The Juniors: Second Tier Diamond Miners

It is no secret that rough diamond supply has diversified over the last 20 years. Since De Beers lost its monopoly grip, numerous new players have entered the supply chain. These new entrants are having an increasingly important influence as sources of rough diamonds. Diamond mining has becoming more fragmented than ever, and single-asset mining companies are becoming more commonplace.

Small miners gain in importance

Last week I looked at the big four diamond producers, which account for an estimated 65% of annual global diamond production. Small producers now supply the  remaining 35%, which amounted to $5.8 billion in 2014.

This new dynamic in diamond production is having a significant impact on the trade of rough diamonds by opening up new opportunities for small and mid-sized manufacturers and traders to source rough products. Moreover, several new entrants are poised to come on-line in the coming year. This will add significant additional volume of supply to the market.

The importance of smaller miners is likely to continue growing as large firms reduce their exploration expenditures, opting instead to partner with smaller companies that might be fortunate enough to discover new projects. A few companies in particular have grown in prominence in recent years and warrant a closer look.

Petra Diamonds

Petra was established in 1997 with a market capitalization of less than £10 million. Since then it has grown into a prosperous miner with a market value of £486 million and annual revenue of $472 million in 2014. In 2014, the company reported diamond production of 3.1 million carats.

Petra has employed a successful strategy of investing in non-core mines that no longer meet the size and scope requirements of De Beers. Following a series of strategic acquisitions, Petra now has majority and minority ownership of five individual former De Beers diamond mines, plus exploration properties, all located in Southern Africa. According to Petra, these properties hold a resource base in excess of 300 million carats, and it aims to produce in excess of five million carats in annual production by 2019.

Petra gained international prominence in January 2014 following the discovery of a 29.6-carat blue diamond from its Cullinan Mine in South Africa. This exceptional gemstone would eventually become the 12.03-carat Blue Moon of Josephine, which sold at auction for a record $48.4 million in November 2015. Petra has unearthed other exceptionally rare diamonds from its Cullinan Mine, the site that in 1905 produced the largest rough diamond ever unearthed.

Like many smaller producers, Petra sells its rough diamonds to the market by way of open tenders, where interested buyers make offers on specific diamond parcels which are then awarded to the highest bidder.

Lucara Diamonds

Not to be outdone, small Canadian miner Lucara Diamond Corporation gained an international name for itself in November 2015 when it announced that it had unearthed the second largest diamond ever discovered. The 1,111-carat stone came from the miner’s Karowe Diamond Mine in Botswana and was named Lesedi La Rona (Our Light) in a contest open to citizens of Botswana. Remarkably, just 24 hours later, the company announced that it had unearthed the sixth largest rough stone ever found (813 carats).

The Karowe Mine is located in the Orapa Diamond District of Central Botswana, home to some of the most prolific and important diamond mines in the world. It produces fewer carats than most mines, annual production being between 350,000 and 450,000 carats. However, the mine is well known for producing a large range of high value large diamonds, which gives Lucara a relatively high average value-per-carat. It sells these high value stones at invitation-only “Exceptional Stone Tenders” which it holds several times each year.

Like Petra, Lucara acquired its principal diamond project from De Beers after it decided that the project no longer met its internal requirements for size and longevity of mine life. Lucara currently trades on the Toronto Stock Exchange and is valued at nearly $700 million.

Gem Diamonds

Along with Lucara, Gem Diamonds has changed the global market for large rough stones. Gem’s Letseng mine is located in a mountainous region of the tiny kingdom of Lesotho – a landlocked nation within the borders of South Africa. Letseng produces some of the largest stones on Earth, which helps make it the mine with the world’s largest average value-per-carat produced – usually in excess of $2,000 per carat (compared to a world average of under $150). Letseng has produced some of the largest rough stones in history, including the 603-carat Lesotho Promise in 2006, the 493-carat Letseng Legacy in 2007, and the 478-carat White Light of Letseng in 2008.

Gem previously operated the Ellendale Diamond Mine in Australia, which was known for producing a large portion of the world’s supply of fancy yellow diamonds. Currently, it operates the Ghaghoo Mine in Botswana, which is that country’s first and only fully underground mine. Like so many other smaller mine operators, Gem sells its diamonds through open tender.

Okavango Diamond Company

Okavango (ODC) has become a major player in the rough diamond market in recent years. ODC was established in 2012 and is owned by the government of Botswana. The company was created to market, on behalf of the citizens of Botswana, the nation’s own supply of diamonds from various local producing mines.

ODC has the right to sell up to 15% of production from Debswana, a local diamond mining company that is a joint venture between De Beers and the Botswanan government. This is a sizeable operation, as Botswana is home to most of the rough diamonds sourced by De Beers. The company reportedly sold nearly 3.3 million carats in 2014 for revenue of $552 million.

ODC is one of the largest sellers of rough stones that does not currently sell through long-term contracts. Instead, it sells through auctions whose results are later publicized. In this way, the company’s results are clear and transparent, providing a benchmark for prices used by the entire industry.

Grib Diamonds

In 2014, the Grib Diamond Mine held its first sale of diamonds. Grib became the first large diamond mining project in Russia not to be owned or operated by the state-owned diamond-mining giant ALROSA. In fact, Grib Diamonds is operated by oil and gas company Lukoil, an unlikely player on the Russian diamond scene. The mine was acquired by Lukoil as part of a land acquisition deal that also included oil and gas interests.

Grib is far from a small project, with a mine capacity of 4.5 million carats per year and an estimated mine life of 15 years. Unlike many other diamond miners, Grib has opted to sell its diamonds using an online auction system similar to that used by ODC.

Marange diamond fields

The Marange diamond fields cover an area of more than 300 square miles in the Mutare district of eastern Zimbabwe. Marange is primarily an area of alluvial deposits that can be unearthed using simple earth moving machines without the multi-million dollar investments typical of open pit mines. The rights to the Marange fields were initially held by a subsidiary of De Beers, however the company allowed those rights to expire in 2006 citing low diamond values and a challenging political situation in the country.

By 2008, the Zimbabwe Mining Development Corporation (ZMDC) took control of diamond mining in the area and a number of companies were established to see to local production.

Zimbabwe has had a challenging diamond history, including trade sanctions from the US and the EU as well as widespread allegations of corruption and forced relocation of citizens within the Marange area. It seems as though diamond production in the area has declined dramatically. Most experts agree that the area is now largely void of the easy-to-mine surface gravels and that it is unlikely to produce similarly large quantities of rough stones again. The Marange diamonds are among the lowest quality in the world, with an average price of just $50 per carat.

Lesotho producers

In addition to the Letseng Mine, the small kingdom of Lesotho is home to several other diamond projects. The Kao Mine, operated by Namakwa Diamonds, is the largest producer of diamonds by volume in the country. At nearly 20 hectares at surface, it is one of the largest diamond mines in Southern Africa. Furthermore, the development of the Liqhobong Mine by Firestone Diamonds should see production begin in 2016 while the future of the Mothae Mine remains uncertain.

New Canadian producers

Two new projects in Northern Canada will come online in early 2017 and are expected to contribute an additional 6.1 million carats annually to global supply. The Gahcho Kué Diamond Mine is a joint venture between Canadian junior miner Mountain Province Diamonds and De Beers. It is De Beers’ third mine in Canada, its location outside of Africa. At full capacity, the mine is expected to produce 4.1 million carats annually with a 12-year mine life.

A few hundred kilometers away, Stornoway Diamond Corporation is developing its Renard Diamond Mine in the French-speaking Canadian province of Quebec. Renard will be Quebec’s first and only diamond mine and is estimated to produce 1.6 million carats annually using a combination of open pit and underground mining. The Renard Mine consists of a series of numerous kimberlite pipes that were first discovered in 2001.

Alongside Grib, these two Canadian mines constitute the largest kimberlite discoveries in many years, while other mines are being depleted and closing down. Collectively, these smaller operators control a growing and important share of production volume in the diamond market. Their decisions and results have bear significant impact, and have helped to open up new avenues for manufacturers and traders to source diamonds outside of the largest producers who only sell through long-term contracts.

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 adviser.