How the global diamond market has been affected by Covid-19

Like many industries, the NWT’s diamond mines have been hit hard by the Covid-19 pandemic. What’s the broader picture for the global diamond market?

The territory began the year with three active diamond mines. Two remain open – Covid-19 temporarily closed the Ekati mine in March, and owner Dominion Diamond Mines is now in creditor protection after running out of money, though Ekati is forecast to reopen by the end of the year.

Meanwhile, Dominion has launched a lawsuit against DDMI, its partner at the neighbouring Diavik mine, DDMI. Dominion says DDMI has mismanaged the mine amid the worsening economic climate. Rio Tinto, which operates Diavik, said Dominion’s claims are “baseless” and that it will be “vigorously defending” DDMI.

Ekati, Diavik, and De Beers’ Gahcho Kué mine together are pillars of the territory’s economy but past peak production. 

Tom Hoefer, executive director of the NWT and Nunavut Chamber of Mines, said he doesn’t have detailed data for 2020 but “can safely say that diamond production is way down, as are sales, which have virtually stopped.” 

In New York City, industry analyst Paul Zimnisky says Covid-19 has frozen the global natural diamond market’s supply chain.

The manufacturing hub in India – where almost all of the world’s natural diamonds are cut and polished – closed in late March due to the pandemic. Many global sales of natural diamonds to retailers and wholesalers have been cancelled. Jewellery stores across the world have closed during the pandemic. 

China, one of the world’s largest jewellery markets, began reopening businesses in March. However, stores in Europe and North America began shutting their doors at the same time.

While some parts of Europe and the United States have now begun reopening, and some manufacturing activity has recommenced in India, Zimnisky said the supply chain hasn’t fully recovered. 

Meanwhile, mining companies are still accruing expenses like insurance, employee salaries, and other operating costs. 

Paul Zimnisky, in a submitted photo, is a diamond industry analyst based in New York.

At Gahcho Kué, Kevyan Salehi – a vice-president of Mountain Province Diamonds, which holds a 49-percent interest in the mine – said there have been no official or conventional sales since the Covid-19 lockdown.

“That’s been the biggest impact for us,” he said. 

Prior to the pandemic, Salehi said, Mountain Province had between 100 to 150 buyers who would view its products nine to 10 times a year in Antwerp, Belgium.  

The company has been forced to find different sales avenues. On June 11, Mountain Province announced it had completed an agreement to sell USD $50 million worth of diamonds to Dunebridge Worldwide Ltd – a company controlled by Irish billionaire Dermot Desmond, who owns roughly a third of Mountain Province.

A photo issued by Dominion Diamond Mines in late 2018 shows a diamond claimed to be the largest uncovered in North America.

While Gahcho Kué has remained operational during the pandemic, disruption to the supply line means Mountain Province has lowered its 2020 production forecast.

Alrosa, a Russian group of companies that leads the world in diamond production, also plans to decrease output.

According to Mining.com, Alrosa saw diamond sales drop by 85 percent in May, compared to the same month last year. In a statement, chief financial officer Alexey Philippovskiy said Alrosa expects to see jewellery sales bounce back in China and drive up demand by July or August. 

Diamond information agency Rapaport recently reported that De Beers and Alrosa saw “rock-bottom sales” in June. Other mining companies reportedly recently sold diamonds at prices 15 to 25-percent lower than those they were able to command in February.

Trying to adapt

The diamond industry has made some efforts to adapt to pandemic restrictions. 

According to Rapaport, while De Beers usually holds sales for bulk diamond purchasers in Botswana, travel bans mean the company has instead staged limited viewings in Antwerp. Alrosa is considering doing the same. 

Salehi said Mountain Province has kept in touch with customers and explored alternative ways of selling goods. But buyers aren’t used to online sales, he said, and it’s hard to bid on a parcel of diamonds you haven’t been able to see in person. 

“We keep our eyes open and our ears to the ground,” said Salehi. “As soon as we can actually get our product moved and then go to Belgium … we’ll be there and then we’ll test the market.”

Before the pandemic hit, Zimnisky said, the global diamond industry was already facing challenges spanning two decades. 

Twenty years ago, he said, the industry was a monopoly run by De Beers. Now, there are more commercial mines in production but demand for diamonds has slowed.

“The overall market for diamond prices has been flat to down,” he explained. “When you put all that together, it hasn’t been a great operating environment.”

A 2019 report from the Dubai Multi Commodities Centre (DMCC) states that since 2011, polished diamond prices have dropped about 37 percent. 

A graph in a 2019 DMCC report illustrates changes in polished diamond prices between 2004 and 2019.

The report claims India’s diamond cutting and polishing centre, which handles 96 percent of the world’s diamonds, is in crisis with bank defaults, ongoing bankruptcies, and shrinking bank credit.

The report describes the diamond supply chain from producers to consumers as “long, complex, inefficient, and capital intensive.” Today, retailers are selling diamonds that may have been polished one or two years ago. 

The natural diamond market is also facing competition from lab-created synthetic diamonds, marketed as a cheaper and environmentally friendly alternative to natural diamonds. How they will co-exist with natural diamonds remains uncertain, the report said.

‘More of an upside than a downside’

It’s not all bad news. 

According to Zimnisky’s forecast, global diamond supplies are “going through a catharsis of sorts right now.” As mines are producing fewer diamonds during the pandemic, he explained, the global supply gets smaller – meaning prices could go up. 

The Argyle mine in Australia, one of the world’s largest diamond producers, is set to close in late 2020. That could have a similar impact.

On the demand side, Zimnisky said, the industry historically thrives when there’s a strong marketing campaign. In June, the world’s leading diamond producers launched the Natural Diamond Council, formerly known as the Diamond Producers Association, to promote natural diamonds around the world.

“I think at this point, there’s more of an upside than downside,” Zimnisky said. “You have a lot of incentive to make this industry successful again.”

The DMCC report predicts automated manufacturing will revolutionize the diamond supply chain by introducing the possibility of mining a rough diamond, polishing it, and selling it to a customer in a single day. 

The report suggests mining companies could begin cutting and polishing their own diamonds or retailers could source rough diamonds directly from mines. That would reduce production times, lower manufacturing costs, improve traceability, and reduce environmental impacts. 

Finally, the report says, the diamond retail industry has an opportunity to adapt to the wider retail environment by refocusing on branding and differentiating its products. 

It notes millennials and Generation Z are a growing consumer market that “value honesty, integrity, and authenticity” – and want to know where their products come from and how they have positively impacted local communities.

How important is diamond mining in the NWT?

So what does this all mean for the Northwest Territories? 

According to the territorial government’s 2018 socio-economic agreement report, since 1996, diamond mines have spent about $14.6 billion with northern businesses – 31 percent of that with Indigenous-owned firms. 

NWT Bureau of Statistics numbers put mining, oil, and gas at 27 percent of the territory’s gross domestic product (GDP) in 2019.

Since 1999, the government’s report said, the diamond industry has contributed an average of more than $1 billion to the territory’s GDP every year. 

A graph from the GNWT’s 2018 diamond mines report indicates employment between 1996 and 2017.

In 2017, mines provided 1,592 northern jobs, 819 of which were filled by Indigenous employees.

A 2019 report prepared for the federal government states 3,000 jobs would be lost, both directly at the mines and in related industries, if the mines close. That would affect 2,300 NWT residents, it said, or 10 percent of the territory’s current total workforce.

Paul Gruner, president and chief executive of the Det’on Cho Corporation – the economic development arm of the Yellowknives Dene First Nation – said businesses like his “wouldn’t be where we are if it wasn’t for those mines.”

“Det’on Cho literally ceases to exist without diamond mines at this point.”

According to the same report, the money to fund about 10 percent of the territorial government’s operational expenditures – around $163 million – comes from taxing diamond mines.

While other potential mine sites like Nico, Prairie Creek, and Pine Point are being developed, the report notes these won’t come close to accounting for the loss of Ekati, Gahcho Kué, and Diavik.

‘Not a pretty picture’

At the chamber of mines, Hoefer noted the Conference Board of Canada’s economic outlook for the territory has been bleak for several years.

“It’s not a pretty picture,” he said. “It’s all the same: maturing diamond industry, lacklustre exploration, and only a few advanced projects inching closer to a possible production decision. Frankly, the NWT has not been very assertive in attracting new investment.” 

The Conference Board of Canada’s latest territorial snapshot argues the pandemic will “drag down the territory’s economy.” The snapshot projects mining output will fall 6.2 percent this year and rebound by only 1.8 percent in 2021.

An aerial view of the Ekati diamond mine. Photo: Dominion Diamond Mines

That’s largely due to the suspension of operations at Ekati, the territory’s oldest operating diamond mine, since March. 

The snapshot states Ekati is projected to recover 1.9 million carats in 2020 – well below the estimated 2.7 million carats recovered last year. Production is expected to rise somewhat in 2021 but will fall in the next few years unless another ore source is developed. 

At the Gahcho Kué mine, which recovered 6.8 million carats last year, production is expected to hold steady. It has remained in operation throughout the pandemic and is expected to finish operations in 2028.

Production at Diavik is expected to fall to six million carats this year. It fell by about eight percent to 6.7 million carats last year and is expected to continue to decline until 2025, when the mine is forecast to cease production. The mine continues to operate at full capacity.

Hoefer believes the pandemic offers an opportunity for governments to employ “creative thinking” in supporting the mining industry.

“Certainly more creative than the thinking that got us into this poor situation, even pre-Covid,” he said.