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Kadiam

Diamond Market Report

Market sentiment has improved on the back of a better than expected Holiday Season and a firmer macro-economic environment. The message from the supply side of the pipeline is clear with miners announcing they will ramp-up production to meet improved demand levels after slashing production levels last year. Rough prices rallied during the latter part of 2009 spurred by shortages of goods on the market and some speculative buying. Polished prices did not respond and remained flat right through the Holiday Season. There is an expectation for upward pressure on polished prices to commence due to lower inventory levels and better than expected demand especially on the larger, better quality goods. Market is looking towards initial rounds of sight allocations for 2010 by major producers and Valentine’s Day sales to ascertain the current strength of the market.

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Diamond Pricing

Something of a Twinkle for Diamonds

Measured from July this year, listed diamond stocks have attracted the strongest net inflows of any mining subsector, which may sound like a grand story. This is a lesser story than it appears to be, given the lightness of the global listed diamonds sector, a total investible US$2.8bn worth of market value, spread across 40 listed stocks.

De Beers, the biggest producer, is not listed; nor is ALROSA, the substantial Russian producer, and nor is MIBA, the ruined Democratic Republic of the Congo outfit. Anglo American holds 45% of De Beers, but is far more heavily invested in other subsectors. There is exposure to quality rough diamonds, but very indirectly, via BHP Billiton and Rio Tinto.

The biggest listed diamond miner specialists are Canada's Harry Winston, which also, however, runs a substantial jewellery business, and Gem Diamonds, which has become something of a one horse show, with its Lesotho mine, given that most of its other operations, often acquired at substantial cost, have hit brick walls of varying thicknesses.

The global diamond sector has had one of its most traumatic years, for decades. As is well known by now, De Beers is actively seeking additional funding, of around US$1bn, from its three shareholders. If that amount is provided, by way of loans or fresh equity, the proportional contribution would be US$450m from Anglo American, US$400m from the Oppenheimer family, and US$150m from the Botswana government.

De Beers took it on the nose this year, slashing production, but returning substantially to normality in recent months. According to Des Kilalea, an analyst at RBC Capital Markets, "our figures suggest De Beers sold some US$3.2bn of rough diamonds in 2009, 46% below 2008's figure but above the US$3bn we had projected three months ago".

Sales projected by De Beers for 2009 are "the lowest annual figure since 1987". Kilalea says that "the absolute level of sales demonstrates the impact of a collapse in diamond demand and the drying up of bank credit in cutting centres. Had De
Beers not cut back production and restricted supply rough prices would not now be recovering".

Kilalea says that the final rough diamond sales of 2009 by De Beers, BHP, Rio Tinto, Gem Diamonds, Rockwell Diamonds and Petra Diamonds all appear to have realised higher prices: "demand for Gem Diamonds's high-end goods was strong in the December tender with prices rising back over US$2,000/carat for the first time in a year".

Investors with a well developed sense of risk may like to take a closer look at Lucara, Peregrine Diamonds, and Stornoway Diamonds.  More broadly, clear reasons for the secular derating of the global diamond sector are yet to be articulated. Cynics might say that diamonds have little intrinsic value, while some investment strategists may go for the argument that increasing numbers of alternatives draw potential customers elsewhere. 

Selected diamond stocks:

 

Stock

From

From

Value

 

price

high*

low*

US$bn

Lucara

CAD 1.02

-15.0%

229.0%

0.095

Afri-Can Marine

CAD 0.16

-23.8%

166.7%

0.025

Karelian Diamond

GBP 0.03

-10.0%

17.4%

0.003

Sunrise Diamonds

GBP 0.01

-28.9%

88.2%

0.002

Namibian Resources

GBP 0.03

-51.1%

155.6%

0.002

Olivut

CAD 0.15

-57.1%

15.4%

0.004

New Nadina

CAD 0.09

-55.0%

100.0%

0.003

Kalahari Resources

CAD 0.06

-25.0%

300.0%

0.011

Lonrho Mining

AUD 0.02

-33.3%

77.8%

0.009

Sanatana Diamonds

CAD 0.09

-64.0%

80.0%

0.005

African Consolidated

GBP 0.15

-18.3%

205.3%

0.083

Gem Diamonds

GBP 2.06

-38.4%

77.5%

0.457

Shore Gold

CAD 0.79

-53.0%

216.0%

0.168

Petra Diamonds

GBP 0.60

-33.1%

160.9%

0.339

Mountain Province

CAD 2.21

-33.2%

202.7%

0.139

Firestone Diamonds

GBP 0.36

-23.1%

175.0%

0.056

African Diamonds

GBP 0.36

-35.7%

84.6%

0.044

Rockwell Diamonds

ZAR 0.38

-61.6%

65.2%

0.012

Trans Hex

ZAR 4.00

-2.4%

300.0%

0.055

Pangea Diamondfields

GBP 0.01

-60.3%

206.7%

0.033

Namakwa Diamonds

GBP 0.30

-40.7%

101.7%

0.058

Kopane Diamonds

GBP 0.12

-44.7%

754.5%

0.032

DiamondCorp

GBP 0.11

-69.1%

2.4%

0.008

Stornoway Diamonds

CAD 0.50

-2.9%

800.0%

0.123

Vaaldiam Resources

CAD 0.03

-76.9%

200.0%

0.007

Harry Winston

CAD 10.10

-9.3%

361.2%

0.732

BRC Diamondcore

CAD 0.15

-51.6%

650.0%

0.013

Tawana

ZAR 0.13

-41.2%

311.7%

0.002

Azure Resources

CAD 0.11

-30.0%

110.0%

0.005

Spider Resources

CAD 0.05

-23.1%

150.0%

0.018

Tsodilo Resources

CAD 0.44

-38.0%

576.9%

0.007

Peregrine Diamonds

CAD 1.78

-61.7%

360.8%

0.139

Diamonds North

CAD 0.28

-29.1%

180.0%

0.021

Cluff Resources Pacific

AUD 0.00

-55.6%

33.3%

0.007

Dios Exploration

CAD 0.18

-28.0%

260.0%

0.006

Arctic Star Diamonds

CAD 0.04

-27.3%

166.7%

0.010

Grizzly Diamonds

CAD 0.36

-48.6%

41.2%

0.008

North Australian

AUD 0.05

-31.9%

512.5%

0.098

Blina Diamonds

AUD 0.01

-70.0%

20.0%

0.002

Tawana Resources

AUD 0.02

-53.1%

275.0%

0.006

Averages/Total

 

-37.9%

214.4%

2.849

Weighted averages

 

-33.3%

199.8%

 
 

Diversifieds with diamonds:

Anglo American**

GBP 26.55

-4.0%

193.0%

57.077

BHP Billiton

GBP 19.18

-2.6%

87.1%

190.882

Rio Tinto

GBP 32.23

-3.9%

192.4%

122.777

Alexis Minerals

CAD 0.43

-34.6%

18.1%

0.059

Flinders Mines

AUD 0.14

-28.9%

241.5%

0.224

 

Market Leader:

De Beers

Unlisted

NA

NA

NA

 

Indicator Stocks:

Tiffany & Co.

USD 43.30

-1.7%

159.3%

5.389

LVMH

EUR 77.75

-0.8%

99.0%

54.534

Blue Nile

USD 60.39

-10.1%

229.3%

0.879

Gemfields Resources

GBP 0.05

-51.2%

215.4%

0.027

* 12-month

** Holds 45% of unlisted De Beers

Source: market data; table compiled by Barry Sergeant

(Source www.mineweb.com)


Diamond Prices to be Bullish in 2010

Commodity Online predicts that due to the improved global economic environment and demand outstripping supply for investment diamonds in the medium term, diamond prices will probably rise in 2010 and return to their natural growth rate of 12 to 16% in the medium term.

In 2009, diamond prices remained stable despite the economic crisis. Commodity Online notes that after declining by some 25% during the last quarter of 2008 and the first quarter of 2009, prices for investment diamonds stabilized during the second quarter of the year and remained stable throughout the second half of the year, completing the year at an only 10% decline.

In 2009, the stabilization in diamond prices despite the constrained trading environment stemmed from the decision of major diamond producers to limit the quantity of goods coming into the diamond pipeline.

In addition to the inherent stabilization mechanism within the diamond industry, increasing demand from emerging diamond consuming markets such as China, India, the Gulf and Turkey, as well as continued growth in Internet sales, helped to sustain global diamond prices.
(source www.israelidiamond.co.il)


Sierra Leone Increases Diamond Export Tax

Sierra Leone has raised its tax on exports of high value diamonds from 6.5 percent to 15 percent, Reuters reported. The tax hike applies to stones valued at more than $500,000 and went into effect on December 28.

“The new tax of 15 percent is a windfall," Abdul Ignosse Koroma, deputy minister of mineral resources, said in the Reuters report. "Diamonds exported under the former 6.5 percent (tax) were not in the interest of the country.”

The increase comes as the country's new minerals law was recently passed by parliament, through which the government hopes to boost revenues as a means to stimulate economic growth. Under the new law, which still needs to be signed by the president, royalties for diamonds will rise from 5 percent to 6.5 percent, and gold from 4 percent to 5 percent, according to The Wall Street Journal.

Sierra Leone’s diamond exports were valued at $98 million in 2008, according to the latest data published by the Kimberley Process.
(source www.diamonds.net)

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Kadiam Services

Valuation:
Provision of independent valuation services for: governments of diamond producing countries, mining companies, financial institutions and other interested parties.

Consultancy:
Provision of strategic advice to the highest levels of the diamond industry and governments with particular emphasis on the creation and enhancement of marketing channels.

Analysis:
Offers clients access to leading valuation analysis, statistics, and up to date market reports.

Marketing:
Assistance in the creation and management of diamond sales by tender or direct sales to trade and manufacturing centers. As an independent valuation company, Kadiam does not buy or sell diamonds or act as diamond brokers.

Training:
Provision of assortments and valuation training for advanced level candidates.

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Kadiam