Diamonds: Will demand soon exceed supply?

Great demand, brilliant return

After an inevitable corona setback, the diamond industry earned brilliantly again in 2021. After a Study by management consultancy Bain with the World Diamond Center in Antwerp Global sales of diamond jewelry rose by 29 percent to 84 billion dollars after plummeting by 14 percent in 2020. Even compared to 75 billion dollars in the pre-crisis year of 2019, this was an increase of twelve percent. Prices for rough diamonds also rose by an impressive 21 percent last year. Overall, sales rose by 18 percent in Europe in 2021, 19 percent in China and as much as 38 percent in the USA.

Despite high demand, mine operators' production was still 20 percent below pre-crisis levels. As a result, their warehouses were bought out and even small and poorer quality stones were brought onto the market. Mine operators were nevertheless able to increase their profit margin by around ten percentage points, processing companies by around four points and trade by around seven percentage points.

In the context of increasing demand for diamonds, rising prices and higher margins, it is all the more surprising that the significant Argyle Mine Diamond Mine closed in western Australia in 2019 and has not been funding anymore to date. Their open-cast mine was — with around one fifth of the world's production — the largest diamond producer in the world. The mine, which has been operating since 1983, has yielded rough diamonds with a total weight of more than 800 million carats. Argyle operator Rio Tinto justified the decision to end diamond mining by the fact that resources are running low and mining is no longer profitable.

The Argyle Mine enjoyed a special status in the industry as, in addition to stones of other colors, it contained approximately 90 percent of the available on the market rare pink diamonds produced. For decades, the name Argyle has stood for quality and extremely valuable and globally sought after stones. As a result of the discontinued funding and the associated scarcity, the price of Argyle diamonds could rise in the future — which offer enthusiasts and investors attractive investment opportunities.

The biggest diamond mines in the world

Following the closure of the Argyle mine, Russia now accounts for around half of the world's ten largest diamond mines. With rough diamonds worth around 3.7 billion dollars (2018) and a World market share of around 30 percent Russia is the most important producing country. However, Russia exports only a few of its diamonds. Most are used in our own jewelry industry or for tools. Russia's share of global diamond exports is just 3.8 percent, which is why the current sanctions against Russia and its diamond exports will not significantly affect the market.

The ranking of the world's largest diamond mines includes these mining sites:

• Aikhal/Jubilee (Sakha, Russia)

The diamond mine of the state-owned company Aikhal Mining, a subsidiary of the diamond company Alrosa, produces around 10.4 million carats per year. It also has the largest reserves that can still be mined, amounting to 153 million carats. It is still in an open-cast mine at a depth of around 320 meters, but will be able to continue mining underground after exhaustion of this to a depth of around 730 meters.

• Udachny (Sakha, Russia)

The mine, which is also operated by Alrosa, is currently the deepest mine that is operated as an open-cast mine. Udachny has around 152 million carats of mineable reserves and produces around ten million carats annually.

• Jwaneng (Botswana, Africa)

The diamond mine is located in the Naledi Valley in Kalahari and produces around twelve million carats annually. The mine was opened in 1982 and helped Botswana become one of the richest countries in Africa.

• Venetia (South Africa)

Venetia is the largest South African mine and has 92.4 million carats of diamond reserves. It produced 4.2 million carats in 2018 and is owned and operated by De Beers. Opencast mining operations are expected to continue until 2021, after which they will be converted to underground mining by around 2046.

How diamonds are mined

In In 2020, Arosa was the world's largest diamond company with a production volume of 30 million carats — followed closely by De Beers with around 25 million carats. But the world's resources will be exhausted at some point. According to a study by Fancy Color Research Foundation (FCRF) In the next 25 years, the majority of the 45 most important diamond mines that are in operation today will no longer exist. In 60 years, the last diamond could be mined from their large deposits. “Replenishment” is not expected, as the formation process took place around three billion years ago in the Earth's interior at a depth of 150 to 200 kilometers.

The diamond-containing rock reached the earth's surface as a result of volcanic eruptions. Two different types of diamond deposits can be found today: kimberlite and lamproite vents or pipes are among the primary deposits, while sedimentary rocks in streams, rivers and coasts are secondary deposits. Depending on where the diamonds are mined, various mining methods are used.

At the moment, open-cast mining is the most widely used method. Here, the actual volcano is excavated to a depth of about 300 meters in surface mining. Up to a total depth of 1000 meters, the diamond-containing mother rock (kimberlite) is then released from the earth via shafts and tunnels, crushed and sorted at the surface of the earth. Extracting diamonds from kimberlite clots is the most important form of mining, accounting for around 80%.

Secondary mining methods, such as washing out river debris, are far simpler and less complex. Diamond-containing rock was swept away from the actual volcanic vent by watercourses. In the past, it was carried out by hand with primitive pans, but today the rough diamond is washed and removed from rivers and ocean shores using complex machines. Although diamonds from secondary deposits only account for around 10-15% of world production, they are often of high quality and above average size.

Because many land mines dry up, alternative forms of diamond mining are becoming more important — for example at the bottom of the sea. However, this so-called offshore production is extremely expensive and complicated. Most gemstones are harvested at depths of 120 to 140 meters below sea level. Undersea mining therefore uses powerful earthmoving machines or explosives to penetrate the diamond-containing gravel. Sediments from the ocean floor are then sucked into a remote-controlled “crawler” vehicle. Equipped with a mechanical arm, the crawler sends the rock to the main ship, where machines sort out the diamonds.

Brilliant market perspective

In contrast to other raw materials, such as gold, which are also exposed to natural scarcity, diamonds are considered to be particularly crisis-proof. While the price of gold depends on many factors (market interest rate, US dollar, inflation rate, political developments), diamond pricing follows its own rules. For example, the diamond price — unlike gold — cannot be stated as a lump sum.

The “four Cs” are the key criteria for pricing diamonds. They stand for: “Carat” (weight), “Colour” (color), “Clarity” (purity) and “Cut” (cut). In some cases, the fifth C, “Certificate”, is added. Since colored diamonds are much rarer than colorless ones, so-called”Fancy Diamonds“paid particularly high prices.

According to the FCRF, the Diamond prices continue to rise as supply falls, although fancy diamonds could appreciate even faster than the rest of the supply. High-quality, certified diamonds are particularly suitable for meaningful portfolio diversification with tangible assets. Investors who want to entrust the selection of suitable jewels, their storage, taxation and possible sale to experts are specialized platforms What you're looking for. There, private investors can purchase investment tokens of exclusive tangible assets such as diamonds with small amounts of money, build up a diversified investment portfolio and benefit from its increase in value.