Saturday Morning Ramblings.An opinion offered.
Macro: Worldwide demographics are not looking good. Germany is about to enter a demographic downtrend of similar magnitude to Japan of the late 80’s. This does not bode well for Europe. Given that, the wealthy will still buy diamonds. The less wealthy, not so much. Overall, I would expect good demand on the higher end of diamond sales and sluggish demand on the lower end from Europe.
China: Here is a big question mark. Demographics are not in their favor. Now having had a taste of capitalism, it would be unlikely they would want to give that up. Being a dictatorship that calls itself communist, leaves too much to politics to count on. Even so, demand for lower end diamonds as well as higher end will, in my opinion, be strong and get stronger even with the politics and demographics.
India: There is a lot of optimism here. If India can pull off modernization and economic growth as seen in China over the last many years demand could be huge. I think they will. Demographics are not such a problem in India.
Russia: If the former Soviet Union can be put back together, the supply of diamonds could be severely impacted. That would be good for diamond prices. Hopefully WWIII will be avoided. If WWIII comes to pass, who cares about diamonds?
From a macro perspective, diamonds are looking good.
Industry: With DeBeers having less influence over the diamond business, it becomes less predictable, or less stable. I think this trend will continue. Supply is an issue and will become more so as mines shut down. With increased demand from India, this bodes well for diamonds.
Anglo is doing well with diamonds. They may well free DeBeers to pursue Peregrine.
As long as Nasser is CEO of BHP, they won’t touch diamonds. After he is gone they might.
Rio Tinto. They know where the money is. They could easily be watching Peregrine.
Stornoway: This is so entwined with Quebec politics that politics becomes a risk. The economics aren’t so robust. Given the macro situation I think SWY will do okay.
MPV. They will do fine. No great opportunity for anything new.
KDI: Could be very good. It looks promising.
Dominion: They are like a local DeBeers. They are the mainstay of the Canadian diamond industry. They are in a good position.
Peregrine: To a large extent, I am with Olitar here, perhaps with less ebullience. I think it unlikely that the best pipe has been found. There are likely several more economic pipes yet to be discovered. Add the carats and the value and PGD is likely to rival the best in the world.
I don’t think anything will become of spinco until the warrants are over. At that point, privatization is the biggest risk. If it is taken private, the return to small shareholders should be pretty good. I don’t believe the big three are out to take small shareholder’s money. They would be fair. I hope it doesn’t go that route because I think the potential for large gains would be missed by the small shareholder.
Spinco may well be a way to take PGD private and maintain access to the markets for exploration. This news didn’t sit well with me. The market likes it. I hope my worries prove to be unfounded.
Yes, capital will have to be raised again. Yes, there could be considerably more dilution. Yes, it will take time. Even so, as with Olitar, I see big things for Peregrine.
In a years time or so, PGD could easily be trading at over $4.00 per share.