- The closure of Argyle Diamonds will knock 10% off the annual world diamond output.
- This is expected to help keep diamond prices higher and encourage new exploration.
- Among the contenders to develop a new diamond source in Australia is Lucapa’s Little Spring Creek in Western Australia’s West Kimberley.
Sometime in the next few years Argyle Diamonds, Australia’s biggest diamond mine and the source of rare and prized fancy pink gems, will come to the end of its life.
The shutdown, and the loss of Argyle’s output of 14 million carats of diamonds a year, will cut world production by around 10% and is expected to create upward pressure on prices.
Argyle has been in operation since 1983, first as an open pit and then from 2013 as an underground operation, producing more than 95% of Australia’s diamonds.
At the end of 2017, the estimated ore reserve was 16 million tonnes, down from 29 million tonnes, a drop of 45% from a year earlier. That translates to 38.5 million recoverable carats, at a grade of 2.4 carats per tonne of ore.
At what point the mine becomes unprofitable depends on prices and costs.
“Shut-off criteria will be reviewed regularly against price, cost performance and demonstrated operational performance,” says owner Rio Tinto in its latest report. “The remaining reserves underpin the operation until 2020.”
The coming shutdown, and the subsequent impact on world supply and prices, hasn’t gone unnoticed. Many prospectors are looking for a new source.
Little Spring Creek
Among the prospects for increased diamond production in Australia is Little Spring Creek at the Brooking diamond project in Western Australia’s West Kimberley, about 50km from the old Ellendale mine which in the past produced about half the world’s valuable yellow diamonds.
Coloured diamonds of good quality get well above market rates. For example, Argyle fancy red diamonds, cut to perfection, can attract bids of more than $1 million per carat.
In January this year, the Perth-based Lucapa Diamond Ltd announced 119 diamonds had been recovered from 86.8kg of samples from one of 18 holes drilled at the Little Spring Creek prospect.
Considered to be the best find in decades in Australia, the batch of diamonds recovered — seven macrodiamonds and 112 micro-diamonds — included relatively high white diamond content and some of those highly-prized yellow diamonds:
Analyst Andrew Clayton, of Euroz Securities, says it was “exceptional” to recover so many diamonds from the first drill hole into a geophysical target.
“Whilst the quality of the diamonds is unknown, this result certainly enhances the value of its surrounding tenements,” he wrote in a note to clients.
The company’s chairman is Miles Kennedy, the former chairman of Kimberley Diamond Company, which developed the Ellendale diamond mine of yellow diamond fame. It’s currently waiting for the dry season to continue exploration.
Lucapa is the same company which has been uncovering large diamonds in Angloa. The largest recovered by Lucapa and its partners Empresa Nacional de Diamantes E.P. and Rosas & Petalas was a 404 carat stone at the Lulo Diamond Project.
Lucapa has been averaging a return of more than $US1000 per carat, with the latest sale pulling in $US1,731, making its Lulo Diamond Project in Angola the highest US dollar per carat alluvial diamond producer in the world.
Stephen Wetherall, Lucapa’s CEO and a former senior executive with global diamond giant De Beers and London-listed Gem Diamonds, says the end of Argyle will make Australia a smaller producer on the world stage.
“I’m not so sure that there’s a mine out there just yet that’s been discovered that will replace that (Argyle), so certainly Australia’s destined to become a much smaller producer,” he told Business Insider.
“Most certainly the exploration in Australia hasn’t been as rampant as anywhere else in the world. We’re obviously trying to change that.”
He wasn’t surprised when the drill hole at Little Spring Creek produced diamonds.
“But what was a surprise was the quality of the diamonds that came out once they had been chemically washed,” he says.
“They certainly have a high proportion of white colours and there is a smattering of fancy yellows. I don’t have to excite you about fancy yellows with Australia being the biggest producer of fancy yellows when the Ellendale mine was in operation.
“We can’t wait to get back on the ground when the wet season ends up North. We’ll be running hard, trying to evaluate and see what we have there because we’ve got one drill hole that came out with a result. We certainly have got a number of other targets that we want to get to as well.”
Other outfits are also looking and yellow diamonds are also the lure.
ASX-listed POZ Minerals last year signed a mining agreement with the traditional owners in the Ellendale, the Bunuba Dawangarri Aboriginal Corporation.
The Blina Diamond Project, including four mining leases and two exploration leases, sits in an area of 161 square km about 100km east of Derby, in the Ellendale area, the source of yellow diamonds.
“These beautiful stones are greatly prized by the top buyers,” says executive chairman Jim Richards.
The company says a 1,497 carat parcel of diamonds from Blina had been valued at $US389 a carat. The Fancy Yellow component of the parcel was valued at $US3391 a carat.
Bulk sampling and test mining starts this northern Australia dry season.
POZ Minerals produced a video showing the potential, including a handful of diamonds, of the area:
“The company considers the Blina Diamond Project to have the potential to deliver a relatively simple, low capital cost and low operating cost alluvial mining project,” says Richards.
“Much of the exploration risk has already been accounted for given the positive results of previous work and the successful recovery of significant quantities of very high quality diamonds from the alluvial channels.”
Kimberley Diamonds Limited
Other have tried, and failed, to revive the mining of the highly prized yellow diamonds.
One of them, Kimberley Diamonds Limited, had a plan to sell the output from its Ellendale mine to Laurelton Diamonds Inc, a subsidiary of jeweller Tiffany & Co.
But in May 2014, Kimberley Diamonds announced that price increase negotiations with Tiffany had failed. The earnings forecast for the last quarter of the financial year was revised down to $1.5 million from $7.5 million.
The price of Kimberley Diamonds’ shares fell by 41.5% following the announcement. Kimberley Diamonds went into administration in 2015.
Its chair, Alexandre Alexander, was then charged with making false and misleading statements to the ASX. The matter is due for a re-trial at Sydney District Court in May.
In the Northern Territory, there is another prospect.
Australia’s fifth largest diamond was discovered last year at the Merlin diamond mine about 80km south of Borroloola near the Gulf of Carpentaria in the Northern Territory.
Merlin Diamonds says it recovered a number of rough diamonds including a 35.26 carat brown diamond, which is the fifth largest diamond discovered in Australia, and a 14.6 carat brown diamond as well as a number of smaller white diamonds.
In late 2016, Merlin uncovered a very rare blue diamond, which are even rarer than pink diamonds.
Australia’s largest diamond, a 104.73 carat stone, was discovered at Merlin.