Mining giant Rio Tinto is shutting down operations at its giant Argyle mine in Western Australia, and the anticipation is that move will great a supply shortage of pink diamonds.
The Argyle mine has reached the end of its production life, and now Rio’s precious gems rivals are expecting a lucrative surge in prices.
After all, Argyle produced some 90 percent of the world’s supply of pink diamonds.
Through the life of the mine, which launched in 1983, Argyle has produced some 800 million carats of rough diamonds, or around 8 million carats annually, and has been famously known for its pink and red diamonds, as well as brown and purpose.
Now, everyone is bracing for a major supply crunch.
For Q2 2019, Rio had recorded an output decline of 5 percent, compared to the previous quarter, and a 9-percent decline for H1 2019. For this year, Rio anticipates production of 15 to 17 million carats, but after that, it’s closing up shop by late-2020.
And it’s not only Argyle that’s reached the end of its production life ...
So what can we expect on the price front?
That depends in part on how many pink diamonds Rio’s got sequestered away in its stockpiles, and so far it’s remain tight-lipped on that.
But it’s a brilliant setup for diamonds, either way. When Argyle shuts down, some miners speculate that it could lead to a 99-percent drop in diamond production in Australia.
According to Russia's Alrosa PJSC, the world's diamond biggest producer, the existing supply will shrink by about 21 million carats by 2023, Bloomberg reports. The unfilled demand should be somewhere between 11 million and 35 million carats.
Already, Rio expects its high-quality pink diamonds to bring in several million dollars per carat.
Over the past 20 years, the value of these rare gems has increased by 500 percent.
So when the mine shuts down entirely, it’s fair to anticipate a price explosion, even if Rio has some stockpiled away.
Speaking to Kitco, Rio’s head of copper and diamonds Arnaud Soirat said the impact of the mine closure should be dramatic: “You can imagine the laws of supply and demand will apply, and you can imagine the impact that will have on those very rare pink, red, blue and purple diamonds.”
“Even if a significant new mine were to be discovered in the near future, it would still take a minimum 10 to 15 years from the discovery phase to reach the commercial stage of selling diamonds to consumers,” Anna Cisecki, executive director at Australian Diamond Portfolio, told the Sydney Morning Herald.
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According to Russia's Alrosa PJSC, the world's diamond biggest producer, the existing supply will shrink by about 21 million carats by 2023. The unfilled demand should be somewhere between 11 million and 35 million carats.
Of course, Rio’s annual showcase of the world’s rarest pink and red diamonds from Argyle is now expected to fetch some massive prices. Rio unveiled the showcase last month, and the 2019 Argyle Pink Diamonds Tender, showcased in Perth, Hong Kong and New York, will close the bidding on October 9th. Rio is expecting to fetch massive prices because this should be the final showcase.
The 64-diamond collection includes three Fancy Red diamonds and weighing 56.28 carats in total.
Pink diamonds were already rare, and fetching increasingly big prices, and there is no real alternative to Argyle. At least, not really. While other miners are now scrambling to showcase their own pink diamonds, nothing compares to the rare Argyle pinks.
In 2018, an 18.96-carat rectangular fancy vivid pink diamond called “The Pink Legacy” fetched $50.4 million at a Christie’s auction in Geneva. The year before, the 59.6-carat “Pink Star” (De Beers) sold at a Sotheby’s auction for $71.2 million.
But there is also some potential upside here for cheaper diamonds, too.
Junior mining experts have told IndexOnline that Argyle’s closure also means removing some 14 million carats of cheap, small rough diamonds from the supply, so those prices will also have a chance to recover from what has been a global glut.
Gem giants like Anglo American Plc are clearly hoping for a reprieve from a crisis that has been led by weak demand and abundant supply, putting pressure on polished prices, according to Bloomberg.
Anglo American has lower its forecast for diamond production at its De Beers unit in the first half of this year to match demand.
By Tom Kool for Safehaven.com
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