How are Diamond Prices Controlled

What sets diamonds and other gems apart from metals is the fact that the value of a company’s production over a given period of time depends not only on volume, but on quality. In other words, gold is gold and copper is copper, but there are over 5,000 categories of rough diamonds. The quality and, thus the value, of a diamond is based on four parameters known as “the Four Cs”: crystal shape, color, clarity and carat weight.

Diamond projects are evaluated not only by the average dollar value per carat of the diamonds produced, but also by the grade (carat per tonne) and tonnage in a kimberlite or lamproite, the two most common host rocks for diamonds. These factors vary from mine to mine. The large Argyle mine in Australia has light grade, but the value per carat is low at well below US$20.

Canada’s first diamond mine — Ekati in the Northwest Territories — compares favorably with the world’s best mines in terms of dollar value per carat (an average of US$85 per carat) and grade (1.09 carats per tonne), but the tonnage is generally lower than in some other kimberlites. To compensate, Ekati exploits five kimberlite pipes, rather than one. It is expected to produce 3.5 million to 4.5 million carats of diamonds per year, about 6% of current global production by value. Canadian production could increase to 12% to 15% of global production as other nearby mines are developed.

The Central Selling Organization (CSO) was established by the South African company De Beers Consolidated Mines in 1930 to promote the marketing of diamonds from its own mines. It has since been expanded to include other producers. While the CSO has been successful in establishing a marketing agreement with Russia, a major diamond producer, some mines there have been selling some of their diamonds outside this agreement in recent years. However, companies from most other producing nations, are still allowing their rough gems to be sorted, valued and distributed through the CSO.