Northern Cape in spotlight

De Beers shows renewed interest in area in what could be an exciting development for diamond industry in SA

De Beers is showing it is strongly of the opinion that the Northern Cape could reveal undiscovered diamond deposits.

It has applied for 52 prospecting rights in the area. Diamond experts have been saying for years that SA is underexplored and the application of modern exploration techniques could uncover deep-buried kimberlite pipes.

Kimberley’s “big hole” yielded 2.7 t of diamonds over 40 years and was the foundation of the De Beers empire. Since it announced last year it would be putting its Voorspoed mine up for sale, the group has only one operating mine in SA, Venetia in Limpopo. It mines most of its diamonds in Botswana.

But it’s not yet certain that De Beers will resume exploration around Kimberley.

In October last year, Phillip Barton, CEO of the group’s SA subsidiary, De Beers Consolidated Mines (DBCM), said it might have to go to court to compel the department of mineral resources to process its applications, following lengthy delays. The group suspended its R45m exploration budget for SA.

By last week, a De Beers spokesman says, 16 of the prospecting rights were granted and “we continue to engage with the department” on the remainder. The rest of the applications are at different processing stages.

She says if DBCM decides to restart exploration in SA, it will develop a revised plan with costs for the rights it now holds.

Though this could be an exciting development for the local diamond mining industry — which was hit by last year’s financial problems at Rockwell Diamonds and Diamondcorp — it is relatively minor for De Beers Group as a whole, and for its parent Anglo American. It may not even merit a mention at Anglo American’s forthcoming year-end results presentation.

Anglo owns 85% of De Beers, which contributed US$786M or 19% of the Anglo group’s underlying earnings before interest, taxes, depreciation and amortisation (Ebitda) of $4.1bn in the six months to June.

In its latest year-end production update, Anglo said De Beers’ output, on a 100% basis, rose 22% to 33.5m ct compared with 2016. This included a 23% increase in production from SA, to 5.2m ct.

Diamond exploration is a very long-term game, with low success rates, and companies’ willingness to spend on it depends on their view of diamond price trends, which have given mixed signals for the past decade. Latest reports from the biggest producers show they increased output last year. Price appreciation of rough diamonds was uninspiring but the jewellers are starting to report better sales.

Anglo said De Beers’ full-year realised average diamond prices fell 13% to $162/ct. This was distorted by stronger demand for lower-quality diamonds in the first sight of 2017 and more production of lower-carat but higher-margin diamonds from Orapa and Gahcho Kué. The index of rough diamond prices rose 3% for the year.

De Beers’ first sales cycle of 2018 realised $665m, which was higher than the last sight of 2017 because of restocking post-christmas. It was lower than the first sight of last year when there was pent-up demand from India postdemonetisation.

Russia’s Alrosa, the world’s biggest diamond producer by volume, said it produced 6% more diamonds at 39.6m ct last year, despite shutting its Mir mine after an accident in August.

Petra Diamonds produced a record 2.2m ct in the six months to December, 10% higher than the same period in 2016. But it has cut guidance for the full year to 4.6m-4.7m ct because of expected lower grades at its Cullinan mine and labour unrest in SA.

Petra said rough diamond prices were 3.5% lower on a like-for-like basis than in the six months to June 2017, which reflected a 5% decline in the four months to October followed by a 1.5% recovery in the past two months.

Diamond industry specialist website Rapaport reported last week that the Diamond Producers Association, launched in 2016 with a $6m budget for marketing diamonds globally, will have $70m to spend this year, which is $20m more than last year.

In a survey of 4,000 consumers in the US and China published on Alrosa’s website last week, the majority of respondents in both countries said they intended to continue buying diamonds and were more likely to buy diamonds for themselves than as a gift, while 86% of Chinese and 59% of Americans surveyed said they would buy at least one piece of diamond jewellery this year.

Two of the major Chinese jewellery chains, Chow Tai Fook (which operates largely in mainland China) and Luk Fook (with a greater focus on Hong Kong) have reported sustained sales growth through most of last year. Tiffany & Co, the global jewellery retailer, has not yet reported on the quarter ended January but for the three months to October its worldwide net sales rose 3% in constant currency terms and were flat on a comparable store basis.