Cecil Rhodes’ famous formula: “If there were four people in the world, we would need to sell just enough diamonds for two” may get an reasonable basis within the next five years. For the first time in decades, the global output will plummet amidst the skyrocketing demand. Mr. Nikolai Pokhilenko, Director of the Institute for Geology and Mineralogy at the Siberian Branch of the Russian Academy of Sciences, comments on the recent trends of the global diamond market.
Note: Nikolai Pokhilenko, Associate Member of the Russian Academy of Sciences, is a specialist in the fields of geochemistry, mineralogy and petrology of kimberlites and litospheric mantle, diamond deposit formation processes, development of their forecasting and exploration methods. Authored more than 200 research papers. Discoverer of the Snap Lake diamond mine (Canada). Member of the American Geophysical Union, Prospectors and Developers Association of Canada, and the Russian Presidential Commission for Support of Leading Research Schools and Young Scientists.
- Mr. Pokhilenko, what are the main trends in the mineral resource base of the diamond industry in Russian and globally?
- First of all, we should admit that there have been no serious discoveries in any part of the world, including Russia, for the last ten years. This does not mean that we are run out of major or medium deposits, the problem is that the forecasting and prospecting conditions in which we have to do explorations today are in conflict with the exploration techniques, which become inefficient in these new conditions.
The famous kimberlite pipes in Malo-Boluobinsky, Daldyno-Alakitsky districts (Mir, Zarnitsa, Udarnaya, Aikhal, and other pipes) had very simple conditions. These large bodies containing great quantities of indicator minerals, actually cropped out. The strong contemporary erosion, the well-developed river network, the lack of flat watershed in the territories – all these factors were extremely advantageous. There was even a notorious case when a fox found kimberlite while burrowing.
The situation at Nakynskoye diamond field is totally different. Botuobonskaya and Nyurbinskaya pipes and Mayskaya dike are overlain by 60 to 80 meters of Mesozoic rocks, plus quaternary deposits above; these bodies do not supply any material to the contemporary fluvial system, and the river network itself hardly has an area more than 15 per cent of the total area, while the rest is table-flat watersheds. So, in this situation, in a 60 square meter area, exploration is effectively done by dense drilling with a meterage of about 70,000 per year. The drilling grid was at first 800×800, then 800×400, and finally we started drilling at 100×50 and only then we developed Mayskaya dike – and this was 10 years after Nyurbinskaya pipe had been discovered – the last relatively big deposit in the area.
Evidently, this approach does not solve the problem. Yakutia has vast diamond-rich territories, and we if go on with this prospecting technique elsewhere, we’ll run out of money. Now ALROSA spends about $110 million annually for exploration work, this is quite a sum, especially if we remember that no new serious discoveries have been made for ten years.
There is a similar situation in Africa and Canada – all territories that were easy-to-explore have been explored. Now the conditions are harsher, and each area requires specific approach and equipment adapted to specific exploration and geologic environment.
- We used to have great expectation of Krasnoyarsky Krai.
- There are diamonds there, but I doubt that any major discovery will be made there in the foreseeable future. Quite probably, original sources are buried under deep strata of tuffs and lava beds. The sharp increase in the depth of east-dipping overlaps combined with the type of rock in the overlaps makes it virtually impossible to detect kimberlite pipes, and I personally see no adequate complex of reliable exploration techniques. There is one site though – about 150 km south-south-east from the Tychany paleo-placer deposit, its has mineralogical signs of high-diamond bodies, but there is no guarantee that they do not lie beneath the thick Triassic tuff-and-lava mass.
Can we expect any discoveries in the Russian North-West and in Primorsky Krai?
There is a prospect of finding several medium-scale deposits in the Russian North-West. There is hardly anything notable in Primorye.
Which areas in Yakutia do you find the most promising?
There are signs of presence of Middle-Paleozoic high-diamond kimberlite pipes on the whole territory of the Olenekskoye elevation and its margins, in the middle and upper reaches of the Tyung River, near the Lena River, and in several other areas where we have discovered “fresh” indicator minerals of kimberlites and diamonds, but have yet to find their primary sources.
Any hope to find the primary sources of the Yakutian placers?
As for the Ebeluyakh placer diamonds, we still do not know the composition of their primary sources. These might consist of lamproites, or lamprophyres similar to the diamondiferous lamprophyric dikes in North-East Canada. Their diamonds have a very specific morphology and contain large proportions of the 5th and 7th morphological groups, which are lacking in kimberlites. Possibly, a big part of the primary deposit was cut off during the intense uplift of the Anabar shield and its margins for the last several dozen millions of years, thus cutting off several kilometers of sediments. If the primary placer deposits in Northern Yakutia have a bed-type ore body, like the ore body in Snap Lake, they could have been cut almost completely. We are hopeful to access the primary sources in the Molodo area. We have allocated two prospective regions there with an area of about 5 thousand square meters, and now we must carry out further detailed studies. They have direct signs of presence of Middle-Paleozoic pipes with relatively thin overlaps, with a high diamond content and a good quality of diamonds.
How are the things in Canada in Africa?
It is worth expecting discoveries of large deposits in Canada outside the Slave craton. There may be interesting occurrences in the far north-west of Canada, in the lower basin of the McKenzie River, in the north-west of Saskatchewan, in northern Quebec, in Ontario. In general, the vast potentially diamondiferous territories of Canada have been not so fully researched as the Yakutian diamondiferous province and the south of Africa, and the prospects of detecting new diamond kimberlite mines are far from exhaustation there. The Congo has the best prospects in Africa. But it’s complexified by the political situation.
Even if there is a large discovery in the near term, it will still take years to develop it. What will happen to the diamond production level in Russia and the rest of the world in the years to come?
In general, the global diamond production will start decreasing from 2008, and starting since 2010 it will plummet quite visibly. In Yakutia, the resources of the Nakynskoye kimberlite field will not cover the deficit that will emerge in the nearest 5 to 7 years with exhaustion of the Udachnaya pipe. Its underground mine will cover just one third of the capacity of Dressing Works No.12, and this will be a hard-to-achieve success. And we see the same trends everywhere. Take Nizhnezelensky, for instance; the deficit of proved placer reserves in the north-eastern part of the province will be evident within the nearest three or four years. Canada will neither be able to cover the global supply deficit. The Ekati Mine is being developed quite intensely, but the amounts of ore mass in the pipes are not that big. The Diavik field will not supply much. This year, De Beers will launch Snap Lake, but in the nearest years, this field will hardly produce more than $400 million worth of diamonds per year. Production will also decrease on the whole in Africa.
By 2012, the total reduction of global output will be about 20 to 25% in carat terms against today’s level.
There have been recent reports that De Beers might refuse to operate Snap Lake. Some analysts guess that this might be caused by more complicated mining conditions that had been expected.
According to my data, De Beers has already invested about $1 bn in Snap Lake and the mine is about to be commissioned. The problems in Canada have nothing to do with technology but with local authorities, particularly, Indian communities, who are quite negative about De Beers’ activities in their controlled territories.
Are there any reasons to say so?
You cannot behave in Canada as you do in Africa. I’ve never heard of any other mining companies having this sort of troubles with the Indian communities, all managed to put it right sooner or later. De Beers’ behavior was amazing from the very beginning. Before they came to Snap Lake, the field had produced about six tons of dressed ore and about 12 thousands carats of diamonds, and a mere assessment of these quantities could easily give an unbiased picture of the actual value. An average price of Snap Lake diamonds is now about $148 per carat, and De Beers experts first tried to evaluate them at $70 per carat, which, of course, gave a totally different picture of the project profitability. This kind of “inaccuracies” combined with other outstanding problems caused an understandable exasperation of the local authorities, who, we should say, have very considerable rights in the diamond-mining areas.
What will happen to demand for rough diamonds?
- In its turn, the demand will increase at a quick pace. Mainly from the Asia-Pacific countries, primarily from China. India and the US will do their part, and, to a lesser extent, Russia. The demand may reach $18 billion by 2012, while production will fall to $9 or 10 billion, if we count in today’s prices. So, only God knows what will happen to the actual prices for rough diamonds.
If this forecast comes true, we can say this is the first such situation in the diamond market. What are the prospects of the major players if it develops this way?
This forecast is conformed by today’s tactic chosen by large traders. As far as I know, site holders now accumulate up to 30 per cent of their stocks waiting for a soon price hike, and these stocks also contain high-quality diamonds. Naturally, the one who manages to sell his goods at the highest exponential growth curve will reap the cream of the market.
One of the greatest mysteries of the diamond market is De Beers’ stock amount and its content. Can these stocks compensate for the future production shortage and force down the demand wave?
Hardly. In the better case, we can talk about a comparatively short-termed expansion. The fall of production will have such a scale that no stocks will be able to cover it in the long run. There is no doubt, however, that the current market trend allows De Beers expect a surplus profit during short periods of time.
The Russian diamond industry cannot boast of such long-sightedness. ALROSA sells all of its output straight away…
This situation should have been forecasted when the many-year long reserves of the State Precious Metals and gems Depository were being devastated. As for ALROSA, its position looks quite optimistic in the current situation. For instance, it may gain a high level of profitability for its Archangelsk project and several proven Yucatan reserves, whose development is inexpedient at today’s prices. If we compare the conditions of the mineral resource bases in various regions, I’m inclined to think that Africa and Canada are going to “settle” much deeper than Russia.
