Diamonds: an investor’s best friend?

View over the now closed Argyle Diamond Mine in the East Kimberley region of Western Australia.

November 2020 marked the end of an era as Rio Tinto’s Argyle diamond mine closed its doors, but we haven’t seen the end of the iconic pink diamonds just yet.

There was a time when very few people believed there to be diamonds in Australia, but the 1979 discovery of the Argyle pipeline put paid to that notion.

The Argyle diamond mine in Western Australia’s Kimberley region saw some significant moments in its 38 years of operation.

The mine experienced its production peak in 1994 when 42 million carats were produced. When Rio Tinto shuttered the mine in November of 2020, it was the fourth-biggest diamond-producing site in the world and, at one point, the Argyle mine produced 90 per cent of the world’s supply of pink diamonds.

Since its early days, the Argyle has been at the centre of several other developments and discoveries. The mine pioneered the world’s first fly-in, fly-out (FIFO) model and developed sophisticated X-ray sorting technology to identify and collect the small diamonds found there.

To extract the most resources from Argyle, Rio Tinto developed the first block cave mine in WA. This involved undercutting the ore body and allowing it to break up under its own weight. This method was one of the safest and economical ways to reach deep into the ore body.

The long and profitable history at Argyle has exhausted the supply of gems viable for the market. The mines are so deep that further extrication is unviable and, finally, the time came for operations to cease for good.

Although the effects were felt around the world, the closure itself was not a shock, according to diamond specialist Eric Kariuki.

“Rio Tinto is ASX-listed, and they announce how much ore is left,” he said. “We knew the closure was coming for a while so there’s been a lot of exploring over the years, but no other diamond mine has been found in Australia that can replace it.”

The fact Australian diamonds are of a very high quality and are ethically sourced makes these gems highly sought after by global investors. Purchasing an Argyle diamond with a certificate of authenticity can increase re-sale value by 30 per cent.

“Our clients invest in Argyle diamonds because they’re safe and secure assets for them,” Kariuki said. “Growth is also a consideration because they want a good return on their investment.”

While there are still pink Argyle diamonds available, the market remains bound to the laws of supply and demand. And now, with 90 per cent of the world’s supply cut off, the demand is much higher.

April 2022 saw the world’s largest blue diamond, the De Beers Cullinan Blue, sell for an eye-watering $80 million.

The 15.1 carat diamond was unearthed at South Africa’s Cullinan mine in 2021 and estimations for the sale price stood at $48 million. The actual price well surpassed that after an eight-minute auction, ending in the sale of the rare jewel to an unnamed buyer by telephone. The sale just missed the amount fetched by the Oppenheimer Blue diamond in 2016.

“A sale like this creates a new price for that colour diamond,” Kariuki said. “This sets a precedent for what will come next.

“As an investor, I see the results of this and I know I have a limited window to collect as many (blue diamonds) as I can before the new carat price filters through the market.”

Only five gems over 10 carats have ever appeared at auction. One of the most spectacular stones to be found at Argyle, the Argyle Pink Jubilee, was 12.76 carats when unearthed; however, it was cut down to 8eight carats after a major internal fault line was found.

But what is it about the pink diamonds that make them so popular? According to Kariuki, it’s the rarity of the hue that makes them such an attractive investment.

“For example, from 38 years of mining history (such as at Argyle), you’d only get enough signature tender diamonds to fill two champagne glasses,” he said. “They’re extremely rare.”

Signature tender are Argyle’s largest and most vivid pink, red, and violet diamonds.

The closure of the Argyle diamond mine doesn’t mean that the global supply of pink diamonds has completely ceased; the gems can still be found in Russia, India, and Brazil.

However, these deposits are no match for what was found at Argyle. In fact, if a new pink diamond mine was discovered, it would take over a decade to reach a consumer sale stage. Additionally, there’s no guarantee that a mine will result in pink diamonds.

“If you do find a mine, it could be another five to seven years of construction before production can even begin, so about another decade before anything comes out of the ground,” Kariuki said.

“And if Argyle is anything to go by, there’s a less than one per cent chance of any pink diamonds.”

The prospects may sound bleak, but not all is lost for those wanting to invest in coloured diamonds. Although pink diamonds are dominating, the popularity and price of yellow diamonds are on the rise and if the Australian market continues to produce more, investors could see some healthy returns.

The Argyle mine held the monopoly in champagne, red and violet diamonds, but most of the intense yellow diamonds are found in South Africa. And, as always, the deeper the hue, the more valuable it is.

It is unclear when, if ever, the retail prices of diamonds will decrease.

Demand for diamond jewellery rose 21 per cent globally in 2021, well above pre-pandemic levels, with no sign of slowing down. The Russia– Ukraine conflict has also made the market more volatile, especially after sanctions were placed on a Russian company that supplies approximately 30 per cent of the world’s diamonds.

With these sanctions in place, diamonds’ origin of is becoming more important, and investors are seeking to ensure their acquisitions are coming from ethically sourced places.

Investors want safety and security, and they don’t want their money to sit in the bank collecting dust. Diamonds are a growth asset and can do well when sold into a secondary market.

Although the Argyle mine is now closed for good, diamonds – and pink ones, in particular – won’t be disappearing anytime soon.

This feature appeared in the July edition of Australian Mining.

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