Tue, Feb 9, 2010

By Kishori Krishnan

As we had predicted a few days ago, the brief period of festivities coming up later this week-end - the Chinese new year and Valentine’s Day - has brought some amount of cheer to the diamond industry. According to International Diamond Exchange (IDEX), global polished diamond prices are on the rise, especially in the category of polished stones below two carats.

IDEX also said for January 2010, the global polished diamond prices rose 0.8 per cent from December-2009 level. On an annualized basis, it indicates that global polished diamond prices could rise by as much as 9-10 per cent during 2010.

The polished diamond price research by IDEX showed that three carat and even smaller diamonds showed solid price gains ranging from 0.8 per cent to 3 per cent in January compared to the prior month of December. Unfortunately, polished diamond prices for larger carat stones four carats and above fell modestly during the month between 0.5 per cent and 2 per cent.

That there was a discernible increase in the price of small diamonds came as good news for India’s diamond industry working out of Surat in Gujarat, also the world’s biggest diamond polishing center. According to a report in The Economic Times, industry sources said the price gain in small carat size has come a long time after the global slump in the end of 2008, following the economic crisis in the US. While the rough prices started firming up by mid-2009, registering 20 to 30 per cent growth, the polished diamond prices remained stagnant despite the increase in demand from emerging markets like India, Hong Kong, Middle East and China.

Incidentally, the Rs 30,000-crore Indian diamond industry is expecting a 25 per cent jump in sales this Valentine’s. In value terms, the industry is hoping a Rs 700-crore business during the week before VDay.

The Indian diamond industry, which processes 80 per cent of the world’s rough stones, had undergone one of its worst crises last year as demand slowed down. We agree with the reporter’s view that like other commodities, the US market is what needs to be watched as American shoppers consume roughly half of global production of diamonds and diamond jewelery.

Since we are on India, here is more news from there. Fitch Ratings’2010 recently released its outlook for India’s gems and jewelery sector and placed it in the “negative to stable” category, with a slow improvement in liquidity and credit profiles for many issuers. This has added to the season’s cheer as this could be a prelude to a hike in prices in 2010.

The Fitch report is a reflection of slow recovery in domestic and international demand, and relatively low currency volatility leading to better realization by the industry operators. Fitch expects a significant recovery only towards mid-2010 for diamond polishers which are export-focused, whilst a recovery for export-oriented gold jewelery manufacturers is likely to take longer - in line with the generally expected economic recovery in the respective markets.

Diamond polishers began to show positive growth from Q309, due to the slow recovery in retail demand from key markets like the US, the EU and Asia (including China). However, part of the growth was also due to the weaker Indian rupee against the US dollar.

In other news, one of the biggest discoveries of diamond deposits in China is not expected to make any significant impact on the market despite its site. At least, that is what the head of the Geological Survey Bureau of Mines, Geological Science and Technology in China, Hai-Tao Fu wants us to believe.

The Rough & Polished website quoted Xiong Xianzheng, chairman of the Dalian Jewelery Association as saying that, “Global diamond output amounts to approximately 100 M carats annually while China accounts for 200,000 carats of the above output. Rough output from new mines in Wafangdian might account for 50 per cent of China’s diamond output. Volumes of diamond production in China, even taking into account the new mines, will achieve merely 0.21 per cent of the global output, therefore the deposit will not affect global rough prices.”

The deposit discovered in Wafangdian is said to be the largest scale discovery made by Chinese geologists in the past 30 years. The mine’s reserves are estimated at 210,000 carats of gems, including diamonds.

Company news

Obtala Resources (AIM: OBT) said that alluvial diamond mining has re-commenced on the newly acquired Konoma alluvial diamond operation in Sierra Leone after completing a review and maintenance programme of both the 2Mtpa (million tonnes per annum) dense medium separation (DMS) plant and the earth moving equipment. Mining is being conducted at two separate locations, Bolima and Bakidu, both upstream along the Bafi river from the main mine camp. Obtala has further engaged two local prospecting teams to evaluate additional diamondiferous gravel deposits ahead of the mechanized mining fleet. The company is aiming to become a revenue generating business by the end of the second quarter of 2010.

Last month, Obtala acquired Sierra Leone Hard Rock Limited (SLHR) from African Minerals (AIM: AMI), which owns the rights to four mining licenses covering 162.40 sq km (square kilometres) within the Konoma project and seven exploration licenses over an area of 2,590 sq km and the DMS plant, a smaller mobile 5tph DMS sampling plant, a mining fleet, light vehicles, laboratory equipment and a main camp at Konoma.

North Vancouver-based Stornoway Diamond Corp says its Renard project is on track to becoming Quebec’s first diamond mine. Stornoway will release a second economic assessment of the Renard project next month and then head into a full-fledged feasibility study. “We hope to make a production decision in 2011, with the first diamonds coming through the plant in 2013,” Stornoway executive chairwoman Eira Thomas said.

Stornoway owns half of the Renard project, which is located in east-central Quebec some 800 kilometres north of Montreal. The exploration arm of the Quebec provincial government owns the other half. A mine at Renard had initially been estimated to cost $308 million. That price tag could rise into the $400-million range, reflecting ambitions for a larger plant and deeper mining, according to a spokesman.