Diamonds
The diamond market regaining its pre-pandemic sparkle
Southern Africa is rich in this crystalline hard carbon structure that witnessed heightened market pressure under the pandemic. The plummeting demand for diamonds affected prices and production significantly globally, causing a 20% decrease in production. In Namibia, the mining diamond industry witnessed a 14.9% decline in 2020 compared to 2019, as rough diamond sales were negatively impacted due to cutting and polishing factories' closures in India. Many Namibian diamond mines went on care and maintenance, and the government even announced tax relief for land-based diamond operations.
Namibia's Debmarine, a subsidiary of De Beers, reported a 13% year-on-year decline in production in 2020 and a 5% decrease in revenue. The De Beers Group's total rough diamond production also decreased by 14%, driven by continued planned reductions in response to the lower demand for rough diamonds caused by the Covid pandemic and operational challenges. Meanwhile, in Botswana Debswana, jointly owned by De Beers and the Botswana government, also cut production by 29% to 16.6 million carats, and Vancouver-based Lucara Diamond ended Q3 of 2020 with a US$5.4 million net loss. “Our revenues were certainly impacted by the pandemic, not because of losses but rather due to deferring income to a later stage when we could achieve better prices,” commented Eira Thomas, president and CEO of Lucara Diamond.
“I do not believe that synthetic diamonds are a threat to mined diamonds at all. There is an intricate value to a mined diamond that will always be there, and lab-created diamonds cannot replace that.”
Marco Wentzel, Chairman, Trans Hex Group
Surprisingly, in South Africa the diamond industry was the only one to record increased production in 2020 (an increase of 12.3%). Nonetheless, the alluvial diamond mining industry, which represents 25% of local diamond production, suffered greatly. "The diamond market initially witnessed severe losses as the pandemic disrupted sources of income," commented Gert Van Niekerk, chairman of the South African Diamond Producers Organization (SADPO), a representative body of small-scale diamond miners. "The devastation was felt across the whole supply chain. We were forced to start producing to retain our employees."
Overall, the diamond industry withstood the crisis better than expected. "In March 2020, we were all very concerned but started to see a clear recovery towards the end of the year. We are now sitting at a high which I have not experienced," commented Marco Wentzel, chairman and non-executive director of South-African based Trans Hex Group, one of the oldest alluvial diamond mining companies in South Africa. "The diamond market recovered rapidly, giving us confidence in the resource and product."
As the market recovered, investments in development have resumed. For example, Lucara Diamond secured US$220 million for its Karowe mine underground expansion in May 2021. The expansion will require a total investment of US$514 million and will draw its first ore in 2026. “We will sink the shaft over the next two to three years and ultimately start our lateral underground development. By the time the open pit is nearing its natural end of life in 2025/2026, we will be ready to deliver the ore from underground, feeding the mill at the same steady-state capacity that we are mining at today,” commented Thomas.
Debswana, which contributes approximately two-thirds of Botswana's foreign exchange earnings, is assessing financing options to invest US$6 billion to expand its Jwaneng underground mine. The mine's last US$2.2 billion expansion transformed it into one of the biggest open-pit diamond operations, and the planned underground expansion will make it the world's largest underground diamond mine, including more than 360 km of tunnel development. It is expected to achieve full production by 2034, producing as much as 9 million carats annually. The operation is of huge significance to De Beers and represented 41% of their total production in Q1 of 2021.
A significant amount of diamonds are mined off the coast of Southern Africa. Namibia has the richest known marine diamond deposits in the world, estimated at more than 80 million carats, according to De Beers. Marine diamond recovery produces larger volumes annually than the country's land mines.
Are synthetic diamonds a threat?
While Covid posed a short-term threat to operations, as markets recover, both the synthetic and the mined diamond industry are looking to spark demand. The competition with lab-grown diamonds poses a more long-term threat to diamond mining. Production of lab-grown diamonds, which is predominantly in China, increased from 2 million carats in 2018 to over 6 million carats in 2020, according to Bain & Company, a management consulting firm.
Earlier in 2021, Danish jeweller Pandora announced it would stop selling mined diamonds under its new ESG policy. Pandora came under fire since the move implied that naturally mined diamonds were less sustainable and more unethical and it is assumed that lab-grown diamonds are automatically more ethical. They are formed using high pressure and extreme heat to mimic the Earth's mantle, which led to the occurrence of natural diamonds between 1 – 3 billion years ago.
However, the environmental credentials of synthetic diamonds were brought into question by the Diamond Producers Association, which conducted research that suggested that greenhouse gas emissions from lab-grown diamonds are three times that of naturally occurring diamonds. The Diamond Foundry disagrees, suggesting that mined diamonds have a substantially larger environmental footprint. “The mining industry also contributes to socio-economic and growth, which can significantly benefit a country's economy,” elaborated Thomas. “There is a false narrative that synthetic diamonds are more environmentally friendly, which is not the case.”
“The diamond market initially witnessed severe losses as the pandemic disrupted sources of income. The devastation was felt across the whole supply chain.”
Gert Van Niekerk, Chairman, South African Diamond Producers Organisation (SADPO)
Diamond miners have been working hard overall to reduce their environmental footprint and invested in blockchain technology to enhance transparency. Researchers at Anglo American (parent company of De Beers) are working on developing the "mineral carbonation" project to reduce the mined diamonds' carbon footprint by capturing carbon dioxide in kimberlite.
However, Bain & Company's survey across three key markets, China, India and the US, concluded that consumers across these markets do not see a substantial difference in sustainability between lab-grown and natural diamonds, but they do see a difference in their market perception. Lab-grown diamonds are deemed by consumers as artificial, fake and affordable – which clashes directly with the luxurious identity of diamonds traditionally. "I do not believe that synthetic diamonds are a threat to mined diamonds at all. There is an intricate value to a mined diamond that will always be there, and lab-created diamonds cannot replace that," concluded Wentzel.
Image courtesy of Lucara Diamond