As the global diamond producing club has become increasing fractured, an interesting phenomenon has emerged of a large number of small and medium-size diamond producers with the investment capacity to develop new mines. In an industry once dominated by De Beers which, until around 20 years ago, accounted for 80 percent of global supply, the change is all the more intriguing.
Today, De Beers itself says it is responsible for only around 35-38% of global supply. Meanwhile, number two producer, Russia's Alrosa, accounts for more than 25%.
As a result, smaller miners are playing a growing role. These include, for example, Petra Diamonds, which has emerged and developed after acquiring several of De Beers’ former mines. The grand master of the diamond industry decided around a decade ago that it needed the cash available from the sale of some of its old mines. In addition, it came to the conclusion that it did not regard the investment of tens, and perhaps hundreds, of millions of dollars in the operations as a wise investment strategy.
Petra Diamonds
It was in 1997 that Petra listed on London’s Alternative Investment market with a market capitalization of around $16 million.
But it was in 2007 that Petra really put down its marker when it acquired the Koffiefontein mine in South Africa. And in 2008, it acquired an initial 37% interest in the Cullinan mine in South Africa. Petra also bought De Beers’ 75-percent stake in the Williamson mine in Tanzania, but withdrew from exploration activities in Angola further to the global economic downturn and a strategic decision to focus on cash generative production.
Those developments allowed it in 2009 to raise $120 million via a share issue – and the new funds enabled Petra to increase its ownership in Cullinan to 74%. The following year was also a landmark one because Petra’s annual production rose to over 1 million carats. It was also the year that Petra acquired the Kimberley Underground mine in South Africa.
And in 2011, Petra raised $325 million via a share issue. The majority of the funds raised were used to acquire the Finsch mine in South Africa for $210 million, and Petra stepped up from AIM to the Main Market of the London Stock Exchange. In 2016, Petra announced the completion of a joint venture agreement with Ekapa Mining (Pty) Ltd, whereby the two companies would combine their respective operations in Kimberley. Kimberley Ekapa Mining Joint Venture houses the Kimberley Underground mine, numerous tailings retreatment programs and the Central Treatment Plant. Petra’s production is forecast to be around 4.5 million carats in 2017.
Petra sells all rough diamond production by the method of open tender. Tenders last between four to six working days, during which participants view the assortments and place a confidential electronic bid on the parcel of their choice. At the end of the tender, the highest bidder wins the parcel. Petra’s South African production is sold in Johannesburg and its Tanzanian production is sold in Antwerp.
Dominion Diamond Corp
Canadian diamond miner Dominion Diamond Corp, which owns the Ekati mine and 40% of the Diavik mine, both in Canada’s Northwest Territories in the Arctic Circle, has become the world’s third largest producer of rough diamonds by value. Formerly known as Harry Winston Diamond Corporation and before that Aber, it produces around seven million carats annually.
Gem Diamonds
Another mid-size miner that has made waves in recent years is Gem Diamonds, which describes itself as a leading global producer of high-value diamonds. The company owns 70% of the Letšeng mine in Lesotho and is developing the 100% owned Ghaghoo mine in Botswana. The Letšeng mine is famous for its production of large, top color, exceptional white diamonds, making it the highest average dollar per carat kimberlite diamond mine in the world. Since Gem Diamonds’ acquisition of Letšeng in 2006, the mine has produced four of the 20 largest white gem quality diamonds ever recorded.
These include the 550-carat white diamond, the Letšeng Star, recovered at Letšeng in August 2011, and currently ranked as the 14th largest white diamond ever recorded and the second largest white diamond to be recovered at Letšeng. The name was given to signify the growing number of "stars" in Letšeng's growing constellation of large diamonds recovered.
Then there was the Light of Letšeng, a 478-carat D color white diamond that was recovered in September 2008. The name reflects the diamonds remarkable color and clarity, the highest possible quality for a white diamond. The diamond is currently ranked as the 17th largest rough white diamond ever to be recovered and was the third significant recovery from Letšeng in as many years.
The 493-carat Letšeng Legacy is currently ranked as the 16th largest rough white diamond ever recovered and was named to reflect the growing legacy that the Letšeng mine in Lesotho is creating as a producer of significant diamonds.
Meanwhile, Gem Diamonds recovered the 603-carat Lesotho Promise at the Letšeng mine in August 2006. It is ranked as the world's 12th largest white diamond and the largest diamond from the Letšeng mine and the largest rough white diamond to be recovered this century. The Lesotho Promise was sold for $12.4 million in 2006. The Lesotho Promise was subsequently polished into 26 D flawless diamonds, the largest of which was a 76.4 carat pear-shaped diamond, and the diamonds were fashioned into a single necklace.
Lucara Diamond Corp
Lucara Diamond Corp. is a relatively new diamond producer, with its key asset being the Karowe mine in Botswana. The firm is perhaps best known for finding the 1,109-carat Lesedi La Rona diamond which it tried and failed to sell at auction last June.
The 100% owned Karowe mine is newly built and was fully commissioned only in the second quarter of 2012. Lucara has consistently recovered large, Type IIA stones at the mine.
The company forecasts revenue, from regular and exceptional tenders, of $200 million to $220 million for the 2016 calendar year. That doesn't include the sale of the 813-carat Constellation diamond, which sold for $63.1 million earlier this year.
Grib Diamond Corp
Recently in the news, the Grib diamond project was sold to Russian investment group Otkritie Holding by owner Lukoil for $1.45 billion. Located in Russia's Arkhangelsk region, production at Grib was launched in September 2014.
It soon became Russia's largest diamond mining operation outside of ALROSA's huge production, with more than 4 million carats annually. Sales in 2015 were in excess of $160 million, and more than $232 million in the first three-quarters of 2016 alone.
The majority of its output is sold using the tender system via its Antwerp-based unit Grib Diamonds.
Clearly, it is unlikely that a large diamond group is going to monopolize the diamond industry ever again. De Beers' decline – as far as production is concerned – came about because of anti-monopoly legislation and rules. Senior De Beers' executives were not allowed to set foot in the United States for decades until the miner resolved charges against it in the U.S. courts relating to monopoly practices.
And then, around a decade ago, the European Union also began to take an interest in De Beers' operations, particularly its purchase of goods from Russia which had allowed it to retain the lion's share of global output.
The upshot is that room has been created for smaller firms to build up their operations and production of rough goods. Although their share of worldwide supply is considerably smaller than that of either De Beers and Alrosa, these smaller and medium-sized firm are consistently building up and refining their operations which will enable them to remain players in the global trade for the foreseeable future.
By our Israel correspondent Abraham Dayan
