Opinion - The crystal clear rarity of wealth preservation diamonds

When we talk of the rarity of diamonds, we are not just talking about the finite and declining supply of diamonds found in the earth. We are also talking of the increasing rarity of diamonds in the light of increasing demand for diamonds and what happens to diamonds once they are polished. All these factors combine to make diamonds even rarer.

A quick reminder about diamond rarity:

• There are an estimated 10,000 known kimberlitic pipes globally

• Of them, 1000 are diamantiferous

• Of the 1000, only 100 are economically viable to mine

• Just 30 kimberlites are presently active, of which many are past their prime

• Only 20% of the total production from these 30 mines ends up as polished diamonds fit for jewellery

• Of this 20%, only 40% are polished diamonds weighing 1 carat or larger

• Only 50% of them are high-end luxury quality polished diamonds fit for wealth preservation

• This means that only about 20%** of polished diamonds fit for jewellery meet the stringent criteria of CRYSTAL CLEAR value which can be used for wealth preservation purposes in my opinion and based on industry reports and publications.

Diamond production is also very concentrated. Out of the 22 producing countries that are members of the Kimberley Process, five countries – Russia, Botswana, Canada, Namibia and Angola – are responsible for 80% of global production by value ($11.28 billion) and 63% of global production by volume (82.7 million carats) in 2013. 

According to Bain & Co, in the decade leading up to 2008, when the economic crisis started, expenditure on exploration increased by 26 percent annually, as demand and prices of rough diamonds increased. The motivation for this growing expenditure was declining reserves in existing mines as well as a desire to find new diamond sources. 

This ended as the economic crisis unfolded. Bain estimates that exploration expenditure fell by 64 percent in 2009. 

To illustrate this, between 2006 and 2010, ALROSA, De Beers, BHP Billiton and Rio Tinto spent 1 to 3.5% of their total revenues on exploration. Three of the top four players – ALROSA, De Beers, Rio Tinto – reduced their exploration expenditures and focused on optimising existing resources instead, according to Bain. 

Even with the decline in exploration efforts, the economic benefits producing countries generate from diamond mining are many and very significant for the local economies. These benefits are generated by the interest diamond consumers have in diamonds. 

Here too, we see a strong geographic concentration. These five locations consume 71% of the world’s polished diamonds, estimated at nearly $17 billion in wholesale prices. 

Of the $22 billion in polished diamonds based on wholesale prices, less than half by value are one carat or larger diamonds and of them only a part of them have the quality and colour characteristic to be considered for wealth preservation. 

Against the backdrop of a growing trend for ‘reclaimed diamonds’ - a term I’m suggesting to replace the current degrading term ‘recycled diamonds’ - this rarity might serve to benefit the diamond industry in two ways. Firstly, the amount of goods available for wealth preservation will increase, and secondly, the perception that we can buy and sell diamonds even if we are consumers will be established as a given reality. 

The views expressed here are solely those of the author in his private capacity. No one should act upon any opinion or information in this website without consulting a professional qualified advisor. Nothing on this website can be construed or constitutes an offer or a recommendation to sell or to purchase diamonds or the solicitation of an offer to purchase any diamonds nor does it constitute an offer or a recommendation to sell or to purchase any security or financial product or the solicitation of an offer to purchase any security or financial product.