Industry News
Diamonds And Coloured Gemstones: Challenging Short Term, Brighter Long Term Prospects
23/01/2009
By: Jackie Steinitz
After a strong first half in 2008 current conditions in the diamond market are tough. Retail sales of diamonds, a discretionary purchase, have been hit by the economic crisis. The credit crunch has dried up liquidity in the diamond pipeline, which has relied heavily in the past on bank finance. Diamond stocks are high. The producers are cutting back production to support prices and conserve cash, while explorers are battling to find funding. Share prices in the industry are down some 75% over the year.
But the industry has a long history and has survived worse downturns in the past returning leaner and fitter each time. Although the odds may be long the returns on capital in the sector can be huge. For example the world’s largest diamond mine by value, (Jwaneng in Botswana), is reputed to have been the most profitable mine of any type anywhere in the world, with a profit to revenue ratio in excess of 90% (turnover $2bn pa, profit around $1.8bn) Similarly the Marsfontein diamond mine in South Africa produced such wonderful stones at the outset that it recouped its exploration and development costs within five days of production.
It is also an industry with a potentially bright future as there is a widespread belief that there will be future supply shortages due to the combination of increasing demand from the emerging markets but constrained supply (there are only 20 years of known diamond reserves left in the ground). Moreover today’s difficulties could make the future rough shortages more acute and the upswing, when it comes, more favourable.
Download the full press release here (124 Kb PDF)
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