2023-09-15 17:46 ET - Market Summary
by Will Purcell
The diamond and specialty minerals stocks box score on Friday was a positive 94-81-135 as the TSX Venture Exchange rose two points to 590. Not only were rough diamond prices down again this week, according to Paul Zimnisky's global rough diamond price index, but late-to-arrive data wiped out any hint of a recent weekly increase going back to mid-April. And that mid-April moment was just a hint, as were a few weekly plateaus in March in which Mr. Zimnisky's chart drifted sideways. Indeed, the last for-sure increase was logged in February, when rough prices hit 186 -- a six-point increase from an early January low of 180.
Unfortunately, that modest and brief rally now stands as a mere hillock on the road downslope from the crag that was an all-time high of 207.2, logged by Mr. Zimnisky's index in mid-February of 2022. (The early-in-the-year rallies may not be a coincidence, as they occurred in a period after the main holiday seasons, a time when jewellery retailers and manufacturers are frantically restocking.) Mr. Zimnisky now has his index at 156.2 points, down by over 16 per cent from this year's February high and a full 24.6 per cent lower than at the 2022 record high.
There now is little doubt that the chart for the three years following the COVID-19-induced collapse of the diamond sector is a near match for the chart that came on the heels of the Great Recession collapse in early 2009. The main question now is whether the next several years to come will show the same period of price stagnation as occurred through most of the 2010s. (Mr. Zimnisky says rough diamond prices match those that prevailed in the late summer of 2013 and are barely above where he placed them in early September of 2018. Indeed, his index rarely strayed far from the 155-point mark through the heart of the 2010s.)
Another question is whether the latest slide has affected all shapes and sizes of rough diamonds equally. The five-year chart tracking various shapes and sizes of polished diamonds, prepared by Idexonline.com, shows a pattern worrisome for all miners, but less so for those producing larger gems. The Idexonline chart has polished prices in general indexed at 111.3, a 30-per-cent drop from the 160.3 noted in early 2022. With the smaller gems -- rounds weighing about 0.6 carat -- the index has fallen from 110.4 in early 2022 to a current 68.6, a drop of nearly 40 per cent. Meanwhile, for emerald cut diamonds weighing between five and six carats, the current index value of 191.2 is still within hailing distance of the early 2022 mark of 207.7.
The disconnect is undoubtedly caused in large part by the increasing share of synthetic diamonds into the market. Synthetics tend to dominate the smallest size classifications and they are also eroding the business end of the bridal market -- once considered the meal ticket for diamond miners and manufacturers. On the other hand, making large, flawless and colourless diamonds is still a challenge, so at least in those sectors of the market there is less desire to flaunt a homemade gem merely because it is cheap.
The next indication of any disconnect will not come until late October, when Mountain Province Diamonds Inc. (MPVD) typically reveals its preliminary third quarter production and sales data from its 49-per-cent-owned Gahcho Kue mine in the Northwest Territories. Gahcho Kue has more of the smaller diamonds and fewer large diamonds than a typical mine, hence it has averaged about $75 (U.S.) per carat since mining began in the fall of 2016.
Mountain's second quarter sales did well, bucking the downward trend with a $124-(U.S.)-per-carat average, but the company said that was because of a coarser-than-average mix of diamonds sold in the quarter. Further, it cautioned investors to expect a finer mix of goods to be sold in the third quarter. Therefore, stay tuned for a potentially ghoulish Halloween update from Mountain Province. A week or so later, look for a third quarter update from Lucara Diamond Corp. (LUC), which has averaged well over $600 (U.S.) per carat at its Karowe mine in Botswana since mining began in 2013.
In the end it may matter little. The market has savaged both companies despite the differences in their mix of goods. Mountain Province added 1.5 cents to 41 cents on 283,000 shares today, well off its 99-cent high in early 2022 and a far cry from the $7.18 at which it traded in the fall of 2016. Lucara, meanwhile, lost one cent to 39.5 cents on 69,000 shares. Lucara traded at $1 in early 2021 and as high as $4.39 in 2016.