Personal liability company BDO South Africa says the diamond industry faced several obstacles in recent years, resulting in a noticeable change in the industry landscape.
Mining Weekly quoted the firm's natural resources partner Jacques Barradas as saying that after a drop of 15% to 18% in diamond prices over the past year and smaller volumes at market tenders, the sector is undergoing a metamorphosis.
This, he said, requires rigorous analysis and strategic thinking.
BDO's natural resources head Servaas Kranhold said that several macroeconomic variables have contributed to a recent decline in the diamond market.
The United States market, for instance, has been an important consumer of diamonds in the past, but it is now struggling with recessionary issues, and this is having an effect on the demand for diamonds suitable for jewellery.
As a result of the many COVID-19 lockdown measures adopted last year, the Chinese economy has not recovered as quickly as hoped, leading to muted demand.
As a result, the diamond trading environment has become more complicated, leading to lower prices and lower volumes.
The situation is complicated by the fact that the diamond supply has grown at the same time the market has shrunk.
The report noted that to stay competitive in the current low-price climate, mining companies are rethinking their operational practices.
To cut costs, many have switched from opencast to underground mining on a small scale, taking advantage of innovations like remote mining.
This new strategy exemplifies the industry's flexibility and ability to respond to new challenges.
While the diamond industry's near-term outlook is cloudy, there is reason to be optimistic.
Enhanced selling prices may result from a shift from opencast to underground mining because of higher costs and lower volumes.
Resources could become more scarce and mining operations could get more complicated as more mines move underground.
BDO notes, however, that this possibility is contingent on the behaviour of diamond deposits as mining depths are increased.
Maintaining resource size and footprint at higher depths is crucial to the success of underground operations.
As they dig deeper, some mines find fewer and fewer usable minerals, which might make underground mining unfeasible. Large publicly traded diamond mines may need to evaluate the viability of continuing operations in light of current prices and available resources.
When mining operations are no longer profitable, the closure of big conventional mines is a real possibility, which might have severe repercussions for surrounding populations and economies.
Environmental, social, and governance factors are crucial as the sector finds its way through these obstacles.
It's not uncommon for local economies to rely heavily on diamond mines.
Possible repercussions of mining activities being shut down due to macroeconomic issues include population loss, increased urbanization, and the transformation of once-thriving communities into ghost towns.
Mathew Nyaungwa, Editor in Chief of the African Bureau, Rough&Polished
