Diamond crisis? This big player is not deterred!

Last Updated: 15. Januar 2024By

The market for gemstones also had to make cuts last year. Take a look at this chart:

Source: IDEX (http://www.idexonline.com/diamond_prices_index)

The chart shows an index that summarizes the price development of various types of cut diamonds. The significant price decline in 2023 is clearly visible. The reasons for the decline are diverse. In addition to increased living costs and inflation, which negatively affected jewelry demand in some countries, the high interest rates were primarily responsible for the weak phase. These had caused interest-free assets such as diamond jewelry to lose attractiveness compared to fixed-income investment vehicles.

Diamond mine in Botswana: De Beers pushes for multi-billion underground mining. However, since interest rate cuts are now expected for 2024, the diamond market also recovered somewhat in autumn, as you can see in the chart. The sparkling stones still seem to have potential. This is now shown by a new announcement from the most important player: De Beers. The company is a subsidiary of the mining giant Anglo American and is by far the world market leader in both production and trading. A significant position of power that De Beers now apparently wants to secure.

As the Anglo subsidiary recently announced, it will spend around one billion US dollars to expand its flagship mine Jwaneng in Botswana. According to the announcement, the lifespan of the location will be significantly extended by an underground mine. The investment will go towards building a new drilling platform to facilitate on-site sampling. But the infrastructure necessary for underground mining will also be built with the money. According to De Beers, the first work will begin in May 2024. These will lay the foundation for later accelerating the mining process in two phases.

Jwaneng mine also the decisive factor for the state of Botswana: The Jwaneng diamond mine has been in operation since 1982. The operator of the site is the company Debswana. This is a 50/50 joint venture between De Beers and the state of Botswana. Since its commissioning in the early 1980s, Jwaneng has produced around 11 million carats per year. The mine is considered the most important location of the Anglo subsidiary. Accordingly, its significance is also significant for the Botswana economy. Jwaneng is responsible for about one fifth of the country’s gross domestic product.

The problem: The previously explored deposits on-site are running out. Therefore, with the support of the Botswana government, De Beers now wants to dig deeper and ultimately exploit new diamond resources. Through underground mining, up to 9 million carats can be produced per year.

Anglo subsidiary emphasizes declining supply The management justifies the billion-dollar investment, among other things, with an emerging scarcity in the diamond market. „The global supply of natural diamonds is decreasing, so the further development of the underground project Jwaneng creates new value for investors, brings new technologies into the country, creates new skills for our employees, and offers customers around the world new gemstones,“ said De Beers CEO Al Cook.

In the first half of 2023, the parent company Anglo American had to admit a significant decline in profits for its subsidiary. The prices achieved in the diamond business fell by 23 percent – the operating result EBITDA even fell by 63 percent due to the significantly increased costs.

My conclusion for you: It is interesting that the market is currently in the midst of a paradigm shift. The focus is on laboratory-grown diamonds, which are much cheaper to obtain. These often differ in appearance and feel hardly any more from „real“ diamonds and are therefore becoming increasingly popular. As a result, the demand for natural diamonds and their prospects for value are also decreasing. This effect could also have contributed to the price decline last year.

Particularly curious: De Beers is one of the pioneers in the field of diamond synthesis and is thus cannibalizing its traditional business with natural gemstones to a certain extent. On the other hand, the big player is opening up to the future. Especially young jewelry buyers sometimes pay very close attention to the price and often prefer the synthetic version.