from stockwatch 2024-07-19 13:48 ET - Market Summary
by Will Purcell
The diamond and specialty minerals stocks box score on Friday was a ho-hum 77-78-155 as the TSX Venture Exchange rose one point to 580. Yes, here we go again. Late-to-arrive data forced New York-based diamond analyst, Paul Zimnisky, to nudge last week's setting of his global rough diamond price index lower by just 0.1 point, but new information has triggered a larger decline. And so, this week Mr. Zimnisky set his index at 139.3 points, a further drop of 0.8 point.
The index is therefore off 0.7 per cent on the week and is down nearly 2 per cent over the past month. In fact, other than a few sideways jogs, Mr. Zimnisky's chart traces a steady decline since prices hit a record high in mid-February of 2022. At the time, the index reached a lofty 207.3 points, and this week's fix is off some 67.4 points, a decline of 32.8 per cent over the past 29 months.
Mr. Zimnisky's long-term chart also traces a dreary pattern. Rough diamond prices hit a previous high just shy of the 200-point mark in the spring of 2011, as miners struggled to get their production back to where it was before the Great Recession hit late in 2008. By the early summer of 2014, prices had fallen significantly, and Mr. Zimnisky pegged his index near the 172-point mark -- low enough that diamond promoters were grousing about the state of the market, cheering that better days surely lay ahead.
Unfortunately, a decade later Mr. Zimnisky has current rough prices nearly 20 per cent lower than in July of 2014. Inflation, meanwhile, has tacked on about 30 per cent onto the costs of most everything -- and arguably more onto the cost of heavy equipment, fuel and other goods needed by explorers and miners. No surprise then, that miners like Mountain Province Diamonds Inc. (MPVD) are trading at or near depression lows. (Mountain Province was unchanged at 13.5 cents on 74,000 shares today, a far cry from the $7 it traded at when its 49-per-cent-owned Gahcho Kue mine held its grand opening in the fall of 2016.)
Investors looking for a turnaround based on polished diamond sales will be disappointed. In early March of 2022, Idex Online charted its index of polished prices at a record high of 158.4 points. Now, it pegs its index at 101.5 points, a drop of 36 per cent. Indeed, over the past month, the rate of fall has matched the worst of the drops over the past five years.
The gloom, if not doom, comes despite projections that rough diamond production will drop to levels not seen since the COVID-19 crisis in 2020. Mr. Zimnisky predicts miners will produce about 113 million carats this year, far below the sector's record high of over 175 million carats set in 2005. Another of Mr. Zimnisky's charts shows that miners averaged about 170 million carats per year just before the Great Recession but just 130 million carats in the years that followed. Yes, production did rebound in the mid-2010s, getting above 155 million carats in 2017, but miners have managed just under 120 million carats annually over the past few years.
Of course, there is more to the supply than mined rough diamonds these days, as synthetic gems have grabbed a significant share of the market. When manufactured diamonds are added into the tallies, diamond supply curves appear much flatter, and in some categories, there may well be a glut of diamonds, especially in smaller size classifications.
Demand will therefore be key -- and key in generating demand for mined rough will be the effort by miners, promoters, explorers and analysts to separate natural diamonds from synthetic stones. It all sounds encouraging, so long as people are willing to pay $6,000 (U.S.) for a mined diamond with the same attributes as a synthetic gem that goes for $1,000 (U.S.) -- gems with differences that only a well-equipped gemologist can see.