Dwindling supply of diamonds spurs exploration

De Beers, which markets more than 80% of the world’s rough gem diamonds, says the supply of quality stones could be exhausted by the end of the century if the demand for gemstones maintains its historic growth rate of 2% per annum.

But exploration for the geological structures that host diamonds in hopes of finding sources to replace that dwindling supply is a lengthy process. And finding diamondiferous pipes, as the structures are called, is only the beginning. After the excitement of discovery, the developer is confronted with the complex and expensive process of determining the pipe’s value. The key players in the current diamond exploration play in Canada’s Northwest Territories are now entering this phase.

When the orebody is gold or base metal, the evaluation process is complex enough but at least the value of the mine’s products are simply calculated. Not so with diamonds.

To start with, unusually large samples of diamond-bearing rock must be taken. A 100-150-tonne sample will ascertain if the pipe has potential. A far larger sample is mandatory if the major expense for mine development and construction is to attract financing.

Authorities quote 20,000-30,000 tonnes for this stage. The reason for the large tonnage is to minimize the “nugget effect.” Diamonds are irregularly distributed in the pipe. Most importantly, the volume of diamonds recovered must be large enough to ensure a confident evaluation of their worth. The percentage of industrial stones in the diamond pipe is important. But generally, it is the percentage of gemstones, and their quality, that “make it or break it” for the mine developer.

The initial separation is into industrial and gemstone categories. Yet there are more than 2,000 classifications of diamonds based on size, shape, color and quality.

About 25% of the 105 million carats mined globally in 1991 were gem quality; the remainder were industrials.

Industrials are valued in the range of US30 cents-US$5 per carat, too low to carry a mining operation unless the stones are unusually abundant. An example of the latter is Australia’s Argyle mine. Argyle’s ore carries a phenomenal 610 carats per 100 tonnes but only 5% qualify as gems; the rest are industrials.

Gem stones are valued at US$25-500 per carat. Top quality stones and those weighing more than 14.8 carats (a De Beer’s cutoff) are always in demand; it is a seller’s market. Values run into the thousands of dollars per carat. A factor in the value equation is the 40-50% — sometimes up to 60% — of the stone’s weight lost in cutting and polishing. Nevertheless, the loss is compensated many times over in the conversion of a rough stone into a brilliant gem.

The diamond content of African deposits (gems plus industrials) ranges from seven to 150 carats per 100 tonnes. On the other hand, the gem content of a given mine’s production runs the gamut from the 95% of the beach placers of southwestern Africa to the 5% of Australia’s Argyle mine.

Thus, a pipe’s average diamond content — carats per 100 tonnes — is significant but it is the quantity and quality of the gemstones that transform the pipe into a mine.

For more than 2,000 years, the biggest and finest diamonds came from Indian placer deposits. Then, in 1866 the first alluvial stones were found in South Africa, and five years later the pipes that made Kimberley synonymous with diamonds were discovered.

The Kimberley area is unique. There are no less than four diamond-bearing pipes within the bounds of the South African city. Kimberlite pipes are uncommon in the first place. Only 1,000 are known across the globe and of these, only one in 20 carries sufficient diamonds to make mining worthwhile. Two of the Kimberley pipes are still working. But they’ve all experienced lengthy shutdowns in their 120-year history, a reflection of the ups and downs of the diamond market.

The famous Kimberley mine was closed in 1914 at a depth of 1,113 metres. The mine’s diamond pipe progressively narrowed with depth and finally split into a series of weak, barren dykes. The nearby mine that gave its name to De Beers Consolidated Mines closed in 1990.

De Beers formed the Central Selling Organization (CSO) in 1930. The CSO has proven to be one of the world’s most effective marketing agencies. Indisputably it is the world’s most successful cartel.