from stockwatch 2024-05-03 18:50 ET - Market Summary
by Will Purcell
The diamond and specialty minerals stocks box score on Friday was a so-so 86-82-142 as the TSX Venture Exchange added one point to 581. Stability has returned to the shaky basement floor that has been Paul Zimnisky's global rough diamond price index chart for the past three months. Last week what had been a gentle rise since late January morphed into a gentle decline as Mr. Zimnisky shaved nearly 2 per cent from the rightmost weeks of his chart, as late-to-arrive data painted a gloomier picture.
There were no tardy reports ahead of this week's chart -- or if there were, they were in line with earlier information -- and so Mr. Zimnisky did not alter his earlier curve. Better yet, this week's rough diamond prices added 0.1 point to his index, which now stands at 147.4 points, up 0.1 per cent from a week ago. Yes, one-week comparison is the only advance among his seven comparisons over time, and then by the slimmest of margins. Still, it is better than last week when all seven comparisons from one week to 10 years ago were foundering in a sea of red.
One can rehash the old numbers ad nauseam but suffice it to say that rough prices are 28.9 per cent below their all-time high, set two years and two months ago, and are 14.6 per cent lower than they were in late April of 2014. Inflation meanwhile has tacked on about 7 per cent to prices in the past two years and about 30 per cent over the past decade. And so, the margin between costs and revenue has worsened by about 35 per cent in both the two-year and 10-year periods.
The laws of supply and demand are basic, so analysts and promoters have been telling investors for the past two decades to expect that dwindling supply of mined diamonds will exert upward pressure on the prices of those goods. And they were right -- partially -- as the supply has dwindled. Indeed, rough diamond production stood at 177 million carats in 2005 but fell slightly to 168 million carats in 2007.
The Great Recession hit miners hard, and production fell to just 120 million carats in 2009. Mining did recover, slowly at first and then with more gusto, with the carat crop getting as high as 152 million carats in 2017. Annual rough diamond production then slipped slightly, to 139 million carats in 2019, but COVID-19 whacked that tally back to 111 million carats in 2020. Once again there has been a gradual recovery -- Mr. Zimnisky predicts 118 million carats this year -- but prices have not tracked with supply for several years now.
The problem has been the many millions of carats of synthetic diamonds increasingly getting into jewellery stores and into general acceptance by a large range of customers. Pessimism reigns supreme among those that invested in Stornoway Diamond Corp. in the early 2010s, as weakening rough prices sent the company bankrupt in 2019, but nearly all those invested in diamond miners prior to COVID are suffering as well. With diamond makers able to cook their gems at steadily lower costs, one might think that the end of diamond mining is nigh.
Not so, says Mr. Zimnisky and several of his peers, with a gaggle of promoters clucking along in agreement. Rough diamonds are forever, as De Beers is wont to say, but synthetic gems are cheap, getting cheaper, and are therefore a poor investment. Perhaps so -- huge flawless gems are still fetching eye-popping prices at auction, indicating that the uberwealthy are still paying large for a hefty diamond. And so, stay tuned for next week's index update.
Also stay tuned for first quarter reports from two of Canada's publicly traded diamond companies. Mountain Province Diamonds Inc. (MPVD), a $7 stock when its Gahcho Kue mine reached production in the fall of 2016, will reveal its results during the second week of May. Mountain Province, which has a high proportion of smaller diamonds, did add two cents to 19 cents on 448,000 shares today.