Botswana still world's greatest source of new diamonds

Botswana still world's greatest source of new diamonds (Source: Mineweb)

An RBC analysis finds that Botswana will remain the world's largest diamond producer despite new mines being developed elsewhere, notably Canada. Medium term price prospects are also considered strong.

Author: Tessa Kruger
Posted: Wednesday , 19 Sep 2007

JOHANNESBURG -

Botswana will remain the world's greatest sources of new diamond production despite new production coming on stream from Canada and elsewhere.

Exploration and development in the diamond space has swung from North America towards central and Southern Africa, with areas such as Botswana equally or more prospective than Canada, RBC Capital said in a recent equity research report.

Botswana is already the world's largest producer of diamonds with production of 34.3m carats (ct) to a value of $3.4bn in 2006. And Debswana - a joint venture between De Beers and the Botswana government - is currently responsible for this total production.

De Beers is bringing its Snap Lake and Victor mines in Canada into production over the next 18 months, but potential production increases at Botwana's "giant" Orapa Mine, the AK6 kimberlite, the BK11 kimberlite or a new mine on Gem Diamond's Gope pipe in the country would sustain Botswana's lead in diamond production.

Orapa Mine, situated 240 kilometres west of Francistown, is currently investigating a third new plant to expand current production of 18mct by 1mct per year.

Mining currently takes place at a rate of 1.5m tons of ore and 1.3mt of waste per month. The ore grade currently runs 80 carats/100t (cpht), but the mine is capable of sustaining a grade of closer to 90cpht.

The pit, currently only 250 metres deep, will be extended to 600m down before an underground mine is developed to start production in 2025.

Orapa also has significant resources in the dumps where grades are believed to run at 20 cpht. Treatment of this material will start in 2009.

The AK6 kimberlite - situated about 25 kilometres south of Orapa - is being developed by De Beers and African Diamonds at capital cost of $125m-$145m to establish a mine producing 900,000ct per year from 2009.

The pipe was sampled by De Beers in 1994 and 2005 with grades of 17cpht and 25cpht respectively. African Diamonds later acquired rights (30%) to the pipe with De Beers retaining 70%.

RBC Capital said the 9.5ha pipe had an inferred resource from surface to 400 metres underground of 51.6m tons grading 24cpht - equivalent to total diamonds of 11.4m ct.

African Diamonds and De Beers models suggest a further resource of 22.3m tons between 400 and 756 metres. An indicated resource for the project is expected shortly.

Firestone is drilling the BK11 8ha kimberlite over the next 12 months that would support Botswana's lead if it produces about 500,000ct per year.

Diamond Prices

However, RBC Capital said that new mines would not boost Botswana's country production of 34m carats a year significantly, but would only add about 2mct per year.

More development would be needed to fill the potential supply shortfall in the world market when world economies regain a growth tack.

The global gem market will start to feel shortages within the next two to three years and prices will then start to rise to bridge the "developing gap".

Sluggish prices can be expected in the short term as the US accounts for 50% of all diamond jewellery sold.

But once major economies return to a growth path, offtake from new markets in India, China and the Middle East should entrench price increases in gem diamonds.