Asian slump hits diamonds.

Korean and other South-East Asian women, contemplating their country's almost worthless paper money, must be sending up little prayers of thanks as they finger their diamond ear-rings. They are now not in a position to buy any more diamonds and this is causing deep worry to the producers.

The financial crisis in east Asia has already had a domino effect on the international rough diamond sales market and this has crucial implications for Africa, which is a major source for the supply of diamonds.

With the continued recession in Japan and the economic and currency problems which emerged from mid-1997 in Korea, Taiwan, Thailand and other SE Asian countries, confidence was undermined in retail diamond sales. The strong dollar and the devaluation of Asian currencies adversely affected the disposable income of Asian retail diamond jewellery consumers, because diamonds are traded in US dollars and, for instance, the Thai baht lost two-thirds of its value.

Total global rough diamond sales by the De Beers central selling organisation (CSO), which accounts for 70% of rough diamond sales, were 39% lower for the second half of 1997 compared to the first half, when an all time record for half-year sales of $2.880bn was established. According to the CSO, sales in the second half of 1997 were $1.760bn, some 16% lower than during the same period in 1996.

Admittedly a little historic number crunching back to 1988 reveals that second half rough diamond sales are typically lower than first half. The reason for this is that in the first half of the year the rough diamond trade gains an impetus ahead of the all important year-end Christmas season when polishers and manufacturing jewellers need stock. By the second half of the year it is too late to buy rough stock for the coming Christmas.

It is the severity of the 1997 second half drop that is newsworthy. Previously a commensurate second half decline of 35% was matched in 1994 and a 32% drop in 1990. In contrast the decline was a mere 9% in 1992 and 10% in 1988. Annual sales of rough diamonds by the CSO for the whole of 1997 were $4.64bn, a mere 4% lower that the previous year's sales of $4.834bn. According to the CSO, the reduction in retail sales in SE Asian countries, the impact on trade confidence of this changed economic situation and the high level of trade inventory occasioned by the buoyant sales in the first half of the year, meant that the CSO had to reduce its supply to the market to support the trade in a decidedly difficult situation.

As mentioned, the CSO sales account for about 70% of global rough diamond sales. In 1997 the CSO's intake of diamonds did not include any supply from the Argyle mine in Australia, because of the termination of that contract in 1996, and supply from Russia was at a reduced level in the period running up to the renewal of the Russian trade agreement.

Around Africa

Also Angolan production and Russian stockpile sales were lower in 1997 compared with 1996.

From the statistics it would seem that the CSO's handle on the supply side of the rough diamond trade appears to have been keener in 1997.

Legal production of diamonds from the Angolan state organisation, Endiama totalled about $140m in 1996 but international mining analysts are of the opinion that the rebel Angolan movement, Unita, earns around $600m a year from rough diamonds. It is estimated that the total Angolan market -- official and unofficial -- amounts to some $800m-$1bn a year. The unofficial trade may be as much as $850m and the difference between the Unita figure and the total unofficial trade is accounted for by payments to middlemen and pilfering.

Endiama and De Beers are developing a 12-storey $30m building in Luanda, where Angolan rough diamond output will be sorted and valued. De Beers has built similar sorting facilities in Botswana, Namibia and South Africa. The importance of this building is that it will facilitate more transparency in the Angolan rough diamond trade so that an increasing amount of production will be moving through official channels.

There are forces at play in Angola that discourage transparency. Today there are numerous mini-production entities, which are effectively managed by de facto war-lords who support one political side or the other and may have technical know-how from outside.

Botswana's Orapa mine which produced around 5.6m carats in 1996, will double its output to around 12m carats from the year 2000 as a result of a major $350m development. To put this into perspective, in 1996 Botswana produced more diamonds in value terms than any other country in the world, amounting to 17.71m carats.

In the 1990s especially off the Namibian coast, some 600,000 carats of marine diamonds were mined. Future Namibian production will depend more and more on off-shore diamonds.

Diamond mining operations in South Africa produced some 10.2m carats in 1996 of which 90% emanated from De Beers' mines. Almost 50% of De Beers' South African output comes from the $400m (1992 money) Venetia mine.

The top echelon of diamond producing countries accounting for 90% of the world's rough supply by value are Botswana, Russia, South Africa, Angola, Namibia, Australia and the Democratic Republic of the Congo (formerly Zaire). Diamonds are also mined in Brazil, the Central African Republic, China, Ghana, Guinea, Guyana, India, Indonesia, C[hat{o}]te d'Ivoire, Liberia, Sierra Leone, Tanzania, Venezuela and Zimbabwe.

Canada will be the newest country to enter the premier league of diamond producers, when BHP, the Australian major's Lac de Gras mine, comes on stream at the end of 1998.

The African diamond supply may be assured for the foreseeable future but the uncertainties in the demand for rough diamonds that emerged in the second half of 1997 will dog the market as we enter 1998. On the plus side the United States, which is the major market for diamond jewellery, continues to bound ahead strongly. But the unpredictability of the total market will remain hostage to the economies of Japan and SE Asia while they remain depressed. Europe showed some growth in 1997 with the UK particularly showing encouraging signs. However in the long-term growth will come from India, Russia and China as they increasingly become important consumer markets.

South Korea is undoubtedly the biggest blot on the copy book. Be that as it may, the girls wearing diamonds in SE Asia must be thanking their lucky stars that they are wearing a commodity that does not devalue like paper currency.

Gold exploration in Ghana forests gets go ahead

Exploration for low cost Ghanaian gold is back on track following the formulation, by the Ghanaian government, of environmental guide-lines for forest reserves.

Ghana was one of Africa's most exciting exploration countries for low cost prospective gold this decade, but the efforts of some international mining companies ground to a frustrated halt in April 1996, when their activities were suspended because they were denied access to the forest reserve pending permits.

According to Mr Andrew Woollett, chairman of Reunion Mining, exploration on its Chirano prospect, which lies mostly in the forest reserve, was suspended in April 1996. However: "These guide-lines have now been received and the necessary permits issued," he said.

The Chirano project in which Reunion is earning an interest from Canadian major mining company Placer Dome and Finnish Outokumpu, lies adjacent to the Bibiani mine currently being redeveloped by Ashanti Goldfields. The Chirano project comprises seven gold-in-soil anomalies which are often associated with gold discoveries. The Chirano anomalies result from bed-rock gold mineralisation related to sheared zones, which average 40m in width. There is potential for shallow oxide ore bodies and deeper low grade sulphide mineralisation. To date one anomaly, designated D, has been explored by drilling, and an inferred oxide resource of about 2m tonnes at 1.74g/t of gold or about 100,000oz of gold has been identified.

Metallurgical test work indicates that the ore is amenable to heap leaching. By this technique low cost gold is extracted by heaping broken ore on sloping, impermeable pads and repeatedly spraying the heaps with a weak cyanide solution which dissolves the gold. The gold bearing solution is then collected for gold recovery.

Gold mineralisation is known to extend into the underlying unoxidised rocks and this has the potential to host substantial additional sulphide resources.

The current Chirano exploration programme is designed to define in detail the surface extent of mineralisation by close spaced trenches, and should be completed in March 1998. The results will be used to plan a comprehensive drilling programme to fully define the oxide reserve prior to the commencement of a feasibility study. This can then be submitted to banks for financing purposes.

The critical phase for any mining project is the pre-feasibility stage when the scope of the project is envisaged and the basic characteristics are drawn up. It is at this embryonic stage that the appropriate mining engineering features are established and the most critical decisions are taken.

Further drilling and trenching of the remaining anomalies is planned. Reunion's initial objective is to prove up a minimum 200,000 ounces oxide resource prior to carrying out further exploration on the deeper sulphide ore.

In May 1995, Reunion entered into an option agreement with its joint venture partners whereby it can earn 25% (and possibly up to 85%) in two gold prospecting licences near Bibiani in southwest Ghana. Under the terms of the option agreement, Reunion can earn a 25% interest in the licence by spending $2m. Thereafter, Placer Dome and Outokumpu may maintain their 60% interest in the licence by spending $5.6m on the completion of a fully bankable feasibility study for the recovery of not less than 500,000oz of gold. If Placer Dome and Outokumpu decide not to maintain their interest then Reunion will have the right to purchase their shares in the property for past exploration expenditure.

Trenching and re-sampling of old adits (workings) on one of the zones indicated that it could represent near surface gold mineralisation of a grade and width that would be amenable to low cost open pit (surface) mining.

In another gold exploration joint venture, Reunion has granted Ashanti Goldfields an option to earn an interest of up to 65% in the Kraaipan gold project in Botswana by funding all exploration and completing a positive feasibility study. The Kraaipan project is owned by Reunion (80%) and First Quantum Minerals (20%). It is located in southern Botswana adjacent to the South African border and covers an area of some 821km sq. The licence covers the northern extension of South Africa's Kraaipan Schist Belt, an Archean greenstone belt, which hosts Kalgold's Goldridge mine, where gold resources are reported to be in excess of 2m oz.

A $250,000 exploration programme funded by First Quantum and managed by Reunion during the first part of 1997 identified several areas with coincident soil geochemical and airborne magnetic anomalies, which will be the main focus of Ashanti's work.

Ashanti has committed to spend $250,000 on exploration during 1998 to earn 20% of the Reunion-First Quantum interest and has the right to spend a further $500,000 in 1999 to increase this to 50%. Ashanti can increase this interest to 65% at no cost to Reunion or First Quantum by completing a positive feasibility study on a project in the licence area. Ashanti has also agreed to fund the Reunion-First Quantum share of development costs subject to repayment out of profits. The agreement is subject to the approval of the government of Botswana and its right to a minority interest.

Reunion remains manager of the exploration programme until Ashanti has earned a 50% interest. Work will commence in February 1998 with the follow-up of existing gold anomalies and regional work in that part of the project area not already covered by soil geochemistry.