DEMAND WILL EXCEED SUPPLYDEMAND WILL EXCEED SUPPLY
Few opportunities to invest in sparkling diamond sector
Diversified majors dominate production and only a few pure diamond companies are producing yet.
Author: Tessa Kruger
Posted: Wednesday , 23 May 2007
Johannesburg -
Diamond prices and sales are booming, but investors who want to participate directly in this sparkling industry are left with few choices.
In a recent research report produced to tie in with their Diamond Day in London last week, RBC Capital Markets analyst, Des Kilalea reckons that diamond demand is likely to remain robust for several years, but at the same time he predicts that mine supply of newly mined gem-quality diamonds is likely to diminish over the next three to five years as no major new mines are scheduled to come into production.
Kilalea also noted that there are only a small number of investment opportunities in the global diamond industry. This is because major diversified producers account for the majority of diamond production and only four companies account for 50% of the $10 billion total market cap of pure diamond stocks.
Kilalea said there were about 100 diamond companies in the world and ten of these companies accounted for two-thirds of the $10 billion total market cap.
Top of the investment list, in terms of market capital, is Aber Diamond (ABZ - TSX ) worth $2.6billion, Gem Diamonds (GEMD - LSE) at $1,341billion, Shore Gold (SGF - TSX) at $872m, Petra Diamonds (PDL - LSE) at $543m and Sierra Leone Diamonds (SLD - LSE )at $333m, according to RBC estimates and the latest share information.
There are only a few diamond companies with a significant market capitalisation producing diamonds yet. Aber Diamond (ABZ CN) annually receives about 3m carats valued at $350m from its share of Diavik mine's production. It owns 40% of the mine in Canada's Northwest Territories.
Gem Diamonds' current production is valued at $85 million, Petra's production will generate $27 million this year and Shore Gold is yet to produce. The only other producers of any size are Kimberley and South African alluvial producer Trans Hex, said Kilalea.
The majority of listed diamond producers, excluding Petra, Gem, Trans Hex and Aber, account for less than 500 000 carats of the 160m carats of annual global diamond production.
Diversified majors BHP Billiton, Anglo American and Rio Tinto, Russian producer Alrosa and small non-listed companies produce all but 500,000 to 650,000 carats of total diamond production.
"Clearly, the market is placing a high value on the prospectivity of many of these companies," he added.
Opportunities to invest will become even more scarce as consolidation in the junior mining and exploration sector continues in future.
Three diamond companies, Xceldiam, Southern Era and BDI Mining, have been bid for this year and further consolidation is expected - in part by majors - who want to expand their exploration portfolios.
Top 10 investible diamond companies by Market Cap
Company Name
Stock code
Market Cap (US$Mn)
Aber Diamond
TSX: ABZ
2220
Gem Diamonds
LSE: GEMD
1246
Shore Gold
TSX: SGF
859
Petra Diamonds
LSE: PDL
579
Sierra Leone Diamonds
LSE: SLD
324
Mountain Province Diamonds
TSX: MPV
269
Kimberley Diamond
ASX: KIM
260
Legend International
OTC: LGDI
221
Trans Hex
JSE: TSX
192
African Diamonds
AIM: AFD
183