Opinion - Is the rarity of diamonds a myth?

Many people believe natural diamonds are rare, while others doubt it. So how rare are diamonds in reality? Sceptics claim the rarity of diamonds is a De Beers fiction. They couldn’t be more wrong. Few countries have diamond resources. Of these few resources only a few are commercially viable and the commercially viable one are home to very few high quality diamonds. Added to that, the natural process through which diamonds are created takes so long that the rarity of diamonds is only increasing.

The top five diamond producing countries - Russia, Botswana, Democratic Republic of Congo, Australia and Canada - are the source of 99 million carats mined in 2013, which amounts to 75.9% of the world’s total diamond production, according to the Kimberley Process. Together with the next top five countries - Zimbabwe, Angola, South Africa, Namibia and Sierra Leone - the top 10 largest diamond-producing countries were the source of more than 99% of the world’s diamonds in 2013.

An estimated 85 to 90% of diamonds are found in kimberlitic pipes, according to the first Bain & Co report on the diamond industry, Lifting the Veil of Mystery. There are some 10,000 known kimberlite pipes in the world, but only about 1,000 of them have diamonds in them. Of these, only 100 are, or were, actually economically viable to mine. This is 1% of the kimberlite pipes. Billions of US dollars have been invested in exploring for new resources with very little success. All the anticipated diamond mines far from compensate for the depleting existing diamond mines.

For a diamond mine to be commercially viable, it needs to have at least 0.2 carats of diamonds per tonne of ore, according to our own research. That is 0.04 grams (or 0.00141 ounces) for every mined tonne. This may give the impression that it takes very few diamonds to make a call on mining a diamond resource but this is what many mines have, no more than that.

Of the total rough diamonds extracted every year, only about 20% end up as polished diamonds fit to be set in jewellery. Only little more than half of all mined diamonds are gem or near-gem quality and about 65% of the weight of a rough diamond is lost in the polishing process, according to Bain. This means that the 130.5 million carat of rough diamonds mined in 2013 yielded only 25 million carats of polished diamonds of which only 1% across all sizes are of a very high gem quality.

Only 1% of the kimberlite pipes and only 20% of goods mined from that 1% wind up as polished diamonds fit for jewellery. Diamonds are clearly rare and with the slow but continued depletion of diamond mines, their rarity will only continue to increase. The total annual value of polished goods is estimated at about $22 billion at wholesale prices. These goods are consumed principally for jewellery in the US, China, Japan, India and the Gulf countries.

In my previous article Creating crystal clear value for diamonds, I mentioned that the diamond industry is going through a maturity phase. It is seeking a new direction and invigoration. We are exploring a new concept, one that takes into account diamonds as an asset for wealth preservation. Of the annual supply of polished diamonds, at best, 40% have the colour and clarity characteristics which could be an additional channel for wealth preservation, further underscoring the economics of rarity while creating just enough volume for the purpose of wealth preservation and value storing.

Diamonds are an unusual creation of nature that take a million years to form, according to geologists. This exceptionally long process means we can’t realistically expect nature to form more diamonds in our lifetime – or that of any of our descendants who we can possibly imagine or leave an inheritance to. We cannot produce diamonds on demand like some countries print money, so inflationary forces treat them differently.

What a wonderful story diamonds have. One can argue that the formation of natural diamonds requires an almost magic touch (or the touch of God, perhaps?) to be created and that to own a diamond is to hold a rare and almost divine piece of earth’s history. This fantastic story has been told from generation to generation from the times precious gems adorned the breastplate of the Jewish temple high priest through to beliefs in their healing capabilities and down to our days. The natural process which creates diamonds and happens many kilometres beneath the Earth also happens on exploding stars and crashing comets. Are we holding fragments of far away, shining stars when we hold a diamond?

Back here on Earth, with a rational and economically minded approach, we should consider the following: As global production of natural diamonds starts to decline in 2020, the rarity of each freshly polished diamond is logically expected to increase and with it, its value. This is something worth bearing in mind when considering diamond purchases, and the option of considering diamonds for wealth preservation.

To recap the rarity of diamonds*, there are:

• 10,000 known kimberlitic pipes globally
• Of them, 1,000 are diamantiferous
• Of the 1,000, only 100 are economically viable to mine
• Just 30 kimberlites are presently active of which many are past their prime
• Only 20% of the total production from these 30 mines ends up as polished diamonds fit for jewellery
• Of this 20%, only 40% are polished diamonds weighing 1 carat or larger
• Only 50% of them are high-end luxury quality polished diamonds fit for wealth preservation
• This means that only about 20%** of polished diamonds fit for jewelry meet the stringent criteria of “CRYSTAL CLEAR" value and therefore can be used for wealth preservation purposes in my opinion and based on industry reports and publications.

* Bain & Co, Lifting the Veil of Mystery

** CRYSTAL CLEAR - diamond "wealth preservation" is a new concept based on an analysis by the writer of official diamond industry reports and his opinion.

The views expressed here are solely those of the author in his private capacity. No one should act upon any opinion or information in this website without consulting a professional qualified advisor. Nothing on this website can be construed or constitutes an offer or a recommendation to sell or to purchase diamonds or the solicitation of an offer to purchase any diamonds nor does it constitute an offer or a recommendation to sell or to purchase any security or financial product or the solicitation of an offer to purchase any security or financial product.