By Kishori Krishnan Exclusive To Diamond Investing News

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Diamond values stable in the face of inflation

January may have passed off as a lack lustre month where diamond is concerned but things have started heating up from February. Sales may have been flat at best during the holiday season; nowhere in comparison to the year-end sales in 2007. February, though, holds out some promises after a surge in the price of rough diamonds.

Already, dealers are gearing up for the forthcoming Valentine Day celebrations. Though nowhere near as important as Christmas or even the change of a year, Valentine’s Day holds the promise of driving up sales.

Dealers have started replenishing their inventories even though, as of now, there has been no noticeable increase in demand. Many in the diamond sector now say that they are hopeful that the emerging signs of the end of the global financial downturn could manifest in increase sales of diamonds from February onwards.

Some optimistic souls have even predicted a return to the 2007 levels but all that we can say is let us wait and watch. Prices overall have increased by about 15 per cent as compared to the same period in 2009. In the second half of 2009, prices fell by as much as 50 per cent but today, wholesale diamonds are priced between $800-$2,000.

Today’s prices are about 20 per cent below their peak in August, 2008, said BMO Capital analyst Edward Sterck. Conditions are also improving as the cutting centres gear up modestly to sell more diamonds to the jewellery trade in 2010. But in the words of another trader, Yogesh Bulchandani, until the American and European markets show improvement, the levels will remain the same for now.

Good news

Some immediate bit of good news for the industry came from Surat in Gujarat, India. A new agreement was signed between the Gemological Institute of America (GIA) and the Surat Diamond Association (SDA) providing for GIA to work with SDA and the Southern Gujarat Chamber of Commerce and Industry (SGCCI) to promote gemological education in Surat, the world’s biggest diamond cutting and polishing center, and to develop and retain talent in the industry.

Ashok Minawala, chairman of the projects committee for the All India Gems and Jewellery Trade Federation (GJF), expressed concern at the proposed direct tax code of India’s Ministry of Finance, which gives inspectors wide-ranging search-and-seizure powers to confiscate stocks of diamonds or bullion during raids.

Export figures showed impressive gains in December 2009 over the same month in 2008. The Gem and Jewellery Export Promotion Council (GJEPC) announced that the overall exports of gems and jewelry saw a remarkable rise of 45 per cent for the month, to $1.9 billion.

Exports of cut and polished diamonds rose 66 per cent in December 2009 from December 2008, for a total of $1.3 billion.

Meanwhile, the Globe and Mail in a report late last month has predicted that the lustre was returning to the global diamond business because of the steady recovery of the economy which was driving up the prices.

Some diamond sellers also report more people buying the shiny stones as investments, after having lost millions in stocks in the recent market meltdown, the paper said. Expectations are that diamond prices will keep climbing this year, on the back of a steady recovery.

According to markets analyst Edward Sterck, rough diamonds have recovered extremely strongly because the diamond traders and cutters and polishers are speculating there will be a pick-up in demand for polished diamonds as the economy recovers.

John Bristow, president and CEO of Vancouver-based producer Rockwell Diamonds Inc, which has operations in South Africa, said he had noticed a “good resilience” in the diamond market compared with this time last year.

While Americans still represent just under half of the world’s diamond consumers, Bristow said there’s a noticeable increase in demand in places such as China and India.

Speaking of India, there were reports earlier of some blood diamonds having found their way into the Indian market, leading to an uproar. Now, a report in The Economic Times, has ruled this out. An Indian diamond merchant and the head of a premier trade body have denied such reports.

Diamonds that are used by rebel movements to finance wars against legitimate governments are known as blood, or conflict diamonds.

Fears were raised first by Pooja Kotwani, India head of Rapaport, of the possibility of blood diamonds from Marange having found their way into India, the world’s largest cutting and polishing centre of rough diamonds.

Kotwani was speaking a day after diamond industry veteran and chairman of the Rapaport group, Martin Rapaport resigned from the World Diamond Council (WDC), which he claimed had turned a blind eye to the supply of blood diamonds from Marange fields.

The WDC has been set up by the World Federation of Diamond Bourses and the International Diamond Manufacturers Association with the mandate to prevent the exploitation of diamonds for illicit purposes such as war and inhumane acts.

The report, quoting Vasant Mehta, chairman of Gems & Jewellery Export Promotion Council, states that the flow of blood diamonds into India was unlikely as importers would release such diamonds into the market only after ensuring that they were duly certified under the Kimberley Process.

The Kimberley Process is a joint initiative by governments, the international diamond industry and civil society to stem the flow of conflict diamonds. In India, one of the authorising bodies of the Kimberley Process is GJEPC, a government recognised trade body.

Company news

Junior diamond miner, Firestone Diamonds looks to be in an excellent position, with its first kimberlite diamond mine due to come on stream as the diamond market – in particular for rough stones – looks to be moving back up again quite sharply.

On a visit to the site of the project, close to De Beers’ massive Orapa diamond mine in Botswana, the company’s chief executive, Philip Kenny, and chief operating officer, Tim Wilkes told Mineweb the economics of mining the BK11 pipe , where the first phase of the process plant is due to come into production in the second quarter of this year, with Phase 2 following perhaps in the third quarter, and a third phase expansion possibly to follow shortly thereafter.

This means the company should be able to start generating cashflow from its Botswana operations in the third quarter of the year.

Rio Tinto is almost close to taking a decision to restart work developing its underground Argyle diamond mine in Australia, the Anglo-Australian miner’s chief executive for diamonds and minerals said. “We are hopeful of being able to start it but that depends on the approval of our investment committee. We are continuing to work on how and when the restart might take place,” Harry Kenyon-Slaney told Dow Jones Newswires.

Rio Tinto started building an underground mine at Argyle in 2006 as open pit operations dwindled. But the miner all but halted development last year as it faced heavy debt and crashing commodity prices. Markets have since bounced back.

“The diamond market has certainly recovered. It went through a very difficult time as consumer spending was reigned in. But we have been encouraged by the recovery in the diamond market in recent months,” Kenyon-Slaney said.

Rio also is also exploring for diamonds in India. The company should have results in a few months and then it would decide whether to proceed with a feasibility study to build the Bunder project.

Gem Diamonds is looking at ways of enhancing the performance of its producing assets following the recovery in diamond prices.

The firm said it had weathered the worst downturn in the industry in living memory and Q4 saw strong rough diamond prices – especially for larger top quality, top colour diamonds.

Chief executive Clifford Elphick said: “The recovery in sentiment in the rough diamond market and resultant recovery in rough diamond prices through 2009 has been impressive, even though prices are still below the 2008 highs.

“Prices for rough diamonds from the Leteng Mine, which continues to produce some of the world’s rarest large, top quality, top colour diamonds, have risen from an average of $1,017 per carat in Q1 2009 of to $2,070 per carat in December 2009.

“We have also signed an agreement with Tiffany to ensure long term market prices and a revenue stream for the Ellendale Mine in Australia.

“The medium to long term supply/demand equation for diamonds remains positive, especially at the top end of the market where Gem Diamonds is focused.”

He said the firm was continuing to assess ways of further enhancing the performance of its assets and of assessing other opportunities in light of the improvement of the rough diamond market.

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