CONSUMERS IN SHANGHAI AND BEIJING ARE CHANGING THEIR SENSE OF FASHION – AND THE FATE OF RIO TINTO’S ARGYLE MINE.
A new fondness for diamond jewellery among Chinese consumers has put the sparkle back into Rio Tinto’s historic Argyle mine.
THE RISING POPULARITY of diamonds among Chinese consumers is forcing significant change in the global jewellery market, and one of the major beneficiaries will beRio Tinto’s Argyle diamond mine in northwestern Australia.
The historic mine in the Kimberley region of northern Western Australia is among the world’s largest diamond suppliers and is the biggest producer of natural coloured diamonds. The jewel in its crown, so to speak, is the rare pink diamond, as the mine produces more than 90 per cent of global supply.
Rio had been considering including the Argyle mine as part of a broader sell-off of assets, but it abandoned that plan two months ago. Capitalising on rising Asian demand is now a key marketing focus for Argyle, with the Chinese market in particular having been identified as in a “fast-growth” phase. Over the next five to 10 years, China is expected to become the second-largest market for diamonds, after the US, and to represent almost a third of global demand.
The market in China has traditionally been dominated by the large white diamonds purchased for weddings – a trend imported from the West. However, Chinese consumers are increasingly fond of diamond jewellery as a regular fashion accessory. That suits Argyle, which produces smaller, more affordable diamonds designed to fill that niche.
Rio Tinto diamonds and minerals chief executive Alan Davies says the medium to long-term market fundamentals for diamonds are robust, fuelled by a growing Asian appetite for luxury goods and strong North American demand. “We have valuable, high-quality diamond businesses ... well positioned to capitalise on the positive market outlook,” he says.
The globally diversified miner has spent $US2.2 billion to transform Argyle’s open-pit operation into an underground mine, extending the asset’s life till 2020. The underground facility opened in May and uses the block caving method, which involves undercutting the ore body and then allowing it to break or cave under its own weight. The cave at Argyle extends between 400 and 680 metres below the existing pit and is the size of 20 rugby fields.
Exploration for diamonds in the Kimberley began in 1972 and Rio (then CRA) arrived in 1976. In 1979, diamonds were found in a sample collected from Smoke Creek, which runs 35 kilometres from the Matsu Range to Lake Argyle. The mine set records when it started production in 1985, doubling the global output of rough diamonds overnight.
Argyle is not the only diamond mine in the Kimberley region. The Ellendale mine, bought late last year by Goodrich Resources, produces an estimated 50 per cent of the world’s supply of yellow diamonds. Diamonds from the mine, which is about 120 kilometres east of Derby in the West Kimberley, are marketed by international jeweller Tiffany, which recently increased its prices from $US3800 a carat to $US5000.
Rio has a 60 per cent stake in the Diavik diamond mine in Canada and a 78 per cent interest in the Murowa mine in Zimbabwe. The miner’s share of the production from its three operating diamond mines is sold through its sales and marketing headquarters in Antwerp, which has offices in Mumbai, Hong Kong and New York. The mining giant also operates a small cutting and polishing factory in Perth for rare pink diamonds from its Argyle mine.
The next test of the pink diamond market is due in the coming months. They are sold through an annual private tender process. One of the precious stones sold last year was expected to go for more than $US2 million on the retail market. This year’s tender, which will close on October 8, includes three shiny red diamonds. The rest of the 64-item package comprises 58 pink diamonds and three blue ones.
Rio does not disclose sale prices, but no one would be surprised if some of the exquisite diamonds found their way into the Chinese market.