Diamond Supply and Production: The Definitive Guide
Diamond, composed of carbon, is the hardest natural substance in the world. It is mined for use in precious jewelry and industrial applications.
You will find all the important things to know about diamonds and their production here. As well as information on the major source countries like Canada and the major diamond mining companies like De Beers.
Chapter 1: Basics of Diamond Supply and Production
Global supply of diamonds is mostly a result of the rise and fall of diamond mining operations in response to discovery and exhaustion of diamond deposits, political conflict in key producer and consumer regions, economic crises and changing consumer fashion tastes.
Moreover, supply of diamonds generally precedes demand.
For example, Zimbabwe recently became a top ten diamond producer after huge discoveries of alluvial diamonds in the eastern part of the country. These alluvial deposits have rapidly become depleted, reducing Zimbabwe's contribution to global supply of diamonds.
History of Diamond Production
Kimberley Mine, South Africa, 1872
The origins of the modern global diamond industry can be traced to South African diamond mines, which began turning out an ever increasing supply of diamonds in the twilight of the 19th century - 97 percent of the world's production at the time.
From antiquity to 2015, approximately 5.4 billion carats of diamonds have been recovered from the Earth's surface. This is approximately 1.08 million kgs or 1,080 tonnes.
But you should know that more diamonds have been mined in the last 21 years than in all of history up to 1993. That's because of the rise in diamond mining operations in countries like Canada, which have only recently become major diamond producers.
Where Diamonds Are Mined
On the whole, all the diamonds being produced in the world right now come from 25 countries. Most of these are found in Africa, which produces more than 50 percent of annual supply of diamonds.
Production of Gem-Quality Diamonds and Industrial Diamonds
Different regions of the world produce different types of diamonds. For example, diamonds from Namibia cost much more than diamonds from DRC because they are of superior quality in diamond jewellery.
The two main uses for natural diamonds are in precious jewelry (gem and near-gem quality diamonds) and in industrial applications (borts).
Gem quality diamonds and near-gem quality diamonds are basically diamonds that can be polished for use in jewelry. Approximately 65 percent of diamonds produced in a year are suitable for use in the production of diamond jewelry of varying quality. Gem diamonds gain or lose value depending on how common they are and in relation to their attractiveness to jewelry manufacturers and collectors.
Industrial diamonds are those that are not suitable for use in jewelry because of their poor quality.
Industrial diamonds are used for a variety of purposes ranging from drill bits to scalpels to sandpaper. Basically, diamonds are the hardest thing on earth which means they are great for anything that includes scratching.
Gem quality diamonds suitable for use in precious jewelry account for 98 percent of the total value of diamonds produced per year.
Conversely, natural industrial diamonds are much cheaper since they face intense competition from synthetic (man-made diamonds) in industrial applications. Synthetic diamonds (man-made) are increasingly preferred in most industrial applications because they can be inexpensively produced in large quantities. Furthermore, they are also easier to customize for specific industrial applications.
*More than 800 million carats of diamonds have been recovered from the Argyle Mine since 1983. Only six fancy red diamonds have ever been recovered from the mine, these three in 2013.
Argyle Mine in Australia produces 90 percent of the world's annual supply of pink diamonds. Unless a new source is found, this subset of diamonds will probably explode in value in the coming years since the Argyle mine is scheduled to stop producing diamonds around 2021.
Rare diamonds are the driving force of the whole diamond industry value chain. Consumer demand for rare diamonds as a premium luxury product has remained strong for many centuries, to the continued benefit of diamonds that have more common availability.
Exceptionally rare diamonds traditionally cannot have a fixed price and each transaction becomes a matter of negotiation between buyer and seller. The demand for them has relatively always been steady and sales are determined by the buying power of the world.
A billionaire from Hong Kong shelled out a record $48.5 million to buy the “Blue Moon” diamond at a Sotheby’s auction. That price tag — the highest ever for a diamond or gem sold at auction!
The global population of ultra-wealthy individuals has grown exceptionally in the last ten years pushing demand and prices of rare diamonds even higher.
Over the last few years, the prices of smaller top range diamonds have also increased at a faster rate than those of larger diamonds due to their high demand across a wide range of luxury goods - but particularly in the watches segment.
Likewise, it has become trendy to adorn all manner of luxury goods with diamonds - such as pens, mobile phones and other portable digital devices.
The New Gold iPhone 6s (4.7") or iPhone 6s Plus (5.5") - Diamond RockStar Limited Edition
Love and Diamonds
De Beers has controlled global supply of diamonds for much of modern history. Through absolutely clever marketing and classification De Beers created a global market for diamonds that is enduring. The company successfully introduced and popularized the idea that the diamond is the ultimate symbol of love - essential for love events such as engagements and weddings.
Is the world running out of diamonds?
2.9 billion carats of diamonds have been dug up from the Earth's surface since 1994. That is to say, more diamonds have been mined in the last 20 years than in all of history.
Still, the world's appetite for these beautiful gems has never been stronger.
And now, diamond producers have to go deeper and deeper into the earth's surface in their quest to satisfy our never ending desire for these sparkling stones.
However, diamonds are a natural resource with exhaustible supply. Therefore, there are valid questions to be asked about the current rate at which the world is mining diamonds. For instance:
At the rate we are going, won't we soon dig up all the known diamond reserves from the Earth's surface?
Should we slow down the rate at which we are digging up these gems and will there be any diamonds left for future generations?
Make no mistake about it, 2.9 billion carats mined in just twenty years is a lot of diamonds…but the answer is still somewhere between yes and no.
If you are talking 10 years, the answer is no. If you are talking 20 years, the answer is still no. However, if you are talking 30 years, the answer right now is probably YES!
Why the emphasis on right now?
Well, it's because the situation is dynamic…it changes all the time.
Let's show you exactly how this works:
After discovery of a diamond deposit, mining companies usually split it into two - Mineral Resources and Mineral Reserves.
Basically, Mineral Resources are the global measurement of the deposit - the entire supply of diamonds available in it and inclusive of those which a mining company is not sure yet whether they can be mined profitably at current prices.
Conversely, Mineral Reserves are the measured part of the deposit with diamonds that can be mined profitably at current prices.
As a rule, mining companies prudently use low estimations for the Mineral Reserve. It's just good business. However, these estimations are often upgraded once economic viability is demonstrated for diamonds placed in the global Mineral Resource.
In general, large diamond deposits can be mined for a period of 30 years up to 100 years. Diamond producers often discover additional ore reserves while the mine is in operation and usually extend its life. Furthermore, technological innovation and higher diamond prices often improve economic viability of previously unprofitable parts of the deposit.
The largest rough gem-quality diamond ever found at 3106.75 carats (621.35 g). It was cut into 105 diamonds including the Cullinan I or the Great Star of Africa, 530.2 carats (106.04 g), and the Cullinan II or the Lesser Star of Africa, 317.4 carats (63.48 g), both of which are now part of the British Crown Jewels.
For example, the Cullinan mine in South Africa has been in production on and off for more than a hundred years.
According to Petra Diamonds, Cullinan's current mine plan has a life of 16 years. Nevertheless, the actual Life of Mine (LOM) could be in excess of 50 years since Cullinan contains a diamond resource of 200 million carats of which less than 2 million carats are currently produced per year.
With this in mind, a lot of diamonds have been produced in the last twenty years…
But diamond miners have also added substantially to global reserves of economically exploitable diamond ore.
Here's a balance sheet of diamond mining from 2001 to 2012:
As you can see, in those twelve years, global reserves of economically exploitable diamond ore were ultimately reduced by just 268 million carats - equivalent to diamond production for two years.
Matter of fact, the total level of global diamond reserves has remained stable in recent years - at 2.3 billion carats. That means annual production has roughly offset additions to reserves. This has happened because diamond miners reduced production in response to weak consumer demand as a consequence of the Global Economic Crisis.
To summarize, diamond miners have had sufficient reserves to sustain current annual production of diamonds for 18 years. That has not changed since 2010.
Major diamond operations are only possible in countries with stable operating environments and accommodative mining laws. Therefore, it is not by coincidence that major kimberlitic finds in recent times have been in Canada and Australia and none in Angola, DRC and Zimbabwe. The three African countries have had toxic operating environments for a long time, placing them among the least preferred mining destinations. Yet they have the most potential for new major diamond discoveries.
For this reason, no one really knows whether or not there will be any significant new discoveries of diamonds in future.