Large diamond mines are closing in South Africa

0 Comments 10:51 am

I’ve been in diamond production on small to medium scale since June 1998, CEO on an alluvial diamond mine in South Africa. The other day I overheard someone state that he wanted to buy his wife a diamond ring, but rather went for another gemstone because of the price. This amused me; can it be that diamonds are so expensive in a store? The same man turned to me and remarked

I just turned away and started talking about the weather, because we’re not happy, far from that!! You see, although diamond prices has skyrocketed for the consumer in the last 6-8 years, the producer has seen very little increase in the price we get! Unlike the diesel price, which was $0.23 in 1998 and we now pay $1.52 in 2008 (that is a 565% increase), the diamond price stayed pretty stable for the producer.

Here’s an example:

In late 1999 we found a 22ct, I color, near spotless diamond, which were sold in early 2000 for $5681.81/ct. diamond 4c At the beginning of 2008 we found another 22.76ct, I color, near spotless diamond (the shape was just as good, if not better than the one in 1999, and it was as similar as one could wish for, perfect for comparison). This diamond was sold in mid 2008 for $6533/ct.

That is an increase of 15% over 9 years. This isn’t good math for any business, and for this reason hundreds of medium sized mines had to close their doors, or pits in this case. In turn, with production going down, the consumer will pay even more for this precious stones.

Another factor, which kept the price low for the producer and high for the consumer, is the gold price. Any diamond producer can tell you that a high gold price = low diamond value for the producer, it’s an unwritten rule! I reckon it works like this: The market needs jewelry in all shapes and sizes, diamond gold rings, diamond gold earrings, diamond gold watches etc., with the emphasis on diamond and gold. If either the gold price, or diamond price should unexpectedly rise, the market wouldn’t be able to cope with the dramatic increase in price. Because gold is the currency of trading in the worlds, diamonds have to play second fiddle. Since 1998 the gold price grew from $250 to a whopping $1000 in 2008. 400% increase. But the market didn’t only compensate for the increase in the gold price, but also charges for a 250% increase in diamond prices. But the producer never sees this increase and the money ends up in the pockets of the middleman!

Large diamond mines are closing in South Africa and the whole of Africa, and sooner than later the big companies will have to dig into their resources to find diamonds to sell – and for this they WILL charge an arm and a leg. The demand is big, the supply is little!

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