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KMW Blog Oct 31, 2015: Themes from Pat Sheahan's November 2015 Diamond Literature Reference Compilation


Posted: Oct 31, 2015JK: Themes from Pat Sheahan's November 2015 Diamond Literature Reference Compilation
Published: Oct 31, 2015KRO: Sheahan Diamond Literature Compilation - November 2015
Pat Sheahan's collection of diamond related references in her November 2015 issue is now available in the KRO Diamond Resource Center. The November scientific, media and corporate references are highlighted in yellow in the 2015 SDL Compilation. I introduced the KRO/Sheahan collaboration in KMW Blog Post - Oct 13, 2015 in which I also explained why the market is ripe for a revival of interest in advanced diamond exploration. We are suffering the down-side of the raw materials super-cycle which peaked in 2011 and which may require a few years to unwind the over-capacity mobilized by the mining industry. While gold cannot be analyzed in commodity cycle terms, its price is also unlikely to rise in the face of slowing global prosperity growth now characterized as "secular stagnation". The best upside hope for gold in the near term is for a geopolitical stress-related shock, for which there is ample reason to be concerned in light of China and Russia squaring off against a superpower whose leadership has a 50% chance of ending up with one of the candidates in the sack of hammers competing for the Republican presidential nomination. Gold would be rocketing higher if Hillary Clinton had not done such a good job staring down her Benghazi inquisitors and edging her chances over the 50% mark against a future opponent likely to engage Xi or Putin with blowhard nonsense. Unless they are willing to engage in sophisticated "security of supply" strategies, speculators hoping for upside via resource juniors will have to focus on discovery exploration where success is measured by a project's capacity to be profitable at the prevailing metal price.

Weakness in the diamond sector that began in the summer has rippled through to diamond producers who have been forced to cut back sales or accept reduced prices for their diamonds. The SDLC November 2015 issue, which references media articles published in October, reveals growing concern about weakening demand for polished diamonds, the emergence of synthetic diamonds as a competitive threat to natural diamonds, and a potential consumer backlash toward natural diamonds not just due to sourcing from conflict ridden regions such as the Central African Republic, but also in terms of the high carbon footprint associated with mined natural diamonds in contrast with manufactured diamonds.

The slump in rough diamond demand is largely linked to a decrease in demand from Chinese consumers where Xi Jinping's crackdown on corruption has hurt demand for luxury goods in general (see Diamond Investing News: Can Miners Buck the Diamond Price Trend 2015? - Oct 19, 2015)). But while the slump in Chinese demand can be construed as temporary, problems of a perceptual nature continue to gnaw at the future of diamonds.

The problem of conflict diamonds as a disrupter of local society has not disappeared with the implementation of the Kimberley Process, a chain of custody certification system developed by the diamond industry to keep conflict diamonds out of the retail pipeline. An in-depth article by Fellipe Abreu and Luiz Felipe Silva of Insight Crime, How Illegal Diamond Mining Threatens Brazil's Indigenous Communities - Oct 14, 2015, describes the turmoil afflicting the Cinta-Larga indigenous group in western Brazil whose reserve sits on the Roosevelt diamond "deposit" discovered in 1999. The lack of a proper legal framework enabling the Cinta-Larga to commercially exploit this diamond source, which may be a very large and rich kimberlite pipe, has resulted in an unholy entanglement of indigenous locals, artisanal miners, and criminal traders who feed the illegally mined diamonds into the black market through Venezuela which is not party to the Kimberley Process, and into the legitimate retail supply chain by blending the diamonds with supposed alluvial production from Guyana. A similar theme is raised by an 85 page report published by Amnesty International (Chains of Abuse - 2015) which uses the conflict between Muslims and Christians in the Central African Republic to argue that the KP is ineffective at keeping conflict diamonds out of the global supply chain through "export bans". Martin Rapaport, who has more than a vested interest in preserving the legitimacy of natural diamonds, urges the KP to listen to consumers in Kimberley Process: Where is it Now? published in the September issue of Rapaport Magazine.

The perception that a natural diamond purchased through a jewelry retailer cannot be guaranteed to be truly clean of "blood" plays into the hands of the synthetic diamond producers, who are also pointing out that a natural diamond carries a very much bigger carbon footprint per carat than a lab grown diamond. The diamond industry's response to news that synthetic diamonds have shown up in retail centers has been to ban synthetic diamonds outright (see Rough & Polished: Synthetic diamonds will not be considered precious stones in Russia - Oct 15, 2015) or develop detection systems so that they cannot enter the supply chain disguised as natural diamonds (see Bloomberg: Why This De Beers Lab Makes Diamonds It Will Never Sell - Oct 7, 2015). While India and Russia are trying to ban synthetic diamonds as not being precious at all, others argue that the diamond industry should embrace synthetic diamonds but insist that it be done with the condition of transparency. Synthetic Diamonds: Legitimize, Don't Ostracize - Oct 15, 2015 by Avi Krawitz of Rapaport not only explores this avenue, but makes the case that future diamond demand from millennials will be guided by their penchant for social and environmental consciousness. The argument is that the specialness of diamond should be preserved, especially given that by 2050 natural diamond supply in all size categories will have undergone severe depleition. Naturally this reason appeals more to downstream members of the diamond supply chain than upstream producers of natural diamonds. A further danger for future diamond demand is that millennials may forgo diamonds as a luxury good in favor of expensive gadgets such as smartphones which not only have a $600 replacement cost every couple years but carry a monthly data fee easily approaching $100. Given the relentless push towards the marginalization of human labor through automation, and the concomitant decline in consumer purchasing power, this is not an idle speculation.

And this brings me back to the theme of diamond exploration which during the past two decades was entirely focused on diamond grade as the key to economic value. Because it usually takes a couple years for a grassroots diamond exploration play to reach a point where the junior can start to spend serious money and another couple years to find out if a new kimberlite has economic potential, a market shift to discovery exploration in the current context of sideways metal prices should leave diamond projects stranded on the sidelines. That is true with regard to diamond projects where the goal is to find a kimberlite pipe, but not so for previously discovered diamondiferous kimberlites that were discarded because of tonnage and grade limitations. A couple months ago Pat Sheahan sent out a request to her diamond list for updates on the use of micro-diamonds for macro grade estimation. Of the 45 responses she got 75% were requests for information on the same topic. The remainder she has presented as references with the key word "microdiamonds - responses", which for me was a walk down memory lane for I was very much part of the analyst community that struggled to make sense of the "micro-macro" results reported by the juniors. For a quick tour of the past check out Igor Kryvoshlyk's System of Mathematical Calculation of a Kimberlite Diamond Grade which points out all the nonsense outcomes generated by improper use of micro diamonds as a macro grade prediction tool. (Kryvoshlyk's idiosyncratic "slide show" does not explain his method for calculating macro grade on the basis of garnet chemistry, which can be useful for predicting the diamond payload capacity of the xenocrysts picked up by the ascending kimberlitic magma, but which cannot shed any information on kimberlite body grade determinants such as how much diamond bearing mantle xenolith was entrained by what volume of magma, how much carat weight was lost due to resorption during the ascent, and how much country rock dilution of the kimbertlite occurred during emplacement - physical processes that have no causal relationship to the chemistry of indicator minerals that grew side by side with diamond crystals). Mineral Services Canada Inc in conjunction with UBC's Mineral Deposit Research Unit is offering an affiliate short course on January 23-24, 2016 in Vancouver on Microdiamonds: Origin, Relationship to Macrodiamonds and use in Kimberlite Evaluation that will be a timely update on an evaluation method that has made tremendous progress since 1992 and whose details remain largely outside the public domain.

The next frontier in diamond deposit evaluation is the assessment of sub-populations that may not follow the lognormal size-weight distributions that define the macro grade of a kimberlite. These would be the Type IIa diamonds of very large size and quality that reside in a De Beers reject pipe called AK6 that Lucara transformed into the Karowe Mine. Historically the only way to "discover" the presence of these large high value diamonds was through commercial production where the risk existed that the recovery flowsheet was not optimized to recover large diamonds without crushing them (hardness refers to scratching, not toughness). As far as diamond discovery exploration by resource juniors is concerned, the days of getting funded for grassroots regional exploration in search of very large medium grade or small very high grade pipes are over. Most of the exposed terrains on prospective cratons have been hit hard with reconnaissance sampling; what remains are covered terrains, such as De Beers and others are pursuing in Botswana (see Wall Street Journal: Inside De Beers's Hunt for Africa's Elusive Diamonds - Oct 23, 2015). Juniors which acquire an existing diamondiferous kimberlite that may have potential for large Type IIa diamonds have a much better shot at getting funded than grassroots explorers. The tonnage volume of the pipe is known, as is the macro grade, but the value of a potential sub-population whose own diamond size distribution is blended into the more robust distribution of the lower quality population remains unknown. Given the emergence of mid-tier producers like Lucara specializing in "specials" for which there will always be an elite consumer market, for which it will be a long time before synthetic versions of equivalent size and quality are created, and which are never going to lose their allure as a natural diamond, juniors that deliver evidence of such a pipe will have a ready exit strategy. Whatever technical knowledge has evolved during the past decade with regard to assessing the presence of exotic diamond populations is proprietary, though that may change over the next decade as juniors revisit old discards. There are very view serious diamond juniors left; those that remain deserve close attention.

 
 

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