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December 11th, 2014

With a decade of diamond demand outgrowing supply, Canada’s a target for new sources

by Greg Klein

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Diamonds: Global supply and demand

Miners of other commodities might welcome half of the diamond dilemma. Forecasts see continued market growth for another decade. But production will taper off. That’s the 10-year prognosis from Bain & Company and the Antwerp World Diamond Centre. Meanwhile another report from the NWT and Nunavut Chamber of Mines addresses the need to maintain production in the Northwest Territories, the world’s third-largest source of diamonds by value and home to a busy exploration scene.

The December 9 Bain study, which generally agrees with a September report from De Beers, expects an average 4% to 5% compound annual growth in rough diamond demand to 2024 driven largely by India, the U.S. and especially China. Supply growth, on the other hand, should lag behind at 3.5% to 4% up to 2019, then fall to somewhere between 1.5% and 2% for another five years.

With a decade of diamond demand outgrowing supply, Canada’s a target for new sources

The world’s largest source of new production would be Gahcho Kué, the De Beers/Mountain Province Diamonds TSX:MPV joint venture slated for 2016 production in the NWT’s Lac de Gras region. The mine’s expected to produce between five and six million carats annually to 2020.

Bain forecasts Lukoil’s Grib mine in Russia at four to 4.5 million carats a year when it begins operation in 2016. After that would come the Karpinsky-1 pipe at ALROSA’s Lomonosov project in Russia, expected to yield about three million carats annually after reaching commercial production in 2015. Stornoway Diamond’s (TSX:SWY) Renard project in Quebec, slated for 2016 commercial production, should be good for another 1.5 million carats a year. Looking farther ahead, Rio Tinto’s (NYSE:RIO) Bunder mine in India is projected to yield another three million carats annually on reaching full production in 2020 or 2021.

“Other new mines under development are relatively small; each is projected to produce one million or fewer carats annually,” the report states.

“Because it takes seven to 10 years to develop a mine, even if major new deposits were discovered within the next few years, there would not be enough time to bring them to full production by the end of the forecast period,” the study adds.

Diamond supply: The Canadian outlook

The supply/demand imbalance notwithstanding, jewelry retailers show increasing eagerness to trace diamonds to ethical sources, Bain points out.

Among those sources is Canada, renowned for high-quality, conflict-free stones. Diamond mining now takes place in Ontario and the NWT, with Quebec expected to join soon and Saskatchewan another possible contender. Output from just three mines in Lac de Gras ranks the NWT region third globally for diamond production by value.

Of those three, Dominion Diamond’s (TSX:DDC) majority-held Ekati is projected to run out of ore in 2019, according to the NWT and Nunavut Chamber of Mines. The chamber gives the Dominion/Rio Diavik operation a life expectancy to 2024 and De Beers’ Snap Lake until 2028.

Rio has since announced plans to bring Diavik’s A-21 deposit online. Yet the chamber maintains A-21’s expected to maintain current production, not extend mine life.

Ekati’s best chance for a stay of execution is the Jay project, “the largest diamondiferous resource in North America,” according to Dominion, and a potential extension of 10 or more years to the Ekati operation. Should environmental approval arrive by the end of 2015, Dominion hopes to begin operations by 2019.

Diamond exploration: The juniors move in

Not surprisingly, it’s up to the juniors to meet growing demand. Since Canadian diamonds are found in kimberlites and kimberlites tend to come in clusters, most exploration takes place near known deposits—with the hope that nearby kimberlites will also contain diamonds.

The hottest hotbed of activity is the NWT, especially around Gahcho Kué. Kennady Diamonds TSXV:KDI holds turf on three sides of the project. Last month the company mobilized for more exploration and delineation drilling on Kelvin, one of the Kennady North project’s four diamond-bearing kimberlites. Diamond recovery results are expected by year-end from two more mini-bulk samples.

Another Gahcho Kué neighbour, Prima Diamond TSXV:PMD holds the 42,000-hectare Godspeed Lake project immediately south of the mine-to-be. Forty kilometres northwest of Gahcho Kué and 35 kilometres east of Snap Lake, Prima holds the 14,000-hectare Munn Lake project. A 581-kilogram sample from one Munn Lake kimberlite gave up 226 diamonds while a 42-kilogram sample from another revealed 14 diamonds. Prima also optioned the Orion diamond property, 2,275 hectares in Quebec’s Otish Corridor, north of Stornoway’s upcoming operation.

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