Argyle: Small-Diamond Supply Will Continue, but Prices Will Rise

By Rob Bates -- JCK Online, 3/1/2006 2:00:00 AM

Australia's Argyle Mine's decision to remain open and begin underground mining will be “very positive” for the industry, says Jean-Marc Lieberherr, general manager of marketing for Rio Tinto Diamonds, which owns the mine.

“You have around 250,000 workers in India working almost solely on Argyle diamonds,” he notes. “It is very important for us for that to continue. [In addition] Argyle provides around 17 percent of world volume of diamonds. Take that out, with supply already limited, and you would have had a very significant impact on the market.”

Still, while it will remain open, Argyle will not produce as much as it once did. It has traditionally produced about 34 million carats a year. When the mine goes underground, that will decrease to about 60 percent of that, from 18 million to 20 million carats a year.

That means reduced supply will be felt in Argyle's bread and butter—small stones, near-gems, and browns. Given that, “it wouldn't be surprising if [the price of small diamonds] goes up over 5 percent a year,” Lieberherr says. But he notes that might not be fully reflected in the price of the jewelry: “When you talk about these small diamonds, they are a relatively small part of the value of the final product. So a 15 percent increase in the small brown diamond price may only mean a 3 percent increase in the final price.”

But despite the cutbacks, Lieberherr stresses that Argyle remains committed to its promotional efforts, including the Indo Argyle Diamond Council and the Natural Color Diamond Association. “We will not scale back the promotions,” he says. “We have a lower volume of product, but we have a massive investment to justify of around $900 million.”