Sunday, August 09, 2009

Good news for my 40th Anniversary...

By 2011, I may be able to afford some serious carats.
Despite its celebrated slogan "Diamonds Are Forever, De Beers, which has dominated the diamond business for over a century, is discovering that diamond profits are not forever. It reported in July that its profits for the first half of 2009 fell by no less than 99%. The problem is not that the mining giant is running out of diamonds. Its highly efficient diamond mines in South Africa, Botswana and Namibia still supply about 40 percent of the world's gem-sized diamonds. Nor have diamonds lost their value. They not only remain a vital part of the engagement ritual but their retail price of engagement rings has actually risen in 2009. What is killing De Beer's profits is the prohibitive cost of running a cartel. The cartel arrangement is necessary to sustain the illusion that diamonds are rare. [More -short, but great article]
My son who is a geologist as well as a mining engineer has always said diamonds aren't that rare, and recent discoveries of diamond pipes in Siberia, Africa and elsewhere would seem to verify that.

Diamonds are expensive because we think they are expensive. Sounds stupid, but it's true. The mining industry is not unaware of this development.

The global diamond mining industry is currently under extreme pressure. This is possibly the most challenging period yet faced by the global diamond mining business, as product inventories have risen and prices fallen. As a result, the sector is experiencing serious difficulties. Since late 2008, production has been suspended at some of the world’s largest and (previously) most profitable diamond mines:
  • The industry has fragmented considerably over the last ten years; numerous new entrants have arrived in the sector
  • For many miners, tough market conditions have arrived at a particularly inopportune moment; just as they are implementing expensive expansion and life extension plans
  • Many of the more recent entrants into the business have only recently raised significant amounts of debt and equity finance, acquired mines and projects or commissioned new mines
  • Operating cost rises, which have impacted across the breadth of the mining sector, are yet to unwind, squeezing margins still further
  • Over the medium term the industry cost structure is undergoing radical change, as existing mines mature
  • Many are switching from open pit to underground mining, or exploiting smaller, lower grade satellite orebodies; substantial changes in mine economics will occur as a result. [More]
Now add in the emergence of a robust artificial diamond industry.
Recent decades have seen some modest successes. Starting in the 1950s, engineers managed to produce tiny crystals for industrial purposes - to coat saws, drill bits, and grinding wheels. But this summer, the first wave of gem-quality manufactured diamonds began to hit the market. They are grown in a warehouse in Florida by a roomful of Russian-designed machines spitting out 3-carat roughs 24 hours a day, seven days a week. A second company, in Boston, has perfected a completely different process for making near-flawless diamonds and plans to begin marketing them by year's end. This sudden arrival of mass-produced gems threatens to alter the public's perception of diamonds - and to transform the $7 billion industry. More intriguing, it opens the door to the development of diamond-based semiconductors.
Diamond, it turns out, is a geek's best friend. Not only is it the hardest substance known, it also has the highest thermal conductivity - tremendous heat can pass through it without causing damage. Today's speedy microprocessors run hot - at upwards of 200 degrees Fahrenheit. In fact, they can't go much faster without failing. Diamond microchips, on the other hand, could handle much higher temperatures, allowing them to run at speeds that would liquefy ordinary silicon. But manufacturers have been loath even to consider using the precious material, because it has never been possible to produce large diamond wafers affordably. With the arrival of Gemesis, the Florida-based company, and Apollo Diamond, in Boston, that is changing. Both startups plan to use the diamond jewelry business to finance their attempt to reshape the semiconducting world. [More]
I think the DeBeers management is right.  If the price drops for even a short time, the mystique of diamonds will be lost, umm ...forever.  Just think of all those dowagers in Boca Raton dripping in diamonds when they learn the average teenager has body studs with more raw carats.

Imagine me buying Jan a huge rock for less than our teensy engagement ring!

1 comment:

Jay said...

There was a blurb in the last Popular Science about how diamonds aren't forever. The writer put diamonds and cubic zirconium in a graphite burning vessel and heated them to some temperature that I can't remember. The diamonds burned. The cubic zirconium, which the article said is made from smelting slag, survived the heat. The graphite dish (made of pure carbon, just like the diamonds) survived because bond energy in graphite is higher than that of diamonds. The only redeeming feature of diamonds is they are still the hardest known substance.