17 Jul 2019
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ROUGH & TOUGH
LOWER PRODUCTION TO RAISE ROUGH PRICES
By: Diamond World News Service
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Apr 29 2019 2:58PM
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Reference: 18185  

DecreaseIncrease
Informs ALROSA’s Takhiev “In the next five years, four major mines will cease operations taking over 21 million carats of supply over the market. At the same time, six smaller mines will start operations, but they will bring only about 13 million carats to the market. Therefore, the net impact will be roughly 8 million carats disappearing from the market.”

Miners are investing significant capital in their mines with efforts to initiate new production lines.“Rio Tinto has invested US $350 million in the development of our fourth pipe at Diavikto provide an important source of incremental production and we continue to invest in diamond exploration. We also have an option agreement with Star Diamond Corporation, a Canadian mining company focused on exploring and developing Saskatchewan’s diamond resources,” responds Chirgwan.

The focus is always on mine potential and yield rather than the number of mines. Explains Johnson, “Some diamond mines have much greater supply potential than others. For example, the Cut-9 extension of our Jwaneng Mine in Botswana is expected to provide a much greater volume of carat production than Victor Mine in Canada will over its entire lifespan. As such, investing to extend the life of one existing mine can have a much bigger impact on production capacity than closing a smaller mine completely.”

It is true that individual mine operations are not as meaningful a measure of production than the overall carat production. And protecting the future of the diamond industry mandates a lower supply for the next few years.

However, while De Beers terms the lowered production for 2019 as a reduction, not a cutback, Rio Tinto submits that it is not a purposeful move. Yet, this move is expected to boost prices of rough that have plummeted over the last few years, De Beers Victor Mine Canada will cease production in 2019 experiencing a further drop in 2018 following the larger than normal supply of smaller, lower value rough diamonds.

“In 2017, diamond miners used new x-ray recovery technologies that made diamond recovery, especially of the smaller categories that would usually get lost, more efficient, which accounted for the increased production during 2017,” explains Zimnisky.

The excessive supply combined with other factors raised inventories and impacted rough prices.

“Initially, we saw a reduction in miners’ inventories over the first half of 2018, coinciding with improved prices. However, in the latter part of 2018 there was an increase in inventories, predominantly of lower quality rough diamonds. This led to a softening of prices,” Chirgwin elaborates.

Reduction in production is expected to impact the high stock levels positively. States Dinesh Lakhani, Director, Kiran Gems, “Stock level is on the higher side at various levels of the diamond business pipeline. We therefore think that reduction in production of rough diamonds in 2019 and 2020 will definitely help reduce unsustainable higher stock at various levels and finally lead to healthy stock levels.”

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