 20-year mine life. Currently owned by Russian oil major Lukoil, the company has publicly expressed interest is selling the asset, which lies outside of its core strategy.

Botswana’s Ghaghoo mine is expected to commence production in the second half of 2014. Once production is fully ramped up by owner Gem Diamonds (LSE: GEMD) operation is estimated to produce 750,000 carats annually worth an estimated US$200 per carat.

The most anticipated diamond development project in the world, Canada’s Gahcho Kué, continues to move forward as permitting is expected to be approved in the second half of 2014, with first production expected in the third quarter of 2016. The project is owned by De Beers (51%) and Mountain Province Diamonds (TSX: MPV) Once fully ramped up, Gahcho Kué is projected to produce 4.45 million carats of diamonds annually worth an estimated US$149 per carat.

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