Welcome to Heavy Metals, Proactive's weekly commodities report.
Each week, we pick one commodity and dive in – what’s been happening, where’s it headed, what factors are at play and how are markets responding?
This week we're digging into diamonds – and how they’re under pressure in Canada’s northern regions, but have a lustrous future.
The old saying might be "diamonds are a girl's best friend" but today, they're also a good friend to Canada.
It’s been a tough slog for diamond markets lately. In short, diamonds are in the rough.
Diamond prices have been weak and there has been very little exploration work going on in Canada in recent months.
In addition to this, a number of diamond mines are approaching their end of life, having been opened in the 1990s.
With a decline in production, new discoveries are needed to fill the demand pipeline.
Only 20% of the world's diamond production (by weight) are used for jewellery. The other 80%, known as bort, is used in industrial and research settings.
Canada: new(ish) to the table but a significant producer
These days, Canada is the third-largest diamond producer in the world, after Russia and Botswana.
But it wasn’t always that way, in fact, diamond mining was basically non-existent in Canada until the early 1990s.
According to Natural Resources Canada, During 2017, Canadian mines produced 23 million carats of diamonds, valued at C$2.7 billion.
Much of the rough has been exported because only a small number of diamond cutters in Canada produce finished stones.
A relative latecomer, Canada is now a major player in the international diamond scene. Not only is Canada rich in diamonds, it is rich in high quality diamonds. Canada is also a safe jurisdiction, compared to many other diamond-producing countries.
Canadian diamonds also appeal to people who are concerned about environmental and human rights issues. They are produced from diamond mines that have some of the world's highest environmental standards.
Diamond prices have suffered
In short, it's been a tough start to 2019 for diamond prices.
The price of smaller diamonds has dropped to its lowest level since at least 2011 in January, according to PolishedPrices.com.
For the smaller stones, the world's largest producer of diamonds, De Beers, said that the $900m sold by the company in January/February was was the lowest since it started publishing data in 2016.
Lab-grown diamonds are also taking a somewhat more significant footprint, though still quite small, representing only about 2% of the total diamond jewellery market. That said, production is growing: about 15-20% a year, according to consultancy group, Bain.
Diamond outlook has lustre
While market conditions have been weak, the diamonds are still there in Canada and companies will come back to them.
And as many large mines wind down and are coming towards the end of their mine life, there is little in the supply pipeline.
A lack of discoveries, together with strong demand, bodes well going forward.
Chart of the Week
According to Natural Resources Canada, Canada's diamond mines are concentrated in the Arctic and produced 23 million carats of diamonds valued at $2.7 billion in 2017. Since then, however, production has slowed and it is estimated that 20.3 million carats of diamonds were produced in Canada in 2018.
The Vancouver-based company collected approximately 750 till samples from the Josephine Target Area during the fall of 2018, 109 of which revealed abundant high-quality diamond indicator materials (DIM), a potential new area of nearly three square kilometres.
''Over the previous financial year the plant produced well over 3.8 million tonnes, we recovered 835,000 carats ... we're halfway through our financial year now and we're aiming to surpass that''.
The company announced that the private placement has been oversubscribed and that the second tranche is expected to close within a few days.
Contact Katie Lewis at [email protected]
Follow her on Twitter @kelewis