February 6, 2015

By Paul Zimnisky









Based on an analysis of the world's 54 largest diamond mines (see bottom figure), global diamond production will reach an estimated 135.5M (million) carats in 2015, which compares with an estimated 131.1M carats produced in 2014. I n terms of value produced in U.S. dollars, 2015 production is estimated at $14.0B (billion), compared to an estimated $13.8B in 2014.





The world's 10 largest mines by production value are estimated to account for 61% of global production. The 54 mines itemized below account for approximately 85% of global production, with the balance coming from informal artisanal miners primarily in Africa.













Highlights By Mine

Jwaneng is the largest diamond mine in the world in terms of value produced, and the third largest by carat volume. In 2015 Jwaneng is estimated to produce 11.0M carats at an estimated average price of $215/ct, equating to $2.4B. According to Anglo American (LSE: AAL), last year the mine produced 11.3M carats, a YOY (year-over-year), production increase of 9%, as favorable grades were realized and the mine recovered from a slope failure which stalled production in 2013. Anglo American did not officially report the value per carat achieved at Jwaneng in 2013 or 2014.





The world's second largest mine by value and volume, Orapa , is estimated to produce 12.0M carats or $1.2B worth of diamonds at an average price of $100/ct in 2015. In 2014, production at Orapa reached 12.1M carats, a 6% YOY increase, as higher grades were realized and as the mine's processing plant resumed normal operations following unplanned maintenance in 2013.





Image: Excavator and haul truck at Jwaneng. Source: Debswana





Both Jwaneng and Orapa are located in the country of Botswana and are owned by Debswana, which is a 50/50 joint venture between De Beers and the Republic of Botswana. De Beers is 85% owned by Anglo American and 15% by the Government of Botswana. Botswana is the most creditworthy nation in Africa, rated A- by S&P in 2014. The diamond mining industry currently accounts for more than one-third of the country’s GDP, 70-80% of exports, and one-third of the government's revenues, according to the CIA World Factbook.





The Argyle mine in Australia is slated to be the world's largest in terms of production volume in 2015, estimated to produce 17.5M carats. In 2014, carat production at Argyle decreased 19% YOY to 9.2M carats. The mine is being transitioned from an open-pit to an underground mine, and in Q4 2014, a maintenance shutdown to implement design modifications to the underground crushers stifled production. However, with construction of the underground mine near complete, the productivity of the mine should significant ramp-up in 2015 before reaching an anticipated peak production volume of 20M carats per annum in 2016 through 2020. The overall quality of Argyle diamonds is relatively low in color and quality, however the mine is known for producing some of the worlds most valuable pink and red diamonds, which greatly skew the mine’s average price per carat. Argyle in 100% owned by Rio Tinto (LSE: RIO), the world's second largest mining conglomerate by market cap.





Image: Argyle rough diamond sample. Source: Rio Tinto





The Jubilee mine in Russia is estimated to be the world’s third largest by value produced in 2015. Jubilee is estimated to produce 9.0M carats or $954M worth of diamonds in 2015. In 2014, the mine produced 9.1M carats, a 2% YOY increase as higher grade ore was accessed from the pit's central lobe. Jubilee is owned by ALROSA (RTS: ALRS), which is primarily owned by the Russian government and related agencies; 19% of the company is held by public shareholders. ALROSA controls almost all Russian diamond production with 10 primary mines and 10 alluvial mines; the company also holds a 32.8% stake in the Catoca mine in Angola which single-handedly accounts for approximately three-quarters of the nation's diamond output.





Canada’s Diavik mine is estimated to be the world’s fourth largest by production value in 2015, estimated to produce 6.1M carats at an average price of $115/ct, equating to $702M. In 2014, production at Diavik was better than anticipated, reaching 7.2M carats, as higher grades were accessed at all three of the mine’s ore bodies. Diavik is is 60% owned and operated by Rio Tinto and 40% by Dominion Diamond Corp (TSX: DDC).

Ekati mine which is estimated to increase production almost 3-fold to 6M carats annually by 2018. Canadian diamond production is estimated to more than double over the next four years driven by two new world-class mines coming online in 2016, and a new mine plan at Dominion’smine which is estimated to increase production almost 3-fold to 6M carats annually by 2018.





Image: The Diavik mine, Canada. Source: Rio Tinto





In South Africa, De Beers jointly owned Venetia mine is estimated to produce 3.2M carats worth $416M in 2015. Venetia is currently being converted to an underground mine, which is expected to extend the mine's life by 25 years with first underground production planned for 2021. Petra Diamonds' (LSE: PDL) Finsch mine is estimated to produce 1.9M carats worth $162M in 2015. In 2014, Finsch production increased 4% YOY to 1.9M carats driven by better grades and higher recovery of small diamonds.





Petra’s Cullinan mine, also in South Africa, is estimated to produce 800k carats worth $140M in 2015. In September 2014, a exceptional 232-carat white diamond which sold for $15.2M, or $65,577 per carat, was recovered at Cullinan . In 2014 the mine also produced a 122.5-carat fancy blue and a 29.6 carat blue, which sold for $27.6M, or $225,269 per carat, and $25.6M, or $862,000 per carat, respectively.





Gem Diamonds’ (LSE: GEMD) flagship mine, Letšeng , which is located in the small landlocked nation of Lesotho, is estimated to produce diamonds with an average price per carat $2,100 in 2015. The mine, estimated to produce 105k carats this year, recovered a 198 carat type IIa colorless diamond in August 2014 which sold for $10.6M, or $53,746 per carat. Last year the mine also produced noteworthy 162 and 161 carat exceptional diamonds which were sold for $68,697 per carat and $14,636 per carat, respectively.





Image: Letšeng mine, Botswana in April 2014. Source: Gem Diamonds





The Karowe mine in Botswana, known for having a significant population of type IIa stones, is estimated to produce 400k carats worth $230M in 2015. Lucara Diamond Corp (TSX: LUC), 100% owner of the mine, held three large-diamond tenders in 2014, resulting in $46.4M from the sale of 14 diamonds with a combined weight of 1,539 carats, equating to $30,150 per carat. Highlights from the sale included: 203, 239, and 141 carat exceptional white diamonds which sold for $8.2M, $7.2M and $6.1M, respectively.





Marange Marange announced in 2014 that they would be shutting down operations; at least The diamond fields in east-central Zimbabwe , which produced almost 17 million carats in 2013, the global leader by volume that year, has been rapidly depleted as easily-minable surface gravel gives way to solid hard conglomerate rock lying beneath. Mining of the conglomerate rock appears to be questionably economic as two of the seven companies operating atannounced in 2014 that they would be shutting down operations; at least 400 workers were laid off in 2014.





In September 2013, Belgian and diamond industry officials successfully lobbied the European Union to lift sanctions on Marange diamonds, which allowed for the diamonds to be legally sold in Antwerp, the global diamond hub, for the first time. The EU and U.S. placed sanctions on Marange diamonds due to on-going human rights abuses and a history of civil violence tied to diamonds in the region; the U.S. sanctions remain in place, which has resulted in Marange diamonds trading at a discount to global market prices.





The Zimbabwe government has indicated a plan to merge the remaining companies mining at Marange hoping to more effectively regulate operations after most of companies failed to account for revenue and pay taxes in recent years. The Marange field is controlled by Zimbabwe government affiliate, Zimbabwe Mining Development Corporation, which has mining partnership agreements with quasi-private entities most of which are thought to have ties with Zimbabwe ex-military and political officials.





It is challenging to estimate Marange production given that none of the companies operating at the alluvial mine, nor the government, release production figures, however, anecdotal evidence points to estimated 2015 production of 6M-10M carats at an average price per carat of $45.









Mine Openings and Closures in 2015

In 2015, three new mines are anticipated to commence production and one mine is expected to shutter. ALROSA’s Botuobinskaya mine, located in Northeast Russia’s, Republic of Sakha, is expected to commence production in Q4 2015. The mine is estimated to produce 1.5M carats annually once fully ramped with a mine life of 40 years. According to DiamondCorp Plc (LSE: DCP), the company’s Lace mine in South Africa is on schedule to start mining operations in the second half of 2015. With a 13M carat resource, annual production at Lace is expected to be to 500k carats a year. Kimberly Diamonds’ (ASX: KDL) indicated that the company’s Ellendale mine in Australia will cease operations in May 2015, as the company will focus all of its resources on its Lerala mine in Botswana. Ellendale is known for producing approximately 50% of the world’s fancy yellow diamonds in conjunction with Tiffany & Co's (NYSE: TIF) subsidiary, Laurelton Diamonds.





Image: Aerial view of the Ghaghoo mine. Source: Gem Diamonds





2015 will mark the first full-year of production for four mines: Grib , Karpinskogo-1 , Ghaghoo , and Lulo . Grib is the only large-scale commercial diamond mine in Russia not owned by ALROSA. Grib , 100% owned by Russian oil major LUKoil (RTS: LKOH), is estimated to produce 1.5M carats worth $165M in 2015. A non-core asset for LUKoil, the mine has been up for sale since production commenced in June 2014. Production at Grib is scheduled to peak at 4.5M carats annually starting in 2016, with a mine life of 17 years. Also in Russia, ALROSA’s newest mine Karpinskogo-1 , is estimated to produce 750k carats worth 79M in 2015. The mine commenced production on October 6th, 2014, and produced 266,000 carats through year-end. Ghaghoo , an underground mine owned by Gem Diamonds and located in Botswana, is estimated to produce 200k carats in 2015. Production at Ghaghoo commenced in September 2014; notable 20 and 17 carat white diamonds, and a 3-carat fancy orange diamond were recovered through year-end. Lastly, Lucapa Diamond Company’s (ASX: LOM) Lulo mine in Angola commenced production in January 2015; estimated to produce 55k carats this year. The alluvial project recovered some notable stones during bulk sampling last year , including a 131-carat white and fancy colored pinks and yellows.





Image: Diamond sample from the Lulo mine in Angola. Source: Lucapa Diamond Company









New Project Pipeline

The most anticipated diamond development projects include: Gahcho Kué and Renard , in Canada, Liqhobong in Lesotho, Bunder in India, and Verkhne-Munskoe in Russia. Through the end of January 2015, construction at Gahcho Kué was over 50% complete and the project is on schedule for Q3 2016 production. Gahcho Kué is estimated to produce a total of 53.4 million carats over a 12-year mine life, producing diamonds worth an estimated $150 per carat, which would make it one of the world’s top-10 largest diamond mines by value produced. The project is in Canada’s Northwest Territories, 90 kilometers east of De Beers' 8-year-old Snap Lake diamond mine, which is estimated to produce 1.2 million carats at an estimated $105 per carat in 2015. Gahcho Kué is 51% owned by De Beers and 49% by Canadian-listed Mountain Province Diamonds (TSX: MPV). Stornoway Diamonds’ (TSX: SWY) 100% owned Renard project, which will be the first diamond mine in the Canadian province of Québec, is over 10% complete through January 2015. Favorable weather conditions in the second half 2014 allowed Renard construction to progress ahead of schedule. First commercial production is slated for H2 2017, with annual production estimated to reach 1.7M carats annually at an estimated $180 per carat.





Image: Diamond sample from the Renard project in Québec , Canada. Source: Stornoway Diamonds





Firestone Diamonds’ (LSE: FDI) Liqhobong mine in Lesotho is expected to commence production towards the end of Q2 2016. The mine is estimated to produce upwards of 1M carats annually at a price of $125 per carat. At the moment, Liqhobong is the only new mine in development outside of Canada and Russia estimated to produce at least 1M carats annually. Rio Tinto’s Bunder project, the first diamond discovery in India in 40 years, could be in production by 2018 pending Indian governmental approval. Initial production profiles show Bunder producing 700k carats annually, from a resource of 27M carats. ALROSA’s largest development project, located in the Republic of Sakha, Verkhne-Munskoe , is estimated to contain 40M carats, and could produce 1M carats annually by the end of the decade.









Diamond Pricing/Macro Implications

Based on an analysis of the world's 54 largest mines (see bottom figure), the global average price per carat for mined diamonds in 2015 is estimated to be $103 per carat, which would be a ~2% decrease from estimated 2014 prices. Last year prices were down an estimated 3-to-5% as the closure of Antwerp Diamond Bank in October led to industry-wide liquidity concerns for rough diamond buyers. In addition, a slower-growing Chinese economy, deflationary pressures in Japan and the EU, and multiple geopolitical tensions, led to downward pressure on rough prices which is expected to carryover into H1 2015.









A strong U.S. dollar also played a role in recent diamond price weakness, given that diamonds are typically denominated in dollars. However, this foreign exchange effect can also have a positive impact on miners that account for operating expenses in dollars; for instance, wages paid in local currency are relatively “less expensive” when converted to dollars. A lower oil price should also have a favorable impact on miners as haul trucks, generators, and some grids are powered by diesel.





It’s also worth noting that ALROSA has been selling additional diamond inventory on top of regular production sales, which is impacting global supply. In Q4 2014, ALROSA sold 1.08 carats for every carat produced. This is most likely in response to current economic weakness the Russian Federation is facing following a collapse of oil prices and sanctions implemented by the West following the Crimean crisis. ALROSA is the world’s largest diamond producer by carat volume. The company recently provided 2015 production guidance of 38M carats, which represents approximately 28% of global production volume





Image: Udachnaya mine, Russia. Source: ALROSA









Synthetic Diamonds

Lastly, given the technological advances in synthetic diamond production, it’s worth mentioning that an estimated 1M carats of marketable gem-quality synthetic, or "lab-created," diamonds will be produced this year for use in jewelry. On a global scale this is a relatively insignificant number given that it represents just small fraction (~1%) of mined gem-quality diamonds, however, within the last two years the market has seen the first 1ct+ VVS (very very slightly included), colorless synthetics. The economics of synthetically producing this quality of diamond are not yet favorable enough to significantly compete on a price level with the natural equivalent, and the synthetic diamond jewelry industry lacks a developed distribution system, but as technology progresses, less-expensive, larger, higher-quality synthetics are inevitable.





At the moment, the industrial-quality segment of the synthetic diamond industry offers the most favorable margins for producers. An estimated 4-5 billion industrial-quality synthetic carats will be produced this year, primarily in Asia, representing over 99% of industrial-quality diamond supply. Mined industrial-quality diamonds represent less than 1% of the market, as they are strictly produced as a by-product. Most industrial-diamonds are used as abrasives, but high-tech application is one of the fastest growing segments of the industry, as a diamond’s high thermal-conductivity characteristics make them ideal for use in processor chips and sensitivity sensors.





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Itemized Detail of World's 54 Largest Mines:











Notes: Projects highlighted in blue are not yet in production, and are sorted by estimated production commencement date. (A): Denotes alluvial deposit C&M: Denotes mine is currently under care and maintenance and production is suspended Project Name: Name of project Project Location: Location of project by country Production Carats: 2015 estimated production for project in terms of carats produced Production US$ MM: 2015 estimated production for project in terms of millions of U.S. dollars generated. Calculated as (estimated production in carats * estimated average carat price), represented in millions of dollars (i.e $1,877 = $1,877,000,000) LOM Years: Life of mine in years of remaining production. Calculated as (estimated reserve / estimated annual production) LOR: Lower Orange River, Namibia MOR: Middle Orange, South Africa Project Ownership: Number corresponding with detail of project ownership below:

[1] De Beers (50%), govt. of Botswana (50%) [2] De Beers (50%), govt. of Botswana (50%) [3] ALROSA (100%) [4] Rio Tinto (60%), Dominion Diamond Corp (40%) [5] ALROSA (100%) [6] De Beers (50%), govt. of Namibia (50%) [7] Dominion Diamond Corp (90%), Stewart Blusson (10%) [8] Govt. of Angola (32.8%), ALROSA (32.8%), LLI (18%), Odebrecht (16.4%) [9] Rio Tinto (100%) [10] ALROSA (100%) [11] De Beers (74%), Ponahalo Investments (26%) [12] ALROSA (100%) Various owners, see detail [13]Various owners, see detail here [14] De Beers (100%) [15] ALROSA (100%) [16] ALROSA (100%) [17] Lucara Diamond Corp (100%) [18] Gem Diamonds Ltd (70%), govt. of Lesotho (30%) [19] ALROSA (100%) [20] De Beers (74%), Ponahalo Investments (26%) [21] LUKoil (100%) [22] Petra Diamonds Ltd (74%), Senakha (21%), Petra Employee Trust (5%) [23] ALROSA (100%) [24] ALROSA (Severalmaz) (100%) [25] Petra Diamonds Ltd (74%), Thembinkosi Mining Investments (14%), Petra Employee Trust (12%) [26] De Beers (50%), govt. of Namibia (50%) [27] De Beers (50%), govt. of Namibia (50%) [28] De Beers (100%) [29] ALROSA (100%) [30] Trans Hex (100%) [31] ALROSA (Severalmaz) (100%) [32] ALROSA (100%) [33] De Beers (74%), Ponahalo Investments (26%) [34] Lucapa Diamond Co (40%) Endiama (60%) [35] Namakwa Diamonds (62.5%), govt. of Lesotho (25%), local investors (12.5%) [36] Petra Diamonds Ltd (75%), govt. of Tanzania (25%) [37] De Beers (50%), govt. of Botswana (50%) [38] Gem Diamonds Ltd. (100%) [39] De Beers (50%), govt. of Namibia (50%) [40] Rockwell Diamonds Inc & various owners [41] Petra Diamonds Ltd (74%), Sedibeng (26%) [42] Endiama (39%), Trans Hex (33%), local investors (28%) [43] Rio Tinto (78%), Riozim (22%) [44] De Beers (50%), govt. of Botswana (50%) [45] Octéa Diamond Group/Beny Steinmetz (100%) [46] Petra Diamonds Ltd (74%), Re-Tang (26%) [47] ALROSA (100%) [48] Merlin Diamonds (100%) [49] ALROSA (100%) [50] ALROSA (100%) [51] Kimberly Diamonds Ltd 100% [52] Kimberly Diamonds Ltd 100% [53] Diamcor Mining Inc (70%), Nozala Investments (30%) [54] DiamondCorp (74%), Sphere (13%), Shanduka (13%) [55] Lucara Diamond Corp (75%), govt. of Lesotho (25%) [56] Trans Hex (100%) [57] Mwana Africa Plc (65%), Naka Diamond Mining (35%) [58] Petra Diamonds Ltd (74%), Sedibeng (26%) [59] Firestone Diamonds (90%), local investors (10%) [61] De Beers (51%), Mountain Province Diamonds (49%) [60] Firestone Diamonds (75%), govt. of Lesotho (25%) [62] Stornoway Diamond Corp (100%) [63] Rio Tinto (100%) [64] ALROSA (100%) [65] Star: Shore Gold (100%); Orion: Shore Gold (67%), Newmont Mining Corp (33%) [66] Peregrine Diamonds Ltd (100%)





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