Rio Tinto has announced that it plans to shut its Argyle diamond mine in remote Western Australia. The mine is the largest diamond mine in the world and is known for producing pink and red gems as well as being a major source of lower quality stones.
Rival diamond mining companies are hopeful that the mine’s exit from the sector will help boost the struggling industry as it will remove a significant amount of supply from the market.
Bloomberg reported that the mine has been in operation since 1983, supplying both ends of the market, from the rare and valuable pink and red stones to lower quality brown stones.
RBC Capital Markets and Panmure Gordon are among brokers, banks and competitors forecasting the closure could kick-start prices that have waned since 2011, according to PolishedPrices.com, an industry data provider.
Production at Argyle, about 2,600 km (1,600 miles) northeast of the state capital Perth, is scheduled to end before the end of next year after finally exhausting its supply of economically viable stones, said Arnaud Soirat, Rio Tinto’s head of copper and diamonds.
“There is going to be a fair bit of supply which is going to come out of the market,” Soirat said in an interview Friday at the mine site. “In late 2020 we’ll be stopping operations and will start the rehabilitation of the site.”
Argyle has produced about 90 percent of the world’s prized pink diamonds that command among the sector’s highest prices. While they attract most attention, the pink stones account for less than 0.01 percent of Argyle’s total output.
The mine also is the biggest diamond producer by volume and that’s what has put the operation at the center of global oversupply. More than three-quarters of Argyle’s output is composed of lower-value brown diamonds, and the mine’s overall output sells for an average of between $15-$25 a carat, Canaccord Genuity Group Inc. estimated in 2017. That’s far less than the $171 a carat average price realized last year by De Beers.
A glut of cheap and small diamonds has eroded profits for nearly every miner and made it increasingly hard for the industry’s cutters, polishers and traders to make a profit. In December, some of Rio’s customers refused to buy cheaper stones, while De Beers has been forced to cut some prices and offer concessions to buyers.
About 21 million carats a year of global diamond production—including about 14 million a year from Argyle — are scheduled to exit the market by 2023, a volume that will only partially be offset by the addition of new mines, according to Russia’s Alrosa PJSC, the world’s diamond biggest producer. The shortfall between annual demand and supply could be between 11 million and 35 million carats by 2023, the company said in a presentation last month.
Rio Tinto aims to retain a presence in the sector. While it could consider acquisitions to add new output, Rio’s main focus is on exploration Work is advancing on the Fort a la Corne project in Saskatchewan, a joint venture project that potentially could enter production within five to 10 years, Soirat said.
Diamonds is “not a big business in Rio, however it is a very profitable business,” Soirat told reporters, adding that the company has advantages in the sector that it can look to continue to exploit, including technical expertise and branding. “It’s not a commodity, it is luxury goods, and so the market dynamics are completely different.”
Photo courtesy of Rio Tinto "Copyright @2018 Rio Tinto"