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7 posts from October 2013

Diamonds Could Soon Be An Investor's Best Friend As Demand Rises And Supply Falls - Forbes

Diamonds-round brilliantDiamonds might be a girl’s best friend but from next year they could also be an investor’s best friend thanks to a global decline in the production of quality gems from mines in Russia and Canada, and rising demand, particularly in China.

Not a recommended investment for everyone because of the difficulty in valuing individual stones there is evidence that the top end of the diamond business is starting to stabilize after a sharp fall in gem prices in 2011.

Like some other luxury goods, diamond prices were pushed higher in the wake of the 2008 Lehmann Brothers collapse as rich investors diverted a portion of their capital into non-monetary, and highly-portable, assets.

Between mid-2009 and early 2011 industry indices which track the value of the highest quality diamonds rose by 70%, but crashed by around 30% last year as fear faded.

Declining Production

The latest assessment of the diamond market, according to an analysis by Citigroup C Markets, is that improving economic conditions, structural social trends in China and a decline in the rate of newly-mined gem quality diamonds is setting the stage for a sustained price recovery.

Because diamonds are tricky to value, and the same stone can generate widely different opinions, they are a commodity best left to professionals, and even then only after receiving expert advice.

But, what analysts at Citigroup have detected is a change in the outlook for diamond demand, a significant decline in the rate at which kimberlites (the host rock for most diamonds) are being discovered, and the drying up of a diamond stockpile once kept by the industry leader, De Beers.

“Diamond prices are weaker than they were two years ago and demand does not yet appear to be strong enough for the limited mine supply to create a significant shortage,” Citigroup said in report titled Diamond Price Outlook which was circulated to clients this week.

Shortage Emerging

“It is therefore likely that prices will stabilize at the lower levels through 2013 and 2014, but that the mine supply trend, the structural shift in China, and a slowly recovering global economy should see diamond shortages making their mark on prices in 2015-to-2010.”

Of the major factors in the diamond market the three most important are the melting of the De Beers stockpile, the development of a diamond-ring buying habit by engaged couples in China, and the failure of the mining industry to discover big new deposits of gem-quality stones.

The De Beers stockpile was a critical factor in controlling prices for much of the 20th century when the London-based company drip-fed diamonds into the market via an arcane process that caused it to be viewed as a monopoly engaged in unacceptable trade practices.

A changed marketing policy by De Beers has seen it behave more as a conventional business, but the sell-down of its stockpile has reduced the buffer-effect so that when the next shortfall in mined diamond supply occurs there could be significant upward price pressure.

Catching The Engagement Ring Habit

In China, a growing middle-class has seen the development of a diamond-buying habit with Citigroup reporting that 62% of engaged coupled in Shanghai now buy a diamond ring, roughly double the 33% rate in the 1990s. In Beijing the gift of a diamond ring currently extends to only 40% of couples.

In the mining world, despite a worldwide search, there has been a very low rate of kimberlite discovery with mine production of diamonds peaking in 2006 at an annual rate of 175 million carats, and currently down to 130 million carats a year.

“New discoveries could see industry production reaching 160 million carats in 2018 but if economic growth has normalized by then, diamond demand should be far greater than that level at that time.”


Stornoway: Quebec’s first diamond mine, ready to go - Proactiveinvestors (NA)

Rough diamond photo“It’s Canada’s next diamond mine, and it’s basically ready to build now.” The burgeoning mine in question belongs to Stornoway Diamond Corp (TSE:SWY), whose chief executive, Matt Manson, is rather forthright on the subject of the company’s 100 per cent owned flagship asset, known as the Renard diamond project

Proactive Investors spoke to Manson a matter of days after the road to Stornoway’s production site had broken through; that is, right after the four segments composing the 240km long road – 97 km of which Stornoway was responsible for, the rest coming care of the ministry of transport of Quebec -- were all linked up.

It is an auspicious event, because “that’s the last thing to achieve before final project financing and starting construction of the mine”, Manson points out. The road is to allow year-round access to the site, and the schedule on which it was constructed bodes well too: the plan was to get the road open by the fourth quarter of this year, and the company managed that by the end of August.

Stornoway’s plans, as established in the January 2013 optimization study, include plant commissioning before the end of December 2015, with commercial production to be achieved by mid-2016.

From there, the numbers are dizzying, with the mine set to average about 1.7 million carats a year at about US$190/carat, yielding revenues between $300 and $450 million.

According to the NI 43-101 compliant report for the site released in July of this calendar year, total indicated resources stand at 27.09 million of contained carats, with a further 16.85 million carats classified as inferred and 25.7 million to 47.8 million carats of total exploration upside.

The resource estimate for the project, which is located approximately 350 km north of Chibougamau in the James Bay region of north-central Québec, showed a 14 per cent increase in indicated resources as compared to the previous report, by converting 2.3 million carats of near-surface inferred mineral resources to the indicated category.

Unlike almost every other commodity, Manson points out diamonds have gone up in value and “the supply and demand story for diamonds is very strong.”

And the case to be made for the calibre of the project itself is strong indeed.

“It has an 11-year life based on the reserve; it has a 20-year life based upon the resource, and it has a 30- to 40-year life based on how much we can reasonably see is there.”

Clearly, the Renard project is a development in which the government of Quebec sees some significant potential, as clearly demonstrated by the act of pledging $77 million to Stornoway for the completion of the company’s segment of the road. “They see this as an anchor project in the region that will employ multiple generations of local people,” says Manson, “so it’s a big deal.”

It is also set to be Quebec’s first diamond mine ever. And, as Manson says, only two other new diamond projects of any scale exist anywhere in the world: Gahcho Kue in the Northwest Territories and the Grib project in Russia, set to be in production by the end of this calendar year.

Certainly, the project is high profile in La Belle Province.

“We get a lot of media coverage in Quebec,” says Manson. “Everybody knows the project.”

And while media relations have had their role to play, Manson emphasizes the importance of Stornoway’s relationship with the local community.

The road itself is a case study in community engagement. As director of investor relations for the company, Orin Baranowsky, says, all the contractors


Fancy colored diamond prices are showing significant gains in 2013

Colored diamondsFancy colored diamond prices are showing significant gains in 2013 while other goods struggle along. As a result, the various auctions and tenders held in the past two weeks continued to set records, headlining the strength of the colored diamond market with both dealers and private buyers driving up prices.

With more buyers around and diminishing supply, prices have continued to increase. While there is no formal price list for colored goods, Rachminov, managing owner of Rachminov Diamonds estimates that prices for pink diamonds are up about 30 percent from a year ago, while fancy intense vivid yellow goods are up around 35 percent, with lower-quality yellow diamonds up approximately 10 percent. Prices of fancy blue diamonds have increased by about 35 percent in the past two years. Similar estimates were reported from Rio Tinto’s recent Argyle tender of pink diamonds. Leibish Polnauer, of Leibish & Co., who won seven of the 64 Argyle diamonds on offer at the tender, said prices were about 35 percent higher than last year. He similarly reasoned that there were more people bidding. As a result, Rio Tinto fetched record prices with its top lot, a 2.51-carat, fancy deep pink diamond, selling for more than $2 million, or at least $797,000 per carat.

Buyers were therefore spread geographically at the recent Christie’s New York Magnificent Jewels sale. Three of the top ten lots went to private Asian buyers, three to the international trade, two of the top buyers remained anonymous, and one lot sold to a member of the U.S. trade. The very top lot sold to UK-based Moussaieff Jewellers, which bought the rectangular cut, 8.77-carat, fancy intense pink, VVS1 diamond for $6.3 million, or $721,200 per carat.


Rio Tinto pink diamonds fetch record prices - Khaleej Times

The annual sale of Rio Tinto's rare pink-hued diamonds attracted unprecedented interest with at least two of the stones fetching record prices of over $2 million, the mining giant said Monday.

1.56 carat Argyle Phoenix Fancy RedThe 2013 Argyle Pink Diamonds Tender of 64 red, pink and blue stones drew a record number of bids over $1 million from established markets such as Japan and Australia as well as emerging markets China and India. The highlight was the Argyle Phoenix, a 1.56 carat gem and one of three Fancy Red diamonds on offer, which sold for more than $2 million to a Singapore-based jeweller, the highest per-carat price paid for any diamond ever produced from Rio's Argyle mine in Western Australia.

The exact price was not disclosed due to client confidentiality.

Another record was set for the Argyle Dauphine, a 2.51 carat Fancy Deep Pink diamond, which also sold for more than $2 million, to a US-based dealer.

Rio's Pink Diamonds manager Josephine Johnson said the prices reflected "increasing demand from the world's top jewellers, designers, collectors and connoisseurs".

"These fabulous flukes of nature are a good news story in the mining industry at the moment," she told AFP.

"There was a lot of interest from our established markets such as Australia, the United States, Japan and Europe but also China and India, where there is now very strong demand."

A pink diamond is usually worth about 50 times more than a white diamond, although a 118.28-carat white diamond broke a world record earlier this month when it fetched more than $30 million at a Hong Kong auction.

Given the rare pink stones are only offered once a year and demand is high, previews were held in Sydney, New York, Tokyo, Hong Kong and Perth earlier this year to allow clients and experts to see the gems and make offers for individual diamonds.

The Argyle mine produces virtually the entire world's supply of pink diamonds, with the red seen as the pinnacle of the colour scale.

It is not known how the diamonds acquire their rose tinge but it is thought to come from a molecular structure distortion as the jewel forms in the earth�s crust or makes its way to the surface.

"We are delighted with the results for the 2013 Tender collection which are a reflection of their rarity, provenance, and global reach," said Rio Diamonds managing director Jean-Marc Lieberherr.

"The Argyle ore body is extraordinary and after 30 years of production it continues to produce the world's most coveted diamonds."


Biggest Orange Diamond May Fetch $20 Million at Auction - Bloomberg

14.82 carat The Orange diamondA pear-shaped, vivid orange diamond could fetch as much as $20 million, or $1.3 million per carat, at Christie’s next month.

The auction house will offer the 14.82-carat stone, the largest known orange diamond in the world, in its Geneva sale on Nov. 12. The following day, Sotheby’s (BID) will auction a vivid pink diamond valued at more than $60 million.

The last time an orange diamond of the same classifications appeared at auction, it weighed 5.54 carats. Known as “The Pumpkin Diamond,” it fetched $1.3 million at Sotheby’s in 1997, selling to Ronald Winston, a son of the Harry Winston founder.

Christie’s diamond has been with the same anonymous owner for at least 30 years, the auction house said, describing its clarity as VS1.

“It’s very, very good, but it has natural imperfections,” said Alan Bronstein, a consultant in colored diamonds, who knows the stone.

While pink and blue diamonds regularly appear at auctions, the orange stones are much rarer.

“As far as orange diamonds go, it has no peer,” Bronstein said. “It’s unpredictable what a diamond like that can go for. We are entering uncharted waters.”

The most expensive diamond at auction fetched 45.4 million francs ($45.6 million) at Sotheby’s in Geneva in 2010; the fancy, intense pink stone weighed 24.78 carats and was snapped up by jeweler Laurence Graff.


118-Carat Diamond Sells For Record $30.6M; 7.5-Carat Blue Diamond Fails To Sparkle - Forbes

118.28 carat white diamondA 118.28-carat D-flawless diamond fetched $30.6 million at Sotheby’s Hong Kong Magnificent Jewels sale Monday. It is a world record price for any white diamond at auction.

The unmounted, oval-shaped diamond is the largest white diamond ever sold at auction and the largest oval D-flawless diamond in the world as graded by the Gemological Institute of America, according to the auction house. GIA graded the diamond, reportedly about the size of an egg, as D color, flawless clarity, with excellent polish and symmetry. The diamond was also graded as a Type IIa, making it among the most chemically pure type of diamond with exceptional optical transparency.

The diamond was cut from a 299 carat rough diamond discovered in 2011 from a mine in Southern Africa.

7.59 Vivid Blue Round-2However, a 7.59-carat round fancy vivid blue diamond failed to sell. Known as the Premier Blue, this brilliant-cut internally flawless gem is the largest round fancy vivid blue diamond ever graded by the GIA. Sotheby’s said the round brilliant cut is rarely used in colored diamonds due to the high waste involved in the cutting process. The diamond is mounted on a platinum ring and surrounded by brilliant-cut pink diamonds together weighing approximately 1.70 carats.

The auction held at the Hong Kong Convention and Exhibition Centre took in nearly $95.5 million, making it the highest total for a sale of jewelry in Asia.

In addition to diamonds, jadeite was very popular during the sale. The top item in this category was a double-strand jadeite bead necklace that sold for more than $5.4 million.

Source: Forbes

Fancy Vivid Green Cushion Diamond

1.61 carat Cushion Vivid GreenWe occasionally have clients who have green as their favorite color and ask about green colored diamonds.  They are often surprised to hear that green is one of the rarest color for natural diamonds.  A 1.61 carat Cushion Modified Brilliant cut diamond was announced on the market today which is one of the first large GIA graded Fancy Vivid Green diamonds we can remember seeing on the market.

Most green diamonds are a “mint” green color, which is most often seen in diamonds from Brazil.  The “grass” green color of this diamond is likely a result of its African origin.

The rare Fancy colored diamonds (red, pink, green, blue, orange, purple, and violet) have gone up in price dramatically the past ten years.  With prices up as much as ten-fold in ten years, these diamonds have been a focus of investors seeking returns not easily found in real estate, stocks, or bonds.

If you are interested in learning more about Fancy Colored Diamonds as investments, please give us a call at (804) 360-7428.