Diamond market needs another Botswana and perhaps less high tech exploration

Development of new diamond mines equivalent to the current annual output of Botswana is needed to balance the gap expected by 2010 in diamond supply and demand. This was one of the conclusions today of James Allan, Principal of Johannesburg-based corporate finance and advisory firm, James Allan and Associates, addressing the 2006 World Diamond Conference in Perth.  He said current global mine production is estimated at $11.3 billion by 2010. Of that, Botswana at 25% and Canada and South Africa, each with around 15-16% of world output, would dominate production.

“Demand growth for diamonds over the next five years will be equivalent in value to around $4-5 billion,” Allan said. “However, the diamond supply shortfall worth in value around $3.0 billion will start kicking in by 2008 and be fully evident by 2010. The immediate impact of this will be upward pressure on rough diamond prices – not during 2006 and 2007 but rising after that to balance the market shortfalls between 2008 and 2010. These rises will be in addition to the 35% rough diamond price rise evident since 2002.

“So the net impact is a production/demand deficit that will be exacerbated by declining South African production, reductions in diamond exploration spends and short-sighted efforts by some producers to focus on near-term mine development pipelines.”

Allan also warned that luxury goods continued to outstrip the performance of diamond sales as the advertising campaigns of both sectors remained poles apart in budget and top of mind recall. “Despite global advertising spends on diamonds annually of $750-800 million, this represents just over 1% of advertising expenditure on a diamond sales ratio basis,” he said. “As impressive as this appears, it lags well behind luxury good advertising spends which now account for an equivalent of between 12-15% of total sales.”

Over half annual global diamond sales are to the United States retail sector, with more than half of that amount occurring between the short period of Thanksgiving in November and Christmas Day a month later.

However, Ewen Tyler, Chairman of North Australian Diamonds says the lack of discovery of major new diamond fields in Australia and globally has been blamed on the loss of “excitement in the field” about finding the gems, as exploration crews wait weeks for laboratory analysis.

He said it “was time” for another major diamond discovery somewhere in the world as there had not been one for 15 years. “The reason for the non acceleration of discovery is that the excitement of discovery has been lost to men and women in the field by the time something of interest transfers from geologists to the field camp to the laboratory,” Mr Tyler said. “We have lost the buzz of concentrating samples in the field and following up on a day to day basis to push for the result.

“Ellendale (Western Australia) stepped up to the mark when 2 ct stones were seen on the surface; while Ashton persisted at Merlin (Northern Territory) when it retrieved sizable carats from bulk sampling. The sector needs to question whether its exploration search effort is relying too much on new technology rather than tried and tested diamond exploration ways of the past.”

Tyler said he was not suggesting all that had been learned from laboratory work be set aside as they continued to be the eyes of the search, and geophysics was useful for determining those large areas showing prospective kimberlites. “Greater usage should be made, however, of bulk sampling. It is costlier but Australia’s diamond exploration sector needs to inject more brain power to get ‘bigger bang for its buck’. One solution is to consider greater number of field recovery plants that can generate early answers and help persuade young geologists to go back to the bush.”