It’s hard to believe, but 2023 is almost three quarters over, with the calendar fast approaching the end of September.
The year has been characterised by several trends that have impacted Australian investors, including persistently high inflation, a falling Australian dollar, higher interest rates and low consumer confidence.
Despite these challenges, property markets, and the ASX 200 have held up relatively well, leading some investors to become far too complacent. There are signs now that weakness is beginning to return to these markets, with property listings surging due to mortgage stress, while the share market looks like it has peaked.
These factors have led to what is effectively a two-tiered outlook for pink diamonds. In the short-term, greater uncertainty, combined with reduced liquidity and reduced free cash flow amongst households means that there has been significantly less turnover in the pink diamond market.
Over the long-term, these factors support a continued bullish long-term outlook for alternative hard assets like pink diamonds, which should eventually benefit from demand as investors seek diversification, risk-protection, inflation hedging and outright sources of profit in their portfolios.
In this week’s article though, we focus on the primary source of pink diamonds over the past few decades, the now shuttered Argyle Diamond Mine.
Specifically, we look at a newly released study on the formation of this world famous diamond deposit that not only highlights how unique it truly was, but even more importantly, why the supply of these unique assets is set to remain so scarce going forward.
The mystery of Argyle solved
As most people who have done some research on pink diamonds will know, the Argyle Diamond Mine located in the Kimberly region of Western Australia was the source of over 90% of the world’s supply of pink diamonds.
No other mine on earth came close to matching it in terms of quantity or quality of pink diamonds, with the mine often referred to as a geological fluke, including by ourselves here at Australian Diamond Portfolio.
Research released this week from Curtin University and Rio Tinto (the Argyle Mine operator) may have finally solved the question of how the Argyle mine deposit came to be, with a range of news articles, including this one from the ABC discussing the topic.
The article notes that; “Some 1.3 billion years ago, when a chunk of an ancient supercontinent started splitting apart, hot rock rich with pink diamonds violently blasted through the rift in an explosion bigger than any human has witnessed. The magma within the volcano cooled, locking the diamonds inside. And it eventually became the site of the multi-billion-dollar Argyle diamond mine in north-east Western Australia, famed for its pink diamonds.
According to the researchers, it was the breaking up of the supercontinent, which was called Nuna, that may have been crucial to bringing the pink diamonds to the surface. Argyle may have never existed without this event.
To put it in further context, when this geological event that helped create Argyle occurred, there were no animals or plants on earth, Australia as we know it today was yet to form.
It was literally a once in a billion-year occurrence that helped create Argyle. It also helps illustrate just how difficult it will be for another Argyle deposit to even form, let alone be found and economically mined, with the article going on to note that; “Despite geologists now knowing how pink diamonds are formed and how “continental sutures” can bring them to the surface, finding similar deposits won’t be easy. Over hundreds of millions or even billions of years, the seams joining continental blocks can be covered by sand and soil, effectively disguising the top of diamond-bearing deposits that might be present.”
This is important for investors to keep in mind, for while pink diamonds have been strong performers for most of the last twenty plus years, there is no doubt that it was the Argyle Diamond mine’s closure in late 2020 that heralded the commencement of a new bull market run in pink diamonds.
Given the closure of the Argyle mine essentially eliminated the new supply of pink diamonds into the market, and that no new mine deposits of anything like Argyle’s magnitude have even been discovered, let alone permitted, built and put into production in the three years since closure, we can say with absolute confidence that the supply of these already finite assets will remain extremely limited, if not finite.
Once the current liquidity challenges dissipate, these supply dynamics, combined with an expected return of strong demand for these physically beautiful and rare assets from investors worldwide, are why we remain so positive on the ultimate long-term outlook for these assets.
It is not too late to get involved.
Before finishing up this update, it would be remiss of me if I didn’t say a warm thank you to all of our clients who sent in their well wishes to the team at Australian Diamond Portfolio off the back of our announcement that our business had turned ten years old just this month.
That feedback has been very warmly received by the entire team.
Looking ahead, this endorsement only reinforces our desire to continue to provide the best access to investment pink diamonds, as well as all the supporting services from valuations to storage to eventual resale that allow Australian Diamond Portfolio to make pink diamond investment seamless, efficient, and highly profitable for our clients.
As always, we hope you’ve enjoyed this week’s edition of “In the Loupe” and we look forward to any questions or comments you may have.