By Kishori Krishnan Exclusive To Diamond Investing News ^[1]

The sparkle is back. With the discovery of a 507.55 carat white diamond at the Cullinan Diamond Mine, South Africa, the chicken egg-sized stone has opened up new vistas for the diamond sector.

The stone, which could be among the world's top 20 high-quality gems, has laid bare the hidden potential of the diamond mining industry, which could throw up a gem or two and ensure that costs are covered at the relevant mine for about two years - as in the case of the Africa-focused diamond-miner Petra Diamonds ^[3].

The stock rose almost 8 per cent after the AIM-listed group said that it had recovered the gem. Shares rose 5p to 68p.

The diamond was recovered alongside three other special white stones of similar colour and clarity in the same production run: another stone of 168 carat and two other stones of 58,50 carat and 53,30 carat.

Johan Dippenaar, the company's chief executive said in a statement Tuesday that the gem was of "exceptional color and clarity." Weighing over 100 grams, the stone could be worth as much as $20 million, if not more.

Though one diamond does not a summer make (or in this case winter sales), the news is encouraging, not just for Petra Diamond but for the industry as a whole, which has been witnessing improving demand.

Juniors strong

The sector that was almost left for dead only six months ago, has got a fresh lease of life and has even revived Canada's dormant junior mining sector. Investors have started to wade back into the long-neglected junior space over the past month because of some positive announcements.

Like Vancouver-based Peregrine Diamonds Ltd ^[4] (TSE: PGD) which controls the Chidliak project on Baffin Island. Last week, the company said that a 399-kg sample from Chidliak recovered many large diamonds, including 131 that were bigger than the 0.6-mm sieve size.

Peregrine shares jumped up more than 250 per cent since early last week.

A couple of other Canadian diamond juniors are also said to be brushing themselves off from last year's crash and catching the eye of investors again. Like Shore Gold Inc ^[5] (TSE: SGF) which is back on the radar after completing a positive pre-feasibility study on its Star diamond project in Saskatchewan.

The announcement provided confidence that the long-dormant project might finally get built, although the proposed US$1.6-billion capital cost continues to be a concern.

Another junior, Mountain Province Diamonds Inc ^[6](AMEX:MDM), struck a new joint venture agreement with partner De Beers Canada on their Gaucho Kué project in the Northwest Territories. The project was going nowhere under their previous deal, and Mountain Province has now finally started a feasibility study.

Not closed for winter

Other instances of positive signs are firms which are not closing for the winter. Like Diavik diamond mine ^[7]which has reversed its planned shutdown. Earlier this year, the company that operates the Diavik mine announced that as a result of the economic slowdown, the site would be temporarily shut down in the summer and winter of 2009.

The summer shutdown was completed August 24 and production has resumed, but the winter shutdown that was to begin on December 1 is no longer necessary, Diavik Mines Inc said.

Diavik, a division of Rio Tinto PLC ^[8], owns 60 per cent of the Diavik site, with the remainder is held by Harry Winston.

Harry Winston ^[9]chairman Robert Gannicott said: "We do not foresee a return to extreme conditions that would warrant a further shutdown."

"After we had our successful summer shutdown, which was a six-week shutdown as well, senior management of Diavik reviewed the economic factors - the demand, the price for diamonds, etc. and there has been a modest improvement in the world economy," Diavik spokesman Pat McCloskey said in Yellowknife.

Several months before Diavik announced its temporary shutdowns, De Beers Canada ^[10]said it would close its Snap Lake mine, located 220 kilometres northeast of Yellowknife, for 10 weeks over the course of 2009.

On Wednesday, De Beers Canada jumped onto the same bandwagon and said it was cancelling the winter shutdown at its Snap Lake mine ^[11]in Canada's Northwest Territories. The company cited an upturn in the international diamond industry.

"This is a good news decision in response to some positive trends we are seeing in the market place," said Jim Gowans, Chief Executive of De Beers' Canadian unit, as reported by Reuters.

The diamond giant is considering increasing production next year at its Snap Lake mine, in Canada's Northwest Territories, and will likely make a decision early in November, spokesperson Cathie Bolstad said on Wednesday.

De Beers is 45 per cent-owned by mining group Anglo American.

After rough diamond demand plummeted in the fourth quarter of last year, the company cut employee and contractor jobs at Snap Lake and reduced output, first late in 2008 and then again in February this year, to trim costs and match market demand.

Now, however, Bolstad said the diamond-miner is seeing trends "that are looking more positive for the industry," both in terms of prices and in terms of quantities.

Demand picks up

Clearly, the market is now well into recovery, with prices bouncing back and optimism that a new wave of demand from Asia will propel the market in the future.

While there was a widespread slowdown for luxury goods in early 2009, demand for diamonds from India and China appears to have picked up. Traders insist that there are positive indicators that the "worst of the economic downturn is behind us", with several major economies reporting that they had officially left recession and slight signs of improvement across the consumer confidence indices.

"In terms of global demand, although the US market continues to be the most important consumer of diamonds, it is evident that we will continue to see growth in emerging markets, notably China and India, where the urbanisation trend is set to deliver millions of new consumers to the middle classes," traders maintained.

China had now become the world's third-largest diamond consumer, following the US and Japan. Demand from the Far East too is picking up and has held up very well over the summer and into autumn, with the strong presence of buyers from India and China noted at various trade fairs.

Analysts maintain that over the medium to long-term, the fundamentals of the diamond industry were compelling, as the industry was characterised by growing demand and falling supply.

World production this year was expected to be in the region of 115-million carats, down from 162-million carats, worth $12,7-billion in 2008, owing to supply cuts. While annual world production could have been considered to be around peak capacity in 2008, many of the world's largest producing diamond mines were already in decline.

There has been no new major economic discovery over the last decade to replace these depleting resources and supply constraints are expected to be exacerbated by delayed capital expenditure programmes and lack of funds for exploration.

Company news

Chalice Diamond Corp ^[12]has entered into a private placement for up to 60 million units priced at $0.05. Each of the units will consist of one flow through common share and one non-flow through, non-transferable share purchase warrant entitling the holder to purchase one additional common share for a period of two years at a price of $0.05 per share. The proceeds of the private placement will be used for exploration on the Company's Ontario properties.

Aim-listed Firestone Diamonds ^[13]expects to decide on the start of mine development at its BK11 project, in northern Botswana, by the fourth quarter of the year, after which production could start by mid-2010, it announced on Friday.

Aim-listed mid-tier diamond producer Pangea Diamondfields ^[14]has completed the expansion of its Cassanguidi project in Angola, and expects it to reach full capacity by the end of the year, it reported on Tuesday. The Cassanguidi mine would be generating sufficient revenues to cover its operational costs by October, the company said.