from stockwatch 2024-05-24 13:53 ET - Market Summary
by Will Purcell
The diamond and specialty minerals stocks box score on Friday was an upbeat 97-74-139 as the TSX Venture Exchange rose six points to 607. It has been another week with word of price cuts at rough diamond auctions, and so it came as no shock -- certainly a disappointment, but no surprise -- that Paul Zimnisky's global rough diamond price index suffered another double whammy.
After last week's downward chart reset based on tardy data accompanied by lower current prices -- a cumulative 1-per-cent drop -- weary diamond miners were hoping for a new plateau. No such luck, as it turned out: First, Mr. Zimnisky corrected the last few weeks to a lower level thanks to another batch of gloomy, late-to-arrive data. That resulted in a reset of last week's fix to 144.9 points, down from the earlier calculation of 146.1 points. Then, based on new data, this week's fix came in at 144.6 points. And so, Mr. Zimnisky's chart has rough prices 1.5 points lower than where we thought they were a week ago, a drop of 1.0 per cent.
Rough diamond prices are now down 62.7 points from their all-time high in early 2022, when the global rough diamond price index reached 207.3 points -- a drop of 30.3 per cent. All of Mr. Zimnisky's time comparisons are in the red, with the most telling story told by the 10-year change. In mid-May of 2014, the index sat at 172.5 points, so the current fix represents a decline of 16.2 per cent over the past decade.
Consider, too, that Mr. Zimnisky began his index late in 2007 pegged at 100 points, so prices are up 44.6 per cent over the past 17 years. That puts a rosier spin on the gloom, although all the gain -- and more -- occurred in the first few years as the index hit a peak of about 185 points in the spring of 2011. That gain had diamond miners, analysts and investors believing that the rally would carry on forever -- quite literally -- as the economic assessments of the day incorporated fast-moving price escalators that had rough diamond prices outstripping inflation by 2 per cent or more per year -- year after year, decade after decade.
Just how unrealistic were those escalators? Well, Mr. Zimnisky's iterations of his index span a 20-year period, in which rough diamond prices have increased about 72 per cent. While prices surged and slumped in spurts over that run, when smoothed, the data point to an average annual increase of 2.7 per cent. Inflation, meanwhile, sent consumer goods prices higher by an average of 2.7 per cent over that stretch. And so, it appears that through the twin terrors of the Great Recession and COVID-19, and the subsequent big rallies, rough diamond prices, like most goods, follow inflation over the long haul.
Whether that trend will continue is anybody's guess. While the supply of -- and appetite for -- synthetic diamonds has certainly increased over the past decade, prices have collapsed as the gems are increasingly mass produced. Ewan Mason, chairman and chief executive officer of Star Diamond Corp. (DIAM), says that one can now buy a three-carat synthetic diamond from a jeweller for about $7,000 (U.S.). A mined diamond with comparable size and quality on the other hand will set one back about $70,000 (U.S.). And then there is Star itself, available of late for just seven cents. (Star fell one cent to 6.5 cents on 1.16 million shares today.)
And therein lies the diamond disconnect that makes predicting so perilous. Most purveyors of man-made diamonds are under water financially as the prices of their goods continues to drop. Yes, the synthetic gems have increased their share of the market, but would-be miners like Mr. Mason and analysts like Mr. Zimnisky believe that consumers will pay large for "the real thing" and pass up the synthetic bargains, even though the synthetics are real diamonds and can be bought at real deals. (They do have a point: Paying $7,000 for a diamond that might be worth $700 in a few years time is a bad deal. Still, the question is what value that $70,000 mined diamond will have in a few years.)
And so, Canada's diamond miners struggle on. Mountain Province Diamonds Inc. (MPVD), which mines diamonds toward the lower end of the size and quality scale, rose one-half cent to 19.5 cents on 101,000 shares today, far below the $7 it traded at in the fall of 2016. Lucara Diamond Corp. (LUC), which averages nearly an order of magnitude more on average per carat for its large and exceptional diamonds, struggles as well. Today, it added one-half cent to 34.5 cents on 123,000 shares.