De Beers banks on Angola
- Growth project pipeline
01 March 2013|
De Beers and its partners in SA, Botswana and Canada are investing in three new projects which promise to yield almost 250m carats of diamonds over the next few decades.
But only a fifth represents growth in output and the rest is replacement of depleting mines. Miners are keenly seeking new sources of diamonds as fresh discoveries have become rarer while growing numbers of consumers of luxury goods are emerging in China and India.
In the past year production of diamonds from De Beers and Alrosa of Russia, the world's two biggest diamond miners, has declined, though this was largely because of weak market conditions and operational problems.
De Beers recovered 27,9mct last year, down from 31,3mct in 2011. In 2002 it produced 40mct. Production from Debswana, its biggest single unit, fell 2,7mct to 20,2mct because of a slope failure at Jwaneng in Botswana.
Production from SA was 4,4mct, down about 1mct compared with 2011 because of the sale of the Finsch mine in the Northern Cape to Petra Diamonds.
In December Alrosa reported production of 25,4mct in the first nine months of its financial year (to March) and sales of 22,3ct from its nine pipes and surface operations. But only 15mct of sales were gem-quality diamonds.
De Beers' Cut 8 expansion project at Jwaneng will take the mine's life to 2028 and yield 95mct of high-quality gems. Going underground at Venetia - an open pit mine in Limpopo - will extend this mine's life to 2042, yielding about 96mct. Operations are likely to go underground between 2018 and 2021.
The remaining 50mct of new projects comes mainly from the Gahcho Kue project in Canada's Northwest Territories, 51%-owned by De Beers and 49% by Mountain Province Diamonds. The mine is seeking environmental approvals.
De Beers also recently signed an option agreement with explorer Peregrine Diamonds over the Chidliak project on Baffin Island in Canada. The CEO of Peregrine is Eric Friedland, the younger brother of well-known mining entrepreneur Robert Friedland, whose Ivanhoe Mines has a platinum project in SA. Robert Friedland's Newstar Securities advanced US$10m towards Peregrine Diamonds' exploration activities last year.
Prospects for growth also lie in Angola. De Beers strategy head Bruce Cleaver says Angola is "probably the most prospective country for diamond exploration in the world. If there is a big mine to be found, it would be in Angola."
Bloomberg reported last month that De Beers Angola business manager Pedro Lago de Carvalho said it was optimistic about its last remaining concession in Lunda Norte province, where it is evaluating three kimberlites - potassic volcanic rocks, which can contain diamonds - at Mulepe, about 800km east of Luanda.
Cleaver says De Beers has had a large exploration team in the country, peaking at 200 people, and has built good relationships with the government.
Though Angola's insistence on substantial local free-carries for diamond projects was a major obstacle to junior miner Trans Hex in the mid-2000s, the law was changed in late 2011. Now its government may hold a minimum 10% in projects but there is no other local participation requirement. Corporate taxes were reduced to 25% from 35% and market regulation responsibilities have been moved from state-run diamond marketing body Sodiam to a new, independent office.
Just as production is in long-term decline, De Beers is also spending less on marketing the diamond sector as a whole than it was 10 years ago.
Now it focuses on promoting its own brands, mainly Forevermark and, according to De Beers CEO Philippe Mellier, "we are also working in close co-operation with our sightholders and inviting them to invest in marketing. We can't do generic advertising for diamonds, we aren't the only player. The future lies more with branded diamonds."
He declines to say how much De Beers spends on marketing. It is "a substantial amount" and, he believes, De Beers spends more on advertising than its weighting in the diamond market.
Mellier has not seen Alrosa doing anything similar, but adds "we would hope to set a good example for the industry".