Industry Overview

There is a positive long-term outlook for the diamond market due to inherent production constraints which suggest that supply will struggle to keep pace with demand

Diamond Market Overview

  • 127 million carats were produced in 2015, with a total value of US$13.9 billion
  • Global diamond production peaked in 2005 at 177 million carats. Many commentators believe that production will not reach this level again and that the world has therefore already seen ‘peak diamonds’
  • New production coming on stream is unlikely to cover the declining profile of many of the world’s existing diamond mines (which are either due to reach the end of their lives or cannot maintain previous high levels of output) and discovery of new mines is limited
  • The success rate in diamond exploration is estimated as less than 1% and there have been no major new finds since the early 1990s
  • Demand growth is being driven by rising wealth in emerging markets, growing middle classes and continued growth in the major US market
  • There are six major diamond trading hubs (the middle market): Antwerp, New York, Tel Aviv, Dubai, Hong Kong and Mumbai
  • The retail market for diamond jewellery is estimated to have grown 4% to US$85 billion in 2015 (Bank of America Merrill Lynch)

Global diamond supply

  • Global rough diamond supply increased 1.6% in 2015 with increases from Australia and Russia offset by significant declines from Zimbabwe, Botswana and Canada
  • The world’s largest diamond mines are maturing and past their peak production levels
  • Potentially the world has already seen peak diamond production of circa 177 Mcts in 2005
  • De Beers’ significant production shutdowns during the 2008 and 2009 global economic downturn have never been fully replaced
  • A number of mines are coming on stream in late 2016 – namely Gahcho Kue and Renard in Canada and Liqhobong in Lesotho; these are not ‘new’ projects: Gahcho Kue was first discovered in 1997, Renard in 2001 and Liqhobong in the 1950s
  • Supply forecast to increase by a CAGR of 4.5–5.5% from 2015–2019, before declining by 3.5–24.5% from 2019-2030 (Bain & Co)

World Diamond Mines

A key characteristic of diamond deposits is their scarcity, in contrast to many other commodities, and there are just 30 significant diamond mines in production today. Only seven mines in the world are considered to be Tier 1 deposits (+US$20 million Reserves).

To date, the most important discoveries (other than Argyle in Australia) have clustered into three regions of the world: southern Africa, Siberia, and western Canada.

Click on graphic to increase size.

Key demand drivers

  • Continued economic recovery in the major US market; very strong diamond buying culture
  • Continued urbanisation, growing middle classes and rising wealth in emerging markets, particularly China and India
  • Diamonds are a ‘late cycle’ commodity, benefiting from the later stages of a country’s economic development
    brides in developing countries such as China and India increasingly desire diamonds in their bridal jewellery, as well as traditional gold
  • Mass luxury (i.e. affordable jewellery items priced from US$200 to US$2,000+) expected to drive the market
  • Trend to use diamonds across a wide range of luxury goods, from watches and accessories to pens and digital devices
  • Demand forecast to increase by a CAGR of 2.5-3.5% per annum from 2015 to 2030 (Bain & Co)

World polished diamonds consumption in 2015

  • The global diamond jewellery market (by value) grew 2%at a constant FX to circa US$79 billion
  • The major US market recorded the strongest growth rate of 7% and increased its market share to 45%
  • The Chinese market (including Hong Kong and Macau) in local currency grew 1% to 17% of the global polished diamond demand share by market
  • The Indian market in local currency fell by 1%, impacted by structural labour market issues and restricted consumer credit
  • The diamond market in all regions remains underpinned by the engagement and bridal markets
  • De Beers estimates that global diamond jewellery demand in 2016 will remain stable further to “expectations of positive but subdued global economic growth” (Source: De Beers Diamond Insight Report – April 2016)

Petra’s market position

  • Global production by volume: 127.4 Mcts
  • Global production by value: US$13.9 bn
  • De Beers, ALROSA and Rio Tinto (“the Majors”) remain the dominant players in the diamond market, accounting for circa 66% by volume but circa 64% by value in 2015.
  • Beneath the Majors there are only four sizeable quoted diamond producers, being:
    Petra, Dominion, Lucara, and Gem.
  • Based on FY 2015 production of 3.7 Mcts and sales of US$430.9 million, Petra accounted for 2.9% of world supply by volume and 3.1% by value.
  • Petra’s world-class resource of 308.6 Mcts ranks fourth by size (after the Majors). This factor, combined with the significant size of Petra’s orebodies, suggests relatively long lives for the Company’s mining operations (in particular, Cullinan and Williamson have the potential to be in production for over 50 years to come).

1. Source: Kimberley Process Statistics, company reports.