Stable rough diamond production

Avi Krawitz

Rough diamond production was basically flat in 2014 and is projected to remain at similar levels this year. While De Beers is expected to maintain steady production, increases by ALROSA will likely compensate for declines at other companies.

Production is projected to rise in 2016 and 2017 as new projects come on stream, before gradually declining in the longer term. De Beers similarly predicted in its recent Diamond Insight Report that global production should peak in 2017.

Looking at the global portfolio of diamond mines and development projects, the mining companies are treading cautiously to match their supply with restrained demand in the current weak market. However, given the costs associated with scaling back their operations, they’re unlikely to respond by cutting production levels – unless there is a more dramatic downturn in demand, as there was in 2008/09.

In addition, among the top producers, only ALROSA and De Beers really have sufficient volume to influence the market through their supply, and neither is likely to change their planned production at this point. In fact, swings in production by any of the mid-to-large diamond miners should fall within their respective 2015 mining plans that are already in place.

ALROSA, the largest producer by volume, stated that it intends to increase production by 5 percent to 38 million carats in 2015. Whereas the Russia-based company’s production fell 2 percent to 36.2 million carats last year, ALROSA is currently ramping up operations at the Mir, Udachny and International underground mines, and two new kimberlite pipes are slated to launch early this year. The Botuobinskaya pipe is expected to peak at around 2 million carats a year and the Karpinskogo-1 pipes at 1 million carats, although it will probably take at least until 2016 for either to reach full capacity.

Those projects combined should be enough to preserve ALROSA’s position as the largest carat producer, in line with its strategy to drive growth through supply volume.

In contrast, De Beers has shifted its focus toward being a value producer in the past few years. With its higher-priced production compared with ALROSA, and, more importantly, its branding initiatives, the company is set on maintaining stable production, at least in the short term.

In 2014, De Beers in fact raised production 5 percent to 32.6 million carats, but output is forecasted to stay at around 32 million to 33 million carats this year. De Beers long-term production is being driven by expansions at its flagship Jwaneng and Venetia mines. Production at Gahcho Kué in Canada – De Beers only new development, which is owned in partnership with 49 percent stakeholder Mountain Province Diamonds – is expected to launch in the second half of 2016 with an eventual annual production of 4.3 million carats. De Beers is expected to provide its production guidance for this year when parent company Anglo American publishes its earnings on February 13.

In 2014, the combined production of ALROSA, De Beers, Rio Tinto, Dominion Diamond Corporation and Petra Diamonds – which account for an estimated two-thirds of global production – was flat at 92 million carats (see graph).

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Source Rapaport