Diamond markets under pressure – Rapaport

Rapaport published a report stating that diamond markets are under pressure as profit margins have tightened and the trade war with China has fueled uncertainty.

The international firm revealed that the RapNet Diamond Index, known as RAPI, for 1-carat diamonds fell 0.7% in May and is down 1.7% since the beginning of the year.

RAPI is the average asking price in hundred $/carat of the 10% best-priced diamonds, for each of the top 25 quality round diamonds offered for sale on the Rapaport Diamond Trading Network.

Stones weighing 3 carats saw the most dramatic change, with a 4% drop in May and a 9.8% drop since the beginning of the year.

To try to boost sales, polished suppliers are offering technology and source verification as a value-added service

Diamonds of 0.30 carats sunk by 3.7% in May and 9.4% since the start of the year, while 0.50-carat rocks fell 1.7% last month and 2.9% year to date.

"There is good demand for 0.60- to 1.99-carat, F-J, VS2-I1 diamonds. Buyers are insisting on well-cut stones. Polished below 0.50 carats is slow due to excess supply, weak Chinese demand and tight Indian liquidity," the report reads.

According to Rapaport, this state of affairs has pushed cutters to operate at lower capacity as they try to reduce inflated inventory, while manufacturers are rejecting high-priced rough stones that have made polished production unprofitable.

"De Beers and Alrosa are carefully managing production and price levels amid this year’s slow rough demand," the document states.

In the view of the firm's chairman, Martin Rapaport, if the trade does not change its business practices and adapt to new realities, the diamond industry will suffer "extreme financial and regulatory disruption."

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De Beers, Namibia to spend $468m in world’s first custom-built diamond searching ship

Debmarine, a 50/50 joint venture between world’s No. 1 diamond producer by value De Beers and the government of Namibia, will build a $468 million-diamond recovery ship, the world’s first custom-made vessel of such kind and the seventh in the company’s fleet.

The watercraft, slated to start operations in 2022, would add about 500,000 carat a year of production capacity to Debmarine Namibia’s output. This, Anglo American’s diamond unit De Beers said, represents an increase of about 35% on current output levels.

Vessel, slated to start operations in 2022, would add about 500,000 carat a year of production capacity to Debmarine Namibia’s output.

Anglo’s chief executive, Mark Cutifani, noted that the addition of the first-of-its-kind vessel would bring numerous benefits in terms of De Beers’ production profile by value and volume, as well as the technologies that can be deployed from the outset for greater efficiency and productivity.

The executive added the investment offered a three-year payback, a more than 25% internal rate of return and an earnings before interest, taxes, depreciation and amortization margin of more than 60%.

Debmarine Namibia last ordered a new vessel in late 2017. At the time it was projected to cost $142 million and was expected to start operations in 2021.

The company operates five diamond mining vessels and one exploration and sampling one, the mv SS Nujoma. They comb the ocean floor using advanced drill technology, supported with tracking, positioning and surveying equipment.

Dredged gravel is sifted at treatment plants onboard the ships. The leftover material is returned to the ocean and recovered diamonds are securely sealed in containers, loaded into steel briefcases, and flown by helicopter to shore.

No human hands touch the diamonds during the entire production process at sea.

Worth the investment

Namibia has over 3,700 square miles of marine diamond concessions along its south-west coast, which is expected to support the industry for the next 50 years.

Debmarine has a license to operate off the coast of the African country until 2035 within a 2,316 square mile area — just under half the size of Jamaica.

The company began marine mining operations in 2002, with a haul of approximately 500,000 carats. At the time, sister company Namdeb's land operations were producing around a million carats.

But over the years the tables have turned and marine operations now account for about to 75% of total diamond production in the country, according to Namibia's Chamber of Mines.

While marine diamonds may be challenging to find, they're certainly worth the effort. According to Debmarine’s own estimates, 95% of the precious rocks recovered from the sea are of "gem quality," compared to just 40-60% of those mined inland.

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Coal hurts Anglo American’s Q1 production, 2019 guidance unchanged

Anglo American (LON: AAL) released its first quarter production results on Thursday, reporting decreased production numbers, mostly because of planned disruptions at its metallurgical coal

division, where production dropped 25%.

“Production is 6% lower in the quarter, with two planned longwall moves at metallurgical coal accounting for 80% of the reduction,” chief executive Mark Cutifani said in a statement.

“Isolated production issues at Venetia (De Beers), Kumba Iron Ore and Platinum Group Metals made up the balance, mitigated by stronger operational performance from copper, with a 4% production increase, and the ramp-up at Minas-Rio, which is ahead of plan following the restart of operations in December 2018,” said Cutifani.

De Beers’ diamond production decreased by 8% to 7.9 million carats driven by lower production at the Venetia mine as it transitions from open pit to underground.

Platinum and palladium production decreased by 5% to 471,900 ounces and by 6% to 326,600 ounces, respectively, due to operational challenges as well as one-off benefits in Q1 2018.

Kumba’s iron ore production decreased by 12% to 9.5 million tonnes due to plant maintenance while Minas-Rio’s iron ore production increased by 61% as its ramp-up progresses well, facilitated by access to higher grade ore in the step 3 licence area.

Metallurgical coal production decreased by 25% to 4.2 million tonnes with two longwall moves in the period compared to only one in Q1 2018.

Thermal coal export production decreased by 2% to 6.6 million tonnes, with solid operational performance across the South African mines offset by lower production at Cerrejón due to dust management.

Cutifani added that by the end of the quarter Anglo had increased its production run-rate and are on track to deliver this year’s production targets.

“Our guidance is unchanged,” Cutifani said.

Late Thursday, Anglo American’s stock was down 2.24%, with shares priced at 2,034p on the London stock exchange. The company has a £28.6 billion ($37 billion) market capitalization.

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De Beers expands pilot scheme in Sierra Leone to sell ethically sourced diamonds

Anglo American’s De Beers is stepping up efforts to remove so-called “conflict” diamonds from the market by expanding a pilot program in Sierra Leone, which is set to help trace the route of precious stones dug up there by small miners.

The world’s largest rough diamond producer by value said Wednesday the decision to scale up its GemFair trial was made to give more artisanal and small-scale miners (ASM) the opportunity to benefit from the program.

After training ASM in 16 mine sites across Sierra Leone on how to use provided tablets to digitally track their diamonds throughout the supply chain, De Beers has extended the pilot to work with a further 38 sites and widen its impact, it said in the statement.

De Beers' GemFair program gives small miners an app and dedicated tablet as well as a diamond “toolkit” that enables the digital tracking of diamonds throughout the supply chain. 

The company has also partnered with the Diamond Development Initiative (DDI), an NGO in helping to formalize the diamond ASM sector in Africa.

De Beers’ plan to encourage mine owners to join GemFair is based on a membership model whereby mine sites that meet a strict set of core requirements, aligned with the OECD’s standards can join the program sell diamonds to GemFair.

Miners then work with DDI towards achieving full Maendeleo Diamond Standards (MDS) certification, within a one-year timeframe, De Beers said.

“While registered miners have no obligation to accept offers to purchase diamonds through the GemFair buying office, they are provided with free training in diamond valuation, so they can make an informed assessment about the value of their diamonds and negotiate the best possible deal,” it added.

Since the launch in April 2018, GemFair has seen significant progress across its operations, opening offices in both Koidu and Freetown, and developing a set of publicly available ASM standards to ensure a best practice approach for responsible sourcing.

The program has developed a digital solution to ensure the traceability of all diamonds mined by members. The toolkit contains an application and dedicated tablet that creates a digital record of each diamond found using GPS locations and QR-codes.

Tainted reputation

Artisanal mining accounts for only 20% of global diamond production, but carries a tainted reputation that’s damaged consumer confidence for almost 20 years.

Between 1991 and 2002, the district of Kono, in Sierra Leone, was at the centre of the "blood diamond" trade that funded the country’s brutal civil war as rebel groups exchanged gems for weapons.

Despite the establishment of the Kimberley Process in 2003, aimed at removing from the supply chain the now called "conflict diamonds" (those mined in an area of armed conflict and traded illicitly to finance the fighting), experts say trafficking of precious rocks is still ongoing.

According to Canada-based Centre for Research on Globalization (CRG) about one-fifth of diamonds on the global market in value terms are still a significant source of funding for regimes accused of committing crimes and human rights violations.

De Beers sells its diamonds mostly to authorized buyers at a series of so-called “sights” in Botswana, Namibia and South Africa. Then, they are normally sent to be polished or cut before ending up with retailers.

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Anglo American rides out iron ore hitches in strong 2018

Global miner Anglo American (LON:AAL) ended 2018 on a high note, posting Thursday strong fourth quarter production results despite setbacks at its iron ore operations in both South Africa and Brazil.

Output of copper, one of the miner’s main commodities, reached a five-year high, with overall output for the last quarter of 2018 rising 7% as a result of operational changes that boosted efficiency, the company said.

Copper production reached a five-year high, more than offsetting output declines at Minas Rio in Brazil and Kumba in South Africa.

The significant increase in copper production — 23% higher than the same quarter a year ago  — more than offset a 13% production decline at Kumba iron ore in South Africa, attributed mostly to infrastructure problems.

Disruptions at Anglo’s giant Minas Rio iron ore mine in Brazil also weighed on the miner’s production figures, with output for the steel making ingredient in the last three months of 2018 coming at 10.2 million tonnes, down 13% from the previous year and 4% when compared to the third quarter of 2018.

Operations at Minas Rio, Anglo’s biggest development project, were shut for eight months following the discovery of leaks in a pipeline that carries ore to a port in Rio de Janeiro for export.

Looking ahead, Anglo American guided for Kumba to produce 43 million to 44 million tonnes of iron ore this year, and Minas Rio 18 million to 20 million tonnes.

De Beers lost sparkle

Diamonds giant De Beers’ output increased 12% to 9.1 million carats due to production increases at Orapa. But full-year rough diamond sales fell by 4% to 33.7-million carats, with an average realized price of $171 per carat because of reduced sales of lower-value diamonds.

De Beers' full-year rough diamond sales fell by 4% to 33.7-million carats, with an average realized price of $171 per carat because of reduced sales of lower-value stones.

The division’s expected output this year was pegged at between 31-million and 33-million carats as the company moved production underground at its Venetia mine in South Africa, in a $2 billion-project.

“Associated with this, an increased proportion of production in 2019 is expected to come from De Beers Group’s joint venture partners, a proportion of which generates a trading margin, which is lower than the mining margin generated from own mined production,” Anglo said.

In terms of spending in exploration and evaluation, Anglo reported a 25% increase in 2018, equivalent to $284 million, with the bulk of that expenditure going to the assessment of building an underground mine at its Los Bronces copper mine in Chile.

Elsewhere, metallurgical coal production increased by 15% to 5.6 million tonnes in the quarter, driven by productivity improvements at Moranbah and the continued ramp up at Grosvenor. The total production for the year grew 11% to 21.8 million tonnes.

Thermal coal production, however, fell 9% to 6.9 million tonnes in the quarter and dropped 2% in the year to 28.6 million tonnes due to the impact of rain at Cerrejón.

For this year, Anglo expects to produce between 22 and 24 million tonnes of steelmaking coal and 26 to 28 million tonnes of the thermal kind.

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Tiffany joins top diamond miners in disclosing origins of gemstones

World famous jeweller Tiffany & Company has launched an initiative to provide greater transparency about the origins of its diamonds to customers, from miner to retailer.

Following in the footsteps of world’s No. 1 diamond miner De Beers, which is testing a blockchain technology-based platform aimed at clearing the supply chain of imposters and conflict diamonds, Tiffany has begun tracing each of its individually registered diamonds (0.18 carats and larger) by a unique serial number.

The “Diamond Source Initiative” identifies for customers the country where diamonds were mined, and, eventually, will also include information on where they were cut, polished and set.

The digits, etched by laser and invisible to the naked eye, provide consumers with the exact provenance and country of origin for the diamonds they are acquiring.

By 2020, the New York-based jeweller plans to add further information about the "craftsmanship" journey of its precious gems, such as cutting and polishing workshop location.

The program, known as the “Diamond Source Initiative”, is part of jewellers’ effort to attract younger shoppers, for whom the issue of sourcing is a key factor in their shopping behaviours.

"Diamonds, formed up to three billion years ago and brought to the earth's surface by a miracle of nature, are symbols of the most important moments in our lives," Tiffany CEO Alessandro Bogliolo said in a statement. "There should be nothing opaque about Tiffany diamonds."

Despite the establishment of the Kimberley Process in 2003, aimed at removing those so-called conflict diamonds from the supply chain, experts say trafficking of precious rocks is still ongoing.

While Tiffany controls most of the process that readies its diamonds for display cases, it buys its roughs from suppliers with various mines. The country-of-origin information comes from those companies and does not link diamonds to specific mining operations.

That’s why, in cases where a precious stone's provenance is unknown, such as with those that pre-date the initiative, Tiffany will be able to certify they were mined in countries known for having ethical practices, such as Canada, Botswana, Namibia and South Africa.

Going forward, polished diamonds will be required to comply with Tiffany's “Diamond Source Warranty Protocol”, which restricts sourcing to countries that do not present diamond-related human rights concerns.

“Tiffany & Co has long been committed to diamond traceability and going above and beyond industry norms to promote the protection of the environment and human rights," said chief sustainability officer Anisa Kamadoli Costa. "A transparent journey of responsible sourcing reflects the many positive and far-reaching benefits along every step of the diamond supply chain."

In 2017, Tiffany & Co. sold more than $500 million worth of diamond engagement rings.

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Lucara Diamond kicks off the year with 127-carat find at Karowe

Canada’s Lucara Diamond (TSX:LUC) has kicked off the year with yet another massive find at its flagship Karowe diamond mine located in Botswana.

The 127 carat, top white gem diamond, is one of the of 129 precious stones of over 100 carats the company has recovered at the mine since it began operations in 2012. That tally includes 12 diamonds larger than 300 carats in size, of which five were recovered last year.

The 127 carat, top white gem diamond, is one of the of 129 precious stones of over 100 carats Lucara has recovered at the mine since 2012.

In addition to finding the world’s second-largest diamond, Lucara has sold 180 stones in excess of $1 million each and ten diamonds have fetched more than $10 million each.

“The recovery of this latest, high value, top white 127 carat diamond attests to the remarkable nature of the Karowe orebody, which has consistently delivered large, high value diamonds throughout its history,” chief executive Eira Thomas said in the statement.

The Vancouver-based company will focus this year on finalizing a feasibility study into potential underground production and life-of-mine expansion for Karowe that could extend operations from 2026 to beyond 2036.

The miner aims to recover between 300,000 and 330,000 carats from Karowe this year, out of 2.5-million to 2.8-million tonnes of ore processed, at an operating cash cost of between $32/t and $37/t processed.

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Lucara Diamond to focus on Bostwana mine this year

Canada’s Lucara Diamond (TSX:LUC), the company that hit the jackpot in 2015 after finding the world’s second-largest diamond, said Tuesday its priority this year will be the completion of a feasibility study into potential underground production and life-of-mine expansion for its Karowe project, in Botswana.

“Having stabilized and significantly improved our mining operations at Karowe in 2018, Lucara is now focused on optimizing the base business and pursuing a suite of high potential, organic growth opportunities,” said Chief executive Eira Thomas in the firm’s operating outlook for 2019.

The Canadian miner expects to complete a feasibility study into potential underground production and life-of-mine expansion of Karowe.

The Vancouver-based company has set aside $14.8 million to complete geotechnical and hydrogeological drilling programs this year, as well as economic and other studies that started in 2018.

Lucara aims to recover between 300,000 and 330,000 carats from Karowe this year, out of 2.5-million to 2.8-million tonnes of ore processed, at an operating cash cost of between $32/t and $37/t processed.

Commercial production Karowe began in 2012. Since then, it has produced an average of 320,000 carats a year from the treatment of 2.5 million tonnes a year of ore from three kimberlite lobes.

The miner announced Tuesday that it plans to pay an annual dividend of C$0.10 per share, based on anticipated production growth and a forecast revenue of between $170 million and $200 million.

Lucara also said it had sold $660,865 worth of its own diamonds on its recently-launched Clara online sales platform, which is driven by blockchain technology. It noted it obtained 8% more for the diamonds traded that way than Lucara’s market price and 15% most than the reserve price placed on the goods.

Clara allows buyers source rough diamonds tailored to specific polished gems demand, resulting in improved margins for both buyers and sellers.

“Though we are delighted with the prices achieved for the rough diamonds sold in this first sale, Clara's longer-term value will be realized through its' scalability, increasing the volume of rough diamonds transacted by adding production from other global diamond producers,” Thomas noted.

Shares in Lucara were trading down 2.7% at C1.42 by noon ET.

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New Mountain Province CEO has deep diamond roots

With more than 25 years’ experience in the diamond industry — including 19 with De Beers – Stuart Brown was looking for a new opportunity. He found it as the president and CEO of Mountain Province Diamonds (TSX: MPVD; NASDAQ: MPVD).

“I was quite excited by this,” he said. “I think the mine has good potential, because it’s just starting off. I thought I could add a lot of value with my prior relationship with De Beers.” Brown, whose last role at De Beers Group was as CFO and joint acting CEO, joined Mountain Province in May. It’s not a matter making changes to the company, but rather moving its production forward and extending the life of the mine.

Mountain Province owns 49% of the Gahcho Kué mine, which is 280 km northeast of Yellowknife. De Beers owns 51% and is the operator.

For Brown, it’s not a matter making changes to the company, but rather moving its production forward and extending the life of the mine.

“We are in our second year of commercial production, so we are still finding our feet as producers,” he said. “When I say producers, I’m talking about the Gahcho Kué mine. So, whether it’s De Beers operating it or us, we do this together.”

In the coming year, Brown wants to ensure that De Beers and Mountain Province are working towards the same goal.

“Our primary objective is to add the additional resources that we are currently discovering on the joint venture property,” he said.

Additional kimberlites have been found between 5034 and Hearne, and 5034 and Tuzo. These finds will be added to the draft mine plans, which will be published shortly.

“In the coming twelve months we want to do a lot more work on that,” Brown said. “And clearly that’s a preference for De Beers, because it’s right on our doorstep.” In 2018, Mountain Province brought the Kelvin and Faraday kimberlites back into the company by acquiring Kennady Diamonds — which had been spun out of the company in 2012

Earlier this year, Mountain Province brought the Kelvin and Faraday kimberlites back into the company by acquiring Kennady Diamonds — which had been spun out of the company in 2012. It owns 100% of the kimberlites, which lie 8 km away from Gahcho Kué.

“We need to do a little bit more work on those to upgrade them and get a better understanding on the value of the diamonds in the ground,” Brown said. “We would like to bring them into the joint venture. In order to do that, we need De Beers to agree.”

Right now, the preference is to continue evaluation of new near-mine discoveries at Gahcho Kué.

“Our current mine plan with De Beers is that we would go until 2028, with what we know is in our plan,” he said. “Then we have all of this additional (near-mine) material that we are discovering now. Over the next twelve months we will be trying to incorporate that in our design.”

Beyond the Gahcho Kué property itself and Kelvin and Faraday, Brown says there is a huge amount of grassroots greenfield exploration potential on the property. Mountain Province will be investing a limited amount of money into identifying new targets.

Diamond market

However well the mining process goes, there is still the issue of selling them.

“For 2017, the market was quite good,” he said. “It recovered well towards the end. In 2018, we saw good solid growth for the first seven months of the year.”

He added that the market has become a little bit nervous recently, resulting in price reductions.

“It’s not a question of oversupply that is causing prices to fall,” Brown said. “It’s a few external factors around the midstream financing chain where we’ve seen a lack of funding in this area causing buyers not being able to participate, hence prices have dropped.”

However, the retail demand for diamonds is strong.

“We are seeing such good results coming out of retail performance and predictions of good retail going into the holiday season in North American and Asia,” he said.

Brown describes the situation as anomalous.

“In the large goods and the better qualities, we’ve seen strong growth this year, so we believe the supply and demand fundamentals are still in the favour of the miners where there is going to be limited supply growth and demand is increasing. The retail side of the business has grown, especially in 2017, and we see 2018 will be a good solid year for retail.”

Several diamond mines will be closing in the next couple of years, having come to the end of their natural life. This situation will work in Mountain Province’s favour.

“Our ambition at Mountain Province is to extend the life of this project beyond 2030.”

This article appeared in The Northern Miner, and was first published in the November 2018 issue of Diamonds in Canada.

(By Janice Leuschen)

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Jewellery giant Chow Tai Fook joins De Beers diamonds tracking pilot

Hong Kong-based jewellery giant Chow Tai Fook became Wednesday the latest industry heavyweight to join De Beers' pilot of its end-to-end diamond blockchain program called Tracr, which aims at clearing the supply chain of imposters and conflict stones.

Chow Tai Fook’s participation will further extend the platform’s reach into the Asian diamond sector, particularly in Greater China, world’s No. 1 diamond producer by value De Beers said.

The Asian company is not foreign to initiatives to provide a single, tamper-proof and permanent digital record — from mine to consumer — for every diamond.

In September, the jewellery retailer had introduced a similar project developed with blockchain provider Everledger and secured by the IBM Blockchain Platform.

Tracr gives each diamond a unique ID that stores its characteristics such as weight, colour and clarity.

While the companies didn’t mention whether Chow Tai Fook had given up on its own tracking system or simply decided to test De Beers’ alternative at once, managing director Kent Wong noted that authenticity, provenance and traceability are becoming extremely important in the jewellery sector.

“We believe that our participation in Tracr will help ensure we are at the forefront of this important issue," Wong said in the joint statement.

Chow Taik Fook is just one of many sector leaders to have recently adopted distributed ledger technology, an umbrella term for a shared and synchronized database, to ensure the authenticity of the diamonds they sell by tracking them, from mine to shop. Their involvement is seen by analysts as an opportunity to clearly signal that they are willing to establish a closer and more transparent relationship with their consumers.

The world’s largest diamond jewellery retailer, Signet, was one of the first ones to join De Beers’ pilot earlier this year. Even Russia’s Alrosa (MCX:ALRS), the world’s No.1 diamond producer by output and De Beers’ main competitor, is now testing Tracr.

The blockchain platform gives each diamond a unique ID that stores stones characteristics such as weight, colour and clarity. To support the process, the system will also incorporate photos and planned outcome images.

Supporters of blockchain say the technology could soon become the verification standard. Several challenges will have to be overcome first, particularly those affecting smaller brands. Some of them have suggested that, at a time when the origin of diamonds has never been more scrutinized, the idea of blockchain is being overrated by laboratories loving the idea of charging for source testing.

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