Diamonds continue to shine amid darkness

A 213-carat diamond recovered from Lucapa’s Mothae mine.

Australia is determined to revive its diamond mining sector despite losing its status as one of the world’s largest producers. Australian Mining speaks with state governments, Lucapa Diamond Company and Fitch Solutions about Australia’s prospects.

If there is one thing well known about Australia, it is that the country possesses vast quantities of resources and materials buried in the ground.  

The closure of one mine doesn’t usually mean the end of an era. This not only applies to the traditional materials driving Australia’s economy such as iron ore and coal, but also resources that contribute less to GDP such as diamonds.

Lucapa Diamond Company managing director Stephen Wetherall says it’s unfortunate one of the world’s largest mines, the Argyle operation in Western Australia, has closed its doors.

“Australia has gone from being one of the largest diamond-producing countries in the world to one of the smallest,” he tells Australian Mining. “We’re trying to change that. We certainly do see a future here.”

Lucapa has been in talks to acquire the Merlin diamond mine in the Northern Territory (NT) since late 2020. 

The NT is mineral rich with large underexplored areas, providing tremendous opportunities for mineral discoveries, according to the NT Department of Industry, Tourism and Trade.

“The resources sector is a key priority for the Northern Territory. The Department of Industry, Tourism and Trade encourages all mining including for diamonds,” the Department states. 

“The NTGS (Northern Territory Geological Survey) is planning major geoscience programs under the expanded Resourcing the Territory program, which are designed to assist exploration for all commodities, including diamonds.”

The Lulo diamond operation in Angola, Africa.

Beyond the NT, Lucapa is also running a primary resource exploration program in the West Kimberley region of Western Australia in search of Australia’s next diamond mine.

The project, called Brooking, is within 50 kilometres of the Ellendale mine, which Burgundy Diamond Mines is set to operate after securing an agreement with Gibb River Diamonds to acquire the site.

Ellendale is one of the mines that is largely responsible for Western Australia’s known diamond resources, which, according to the state’s Department of Mines, Industry Regulation and Safety (DMIRS), sit at 90.5 million tonnes at 0.137 carats per tonne for 12.4 million carats of diamonds.

Wetherall believes there is a “very high” likelihood of further economic kimberlite discoveries in Western Australia given those found at the Ellendale and Argyle sites. 

“We wouldn’t be running our exploration program if we didn’t believe there was potential for the next diamond mine in Australia,” he says.

The DMIRS also shares Wetherall’s confidence, stating that it is optimistic that Western Australia will regain its position as a significant producer of diamonds. 

To make diamond mining attractive, the state government announced a reduction in the precious stone’s royalty rate from 7.5 per cent to 5 per cent in July last year. 

“This will ensure that all new diamond mines will be subject to the same royalty rate that applied to the Argyle diamond mine,” a DMIRS spokesperson says.

“The Geological Survey of Western Australia (GSWA) provides high-quality geoscience information for use by companies seeking to explore for mineral and petroleum resources, including the Diamond Exploration and Prospectivity of Western Australia 2018 data package, a compilation of diamond exploration, geology, geophysics and administrative data layers.”

In addition, the DMIRS also provides up to $10 million a year in competitive grants to successful applicants as part of the GSWA’s exploration incentive scheme co-funded exploration drilling program, with the next round opening in August. 

The Lulo diamond operation in Angola, Africa.

The grant returns up to half of direct drilling costs associated with minerals exploration drilling and covers all commodity types, including diamonds. The government also promises to tie these incentives with a policy environment that supports development “in an environmentally and socially responsible manner.” 

Fitch Solutions commodity analyst Carly Cassidy says Australia poses relatively low risks of resource nationalism compared with key producing diamond countries across Africa. However, Africa’s diamond reserves are not up for debate. 

Cassidy says according to the United States Geological Survey’s latest industrial diamond reserve data, 42 per cent of the global diamond reserves can be found in South Africa, Botswana and the Democratic Republic of Congo.

“Africa remains a key diamond mining jurisdiction due to its high reserve base,” Cassidy says. “For comparison, Australia boasts just 1.8 per cent of global industrial diamond reserves.”

Lucapa, which has assets on both continents, is recognised for owning two of the world’s five diamond mining operations with the highest average dollar per carat. They are both in Africa – the Lulo diamond mine in Angola and the Mothae diamond mine in Lesotho.

Both operations are producers of large, high-quality white coloured diamonds not strange to the diamond mining community.

Wetherall says the enviable status of each mine is attributed to their higher frequency of diamond recoveries compared with other mines.

Given that the average dollar per carat of a diamond globally is around $US120 ($155) on an annual basis, the Mothae mine far surpasses this with its average of $US1800 per carat.

“It implies nearly 16 times better quality diamonds than the world average. The reason for this is the frequency of large and high value diamonds that are far more frequent than most other resources in the world,” Wetherall explains.

“It is the content of large, valuable stones within a single kimberlite pipe that results in much higher price. It’s not specific to a continent or country. 

“We are just very fortunate that the resources and kimberlite we’ve invested in have preserved these large diamonds from the earth’s mantle.”

Lucapa’s luck and diamond quality are comparable to those recovered in Australia, Russia and Canada, Wetherall says, including those found by London-based Gem Diamonds and Canada’s Lucara Diamond.

The company’s solid market position starts with the right focus, which has been to target “very niche and high-value large stones.”

This approach has transformed Lucapa from running a single-country operation into a diamond mining company with two niche, high producing assets and three primary source exploration projects across Australia and Africa.

Lucapa’s focus has also motivated it to develop the Lulo mine from scratch, starting from exploration, source delineation and mine construction, to developing an operation that has now been running for six years.

The investment has delivered big rewards for Lucapa as Lulo is now positioned as the highest-price alluvial diamond mine in the world, according to Wetherall. 

“Our revenues have been so strong that we’re going to report record revenues for the first six months of the year (as of April),” Wetherall says. 

“We planned three diamond sales for the period of April to June, so it was a really, really strong start to the year from a mining and operational point of view. And by no means are we at the optimal or highest level of throughput yet.”

Lucapa has expanded Mothae from a 1.1-million-tonne-a-year operation to a 1.6-million-tonne-a-year mine. 

Despite Lucapa achieving record throughput at Mothae, Wetherall says there is still room for expansion in terms of its annual production volume. 

This also applies to the Lulo mine, which has reached record throughput as well. 

“We are also looking at other projects that we can acquire into our operation,” Wetherall says.

“We have a very exciting kimberlite exploration project on the very same ground our Lulo mine is on; (we want to) successfully discover a kimberlite pipe that could be our production pipe in the future.”

Wetherall’s appetite for growth is not without substance. The company has rebounded from a position where it had to suspend operations during the COVID-19 pandemic, to enjoying a strong revival in demand for diamonds. 

“When diamond production was materially reduced worldwide, the consumption of diamonds in the retail end continued to happen,” Wetherall explains. 

“Demand from online purchases and e-commerce growth continued, so a large portion of the world’s quality diamond inventory was eaten away.

“When economic activities restarted, we saw a significant demand for diamonds, which then drove a recovery in the diamond prices. Large and higher quality diamonds are now at prices higher than pre-COVID-19 levels.”

The Mothae mine in Lesotho, Africa, has grown into a 1.6-million-tonne-a-year operation.

Fitch’s Cassidy agrees, saying that diamond prices started to recover as early as the start of the pandemic. 

Lucapa was not the only company to enjoy the higher prices as others, such as Petra Diamonds reported a 16 per cent year-on-year improvement in first quarter revenue this year. 

In April, BlueRock Diamonds also reported a recovery in its average diamond prices, which surpassed pre-COVID levels and its 2019 average price, according to Cassidy.

“Over time … consumers have become more comfortable, making more expensive purchases online as luxury shoppers have limited travel,” Cassidy says.

As a rivalry with laboratory-grown diamonds develops, authentic gems are predicted to retain their solid position of demand due to their different value proposition. 

Cassidy says although there are no material differences between the two types of diamonds, their long-term retention value will separate them in the eyes of the consumer.

“As there is no limit to the theoretical supply of man-made diamonds, prices are set to decline over time,” Cassidy says.

“On the other hand, as the global supply of mined diamonds, and different colour complexities wane (most recently with the closure of the Argyle diamond mine), prices for mined diamonds will hold or increase value.

“We expect consumers to (prefer) mined diamonds for significant jewellery purchases, such as bridal jewellery, while lab-grown diamonds may be increasingly used for industrial purposes.”

Rare, coloured diamonds from the Ellendale diamond mine in Western Australia.

Cassidy believes the unrivalled competitiveness of mined diamonds will continue in the long-term.

This will set the stage for the Australian and global mining sectors to develop their diamond mining sectors and encourage project development. 

In the meantime, diamond mining companies will continue to tell of the sector’s glistening performance underpinned by the world’s unquenchable desire for the gems.  

This story also appears in the June issue of Australian Mining.

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