from stockwatch 2020-06-17 15:55 PT - Market Summary
by Will Purcell
The diamond and specialty minerals stocks box score on Wednesday was a positive 74-65-161 as the TSX Venture Exchange fell two points to 559. Rough diamond prices suffered a bit of a relapse last week, according to diamantaire Paul Zimnisky's global rough diamond price index. Prices fell about 0.3 per cent, leaving the index up 0.6 per cent over the past month but essentially flat since the COVID-19 crisis imploded the rough market in late February and early March. Prices are down about 13 per cent in the past year, nearly all the loss occurring since early February. At that point, rough prices had managed a two-point gain since the fall low and things were looking up, said many analysts -- just as worrisome numbers of people were falling ill in Italy.
The biggest COVID casualty among diamond miners is back in the news this week. Dennis Washington's Dominion Diamond Mines, under Companies Creditors Arrangement Act (CCAA) bankruptcy protection since late April, is suing its 60-per-cent co-venturer at Diavik, Rio Tinto's Diavik Diamond Mines Inc. (DDMI). Dominion is alleging DDMI has breached their agreement by operating the mine in a manner that demonstrates "willful misconduct and gross negligence."
Essentially, Dominion complains that DDMI has kept Diavik running through the COVID-19 pandemic without considering the disruptions to the diamond sector, and without considering Dominion's circumstances. Dominion's circumstances -- hardly unique -- are that with the mine continuing to run, the company is facing regular cash calls to meet operating expenses, but it cannot sell its 40-per-cent of the rough while the main auction houses in Belgium are closed because of the COVID lockdowns.
While Dominion quickly put its Ekati mine on care and maintenance at the start of the outbreak, most other diamond mines continue to operate. De Beers Canada is still working the Gahcho Kue mine, southeast of Diavik in the Northwest Territories, and its 49-per-cent partner, Mountain Province Diamonds Inc. (MPVD: $0.31) has been forced to scramble to deal with the resulting "serious financial difficulty." (Mountain Province's solution was to sell rough at a discount to a major shareholder, raising $50-million (U.S.) to tide it over.)
Another mine currently on care and maintenance is Renard, in Northern Quebec, which was forced to close in March because of the lockdown ordered by the Quebec government. The lockdown was lifted in mid-April but the current owners, a group of creditors led by Osisko Gold Royalties Ltd. (OR: $12.43), are waiting for better times to reopen the mine. The original owner, Stornoway Diamond Corp., succumbed to bankruptcy last year because of the massive losses racked up by the mine over the past few years.
Canada's other major diamond company, Lucara Diamond Corp. (LUC: $0.61) is keeping its Karowe mine in Botswana operating, although its major sales avenues have been closed. The company is diverting rough from auctions in Botswana -- which remains locked down -- to Antwerp, which has recently begun reopening. As well, the company sells modest amounts of gems through its in-house Clara online sales platform.
Major diamond miners continued to operate through the brunt of the COVID-19 pandemic. Alrosa, Russia's main diamond producer, has been mining and selling gems throughout the spring, although its sales have been hit hard. In April, the company sold just $15.6-million (U.S.) of rough and it managed $40-million (U.S.) last month. A year ago, it sold $266-million (U.S.) of rough.
Alrosa remains committed to its "price over volume strategy" -- in other words, it can stockpile rough waiting for better days -- much like the approach that got it through the 2009 market meltdown. Meanwhile, De Beers has been cutting prices -- somewhat -- to maintain more of its sales volume, but most of its mines have stayed open, where allowed. Rio Tinto has also kept its long-in-the-tooth Argyle mine running through the pandemic, although it is expected to expire of natural causes late this year.