'For Immediate Sale: Exclusive Purchasing Rights of Attractive Diamond Production'
March 09, 06“PDAC? What’s that?” asked one of the world’s major diamond manufacturers in a bewildered email, not understanding why I would go to Toronto when everybody else was going to
The “For Immediate Sale” sign wasn’t posted. You need to engage in discussion with the well over one hundred diamond exploration and mining companies to find these kinds of opportunities. But they are there. Except for a handful of Mumbai diamantaires, some representatives of a few major global industry players and the managing director of a major
It shows, however, that most of the players in the industry don’t recognize that in tomorrow’s diamond world, the key challenge is to get assured rough diamonds supplies. Developing a polished client base is of no use without it.
Back to the “For Sale” sign. Among recent deals we found Elkedra Diamonds NL, a new Brazilian diamond producer, which starts its regular production this month at the end of March 2006. Its diamond mine at Chapada will produce between 30,000 to 36,000 carats per year for at least nine years. The modest mine’s total potential, including various resources in the area, is about 2 million carats – valued at $930 million. The average per carat value of this mine is conservatively estimated at $250 per carat, though as most of the diamonds in the region average $430 per carat, chances are the $250 per carat figure is an understatement.
Chapada a small alluvial mine. Total development costs are about $7.2 million. This is peanuts compared with the “big ones” such as Ekati or Diavik, which come in the $800+ million to build. These small mines are of great interest to diamond manufacturers – but you need to have a finger on the pulse to discover them.
Lev Leviev’s people discovered the project last year – when the small company needed financing. Leviev became a (7.6 percent) shareholder in the mine and signed a 6 year offtake agreement for the purchase of 100 percent of the diamond production of the Chapada mine. This is an example in which all diamonds are committed – well in advance – to one source.
Are there more opportunities like this? Of course there are. We talked extensively with Etruscan Resources, a small African diamond and gold explorer, active in
A classic case, however, is China Diamond Corporation. Its principal asset is its (50 percent owned) Changma diamond mine, which has been in production for some 35 years. Presently it produces around 75,000 carats per year (at an average of $50 per carat). Among its directors and shareholders is a Belgian diamantaire. Hitherto, the mine’s total production was sold locally in
There are plenty of similar stories. European Diamonds last month concluded a marketing agreement with BHP Billiton for production of 290,000 carats of diamonds per year from its Satellite Pipe mine at Liqhobong in
How does one “get in line”? There are no short-cuts. A diamantaire must build up relationships with promising exploration companies. These geologists know very little – or actually nothing – about diamond marketing or about diamond values. When one visits PDAC – and similar events – on a regular basis, it is easy to discover that the worldwide community of diamond prospectors and explorers is a small one. All players know each other personally – and most of them are “brand names” in their own right. Often, a potential project becomes a small company looking for money and expertise. It is not unusual for accomplished executives in a well-established diamond mining company to jump to new, uncertain but promising ventures. A classic example is Matt Manson, a well known Aber Diamonds executive, who last year joined Contact Diamonds – of which he is now President and CEO. Contact is exploring diamond properties in
It is all about building early relationships. One must get involved when there are no diamonds yet. Of the some 100-plus diamond prospecting projects that we are aware of in
The prospecting and exploration community consists of mostly well-educated, colorful, idealistic and stubborn people. They are a special breed. But they have one thing in common: they believe in diamonds.
Historically, diamond manufacturers relied on the cartel environment; and rough sourcing was not seen as a major problem, certainly not for clients of De Beers. Being a DTC Sightholder meant that one could rely on supplies for generations. Now one has only the certainty of a two and a half to three year contract. It’s a new ballgame, with new rules. Diamond mining and exploration shows are the place to be.
In the past, a small exploration company, after finding an economic deposit, would “automatically” sell these deposits to De Beers, Rio Tinto or BHP Billiton. From walking around the