"The odds of finding an economic kimberlite are extremely against you," said Johan Dippenaar, chief executive officer of Petra Diamonds, which spent just $2.1 million looking for new mines last year and has abandoned prospective projects in Angola and Sierra Leone. "Exploration, for the foreseeable future, will remain something that we will be involved in, but it won't command very much of our cash flows."
China, India
Investment and mine activity are retreating as demand for the gem increases, with burgeoning middle classes in China and India seeking to join the developed world's love affair with the precious stones. The two countries accounted for about 20 per cent of purchases in 2011, and that share will rise to 28 per cent in 2016 as the market grows to $31 billion from $23 billion, according to De Beers owner Anglo American.
Diamonds are formed hundreds of kilometres beneath the crust in the molten rock of the earth's mantle. Violent explosions force the precious gems toward the surface, where they come to rest in carrot-shaped pipes known as kimberlites. Yet finding a kimberlite is no guarantee of finding diamonds. Of the more than 6,000 pipes that have been tested over the last 140 years, only 60 have been worthwhile mining, according to De Beers. A mere seven have been super deposits, capable of moving the supply needle.
To make matters harder for those still in the hunt, diamonds have been hidden in some of the world's least-hospitable places. With South Africa and Botswana almost fully explored, the frontiers for exploration are the frozen Arctic of northern Russia and Canada or the war-torn jungles of the Democratic Republic of Congo and the Central African Republic.
Alluvial gems
Rough-diamond prices have climbed 75 per cent in the past five years as the US recovered from the financial crisis and demand increased in Asia, according to data compiled by WWW International Diamond Consultants.
Intact kimberlites aren't the only source of supply. About 10 per cent to 15 per cent of the world's diamonds are from alluvial mining, where the stones are found in riverbeds or shorelines, after kimberlites have been eroded over time.
While alluvial gems are easier to mine, geologists often can't tell how many stones there are, a key piece of information used to determine whether the reserves will last long enough to justify an investment. Production at the Marange diamond fields in Zimbabwe, where about 17 million carats were mined last year, already is forecast to be declining after only about five years of official extracting.
While below-ground supplies are diminishing, there may be other sources for the gems. In August, De Beers began a study to determined how many existing diamonds are being resold. While no exact data is available for how much of the diamond market is recycled gems, Tacy has previously estimated it at $1 billion a year.
Man-made diamonds
There is also the prospect of synthetic, or man-made, diamonds becoming more widely used in jewellery. While they are easily made and can only be distinguished from natural stones using specialised machines, synthetics have yet to gain a strong foothold given the weight of marketing and promotion behind mined diamonds.
Most of the world's super mines have already been discovered, according to Keith Whitelock, a mining engineer who started prospecting for diamonds in Lesotho in the 1950s, and has built and run mines across Southern Africa.
"I doubt a really big pipe is going to come out," said Whitelock, who has worked for diamond miners including De Beers and Gem Diamonds. "The half-a-dozen mines that make up most of the world's production, they left their mark because they were big."
The industry also has lost some of the financial resources needed to pursue expensive deposits. Melbourne-based BHP Billiton, the world's biggest mining company, turned its back on diamonds in 2013, selling it's Canadian Ekati mine. The company said it saw little prospect of repeating the dominance they hold in iron ore. Before the global financial crisis, BHP hunted for the stones in Angola, the DRC and Canada.
Rio Tinto Group also sought to exit the industry, before scrapping that plan when the London-based company failed to find a buyer for its mines.
While De Beers continues to hunt across southern Africa and India, many of the smaller producers have curtailed or canceled their efforts. De Beers accounted for $765 million, or 26 per cent, of Anglo's underlying profit in the first half, according to the parent company's statement on July 25.
"You need deep pockets to find kimberlites," Whitelock said.
- Bloomberg
