Flash News: Update on Plenty

17 11 2011

I have been following mining events more closely and this week it appears that a number of topics covered in previous entries have evolved to a significant extent. I am summarizing those in the present list post.

In a rare alignment of activists and large corporations’ mindset, Fortescue is once again sharing its beliefs in the conspirationists leanings of the Australian Government and the Super Majors. Mining

Rarely said about taxation. Well done Zambia. Financial Post

Steady progress is reported on Nautilus Minerals’ Solwara 1, its marine copper and gold mining project in the Bismark Sea (Papua New Guinea). Production should begin in late 2013. Mining

The Oppenheimers swapping diamonds for property development? Botswana Guardian (listen to an interview with Nicky Oppenheimer on Mineweb)

Forces at Play in Afghanistan’s resource extraction race. AFP

On the issue of mine waste. Infomine

 

 

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DeBeers. Panning for Gold.

9 12 2010

I am struggling to keep up with my one-entry-a-week commitment. Last week, news reports of DeBeers and AngloGold Ashanti joint venture to search for gold off South Africa’s West Coast particularly caught my attention. Here’s what, the already one year old joint venture is about.

De Beers and AngloGold Ashanti committed themselves to prospecting and exploring one of Seafield Resource’s projects in New Zealand using the technology developed by DeBeers Marine to search for diamonds in water of a depth of 20 m to 200m off the Namibian coast. The results of the prospecting campaign were considered disappointing by Seafield.

Following this setback, De Beers and AngloGold Ashanti have taken their JV to the South African West Coast where gold is thought to have washed into the sea from rivers (millions of years ago) and are covered in sediment. Drilling is set to start in Q1 of 2011 and will aim at determining the economic viability of the deposit.

Seafield Resources, part of E Oppenheimer & Son International, has been exploring the coast of South Island in New Zealand through other projects. This week Seafield Resources was brought up in Trading Markets’ “Small Cap Stocks on the Move” following a recent 148% gain.

More on Marine Mining

Marine mining is fairly new, having taken off in the 60s and 70s. Current operations are mostly focused on tin dredging, gemstones, sands and gravels. The costs of marine mining have been prohibitive for many years, but marine mining to be becoming more attractive.

Other firms such as Nautilus Minerals (TSE:NUS) and Neptune Minerals (LON:NPM) are focusing their marine operations in the “other” ring of fire, a region known for its seafloor earthquakes and volcanic eruptions in Oceania.

Marine deposits may be easier and more economical to mine than land-deposits as they are exposed on the sea floor and do not require the removal of tons of overburden. They also require less staff (DeBeers’ ships have about 40 employees onboard) and present fewer risks to workers. These operations are also mobile and can be taken from a deposit to another.





Diamonds: an alternative asset class?

2 12 2009

I have flagged earlier this autumn that diamond prices were going to rise significantly in the Zeniths and Abysses entry. Unlike other minerals, investment in diamonds is not a straightforward endeavour as the gems are not traded in an open market and that the two main producers, that possibilities for equity investment is limited as the main producers, DeBeers and Alrosa, are unlisted. There is however a push to develop diamond as an alternative asset class, which could lead perhaps to a diamond fund of some sorts.

On November 17th, the World Federation of Diamond Bourses, an organization founded in 1947 to provide bourses trading in rough and polished diamonds with a set of common trading practices, endorsed a suggested retail price list for different categories of diamonds. This suggests that a basic market infrastructure for diamonds being developed. Considering this, it is worth asking if diamonds could soon become a widely traded good. This would be just short of a revolution for the diamond industry.

Diamond retailing and marketing: current world order

Diamond sales have usually taken place through tightly knit networks of dealers and retailers. More than half of the world diamond production is retailed through the Diamond Trading Company which is the sale and marketing arm of DeBeers. Not only does it market DeBeers’ production but it is also mandated to retail a part of Alrosa’s production under an agreement that is not exactly pleasing European regulators and that is meant to be phased out completely this year. Anyhow, the Diamond Trading Company supplies to a limited number of sightholders (e.g. clients) which are selected carefully (the company lists only 111 sightholders worldwide).

Here is an excerpt of DeBeers “Sight and Sightholders” web page

As demand for rough diamonds outstrips supply, the DTC uses an objective set of criteria to judge which businesses it will supply, known as Supplier of Choice.

This selection process is designed to ensure that the companies the DTC sells to are the best businesses for the categories of diamonds they are applying to buy.
The DTC has recently published the list of Sightholders that have been awarded supply until March 2011.

What I find surprising in this excerpt is that the company mentions that the demand for diamonds exceeds supply. NOT! There is no natural shortage of diamonds. At present, the absence of transparency in diamond retailing has contributed a great deal to the mystique and the ever increasing price of diamonds. Marketing and the control of supply have made the gem a coveted luxury good despite its common occurrence in nature. The “A diamond is forever” line was carefully crafted to discourage the resale of diamonds and thus keep them off the market.

In sum diamonds are niche products and commodities at the same time. At present the focus is more on the gems being luxury items rather than commonly traded goods. However with the push in favour of diamond becoming an alternative investment class, so the current focus could be changing.

An alternative asset class?

Is the interest in diamond investment possibly threatening the current world order? It could but it seems that the main producer is not keen to see diamonds being traded as commodities or becoming the anchor of funky financial products.

DeBeers does not voice any concerns against investment in diamonds in principle, it is wary of investments conduits that treat the gems as commodities. Stephen Lussier, head of corporate affairs at De Beers stated that “our view on the concept is that it is more like art investing and less like commodity investing.” At present, there are a few funds investing in diamonds. These however focus on very rare and unique gems that are particular due to their size or colour. Like this one.

De Beers has also been known to discourage investment in diamonds because they perceive that bubbles prices followed by sharp falls are bad for consumer confidence in diamond as a long-term value. They also want to prevent speculation from impacting the jewellery sector.

I assume that DeBeers is probably a sufficient force in the diamond market to prevent the development of a “commodity-like asset” for diamonds. The company’s view expressed above is probably shared by companies that extract diamonds exclusively. However among the four big producers, Alrosa, DeBeers, BHP Billiton and Rio Tinto, two are big integrated mining companies which are prone to have difficulties in adapting to the niche characteristics of the diamond market and could perhaps see some benefit to selling their production through more open markets.

I assume that there are difficulties related to the development of diamonds as an asset class. The extreme differentiation of the gems (through carat, cut, clarity and colour) makes pricing an intricate exercise. Investment in diamonds can be unappealing due to their low liquidity and fungibility. Still, it is perhaps not impossible to see changes in the way diamonds are traded.