Star DIAM & Rough Prices Review (Fri, 01 Apr) - Will PurcellRising rough prices have yet to elevate diamond stocks anywhere close to previous highs. The recent dip in rough diamond prices reversed direction last week and that trend continued this week, according to Paul Zimnisky's global rough diamond price index. Nevertheless, prices remain 0.4 per cent below their all-time high of mid-February. It is unclear what is driving the revived rally, but it presumably is related to jewellery manufacturers and retailers swearing off rough supplied by Alrosa, Russia's state-owned diamond miner.
While the expected effect was murky, it appeared that sanctions would not have much, since most of Alrosa's rough is typically sent to countries beyond the main block of nations trying to smack down the Russian economy following Vladimir Putin's attack on Ukraine. The situation is complex, as a lot of Russian rough does end up in Belgium, a NATO country supposedly on the forefront of sanctions, but the West is increasingly tightening its restrictions as the war drags on.
Alrosa accounted for nearly one-third of global diamond production last year, about 32.4 million carats. It sold considerably more in 2021, over 45 million carats, as it eliminated a large inventory built up during the early days of the pandemic when it was next to impossible to sell rough at any price, much less a profit. Now, with Putin's army bogged down in the muds of rasput-i-t-sa -- Russia's season without roads -- Alrosa's traditional avenues to market are becoming quagmires as well.
Despite Alrosa's sales being threatened, Canadian-listed diamond miners and explorers remain far below their highs. Dermot Desmond's Mountain Province Diamonds Inc. (MPVD), a $7 stock when its Gahcho Kue mine opened in the fall of 2016, lost two cents to 86 cents on 634,000 shares today. The bleak share price aside, the company's most recent sale of rough averaged $126 (U.S.) per carat, double what it managed in 2019, just before the COVID collapse kicked in.
Lukas Lundin and Eira Thomas's Lucara Diamond Corp. (LUC) lost one cent to 66 cents on 466,000 shares, handily above its 40-cent COVID low in 2020 but far below its 2016 high of $4.39. That high was inspired by the recovery of two massive diamonds from its Karowe mine in Botswana, stones that sold for well over $50-million (U.S.) apiece. Lucara has recovered plenty of other valuable gems since then and it expects Karowe to run into the early 2040s, but investors are reluctant to renew their exuberance.
If diamond miners are struggling to attract enthusiastic investors, exploration juniors are having an even tougher time, even those with advanced projects and an interested major as a co-venturer. Ken MacNeill and Ewan Mason's Saskatchewan diamond explorer, Star Diamond Corp. (DIAM) closed unchanged at 30.5 cents on 160,000 shares. The major, Rio Tinto Exploration Canada Inc., holds a 75-per-cent interest in the FalCon diamond project, and it is fronting Star the cash until formally deciding to build a mine. Even so, the market worries about where Star will find the hundreds of millions of dollars to cover its minority share of construction costs once the cash calls start arriving.