Industry News
Namakwa Diamonds Increases Mining Production in 3Q
07/07/2009
By Avi Krawitz
Namakwa Diamonds has started to ramp up its mining operations again as rough diamond prices increased over the past three months. The company reported Tuesday that production rose 114 percent to 4,200 carats in the third fiscal quarter that ended May 31, 2009, from the previous quarter, after significantly reducing output and shifting focus to its beneficiation business through the economic crisis.
Namakwa said it expects fourth quarter production to increase 39 percent to 5,850 carats, which will still be about 52 percent below production levels in the December quarter. Mining is focused on the Northern Node alluvial operation in South Africa’s North West province while its other operations remain on care and maintenance.
Due to the disproportionate decrease in rough prices relative to polished prices Namakwa adjusted its strategy in January by curbing its mining operations, and increasing the polished volumes of its inventory. This allowed the company to capitalize on higher margins achieved in the polished market. Namakwa sold 44,643 carats of rough for $8.9 million ($199 per carat) during the third quarter at a gross margin of 9 percent, and 487 carats of polished for $2.9 million ($6,002 per carat) at a gross margin of 18 percent. The company also purchased 22,450 carats of rough diamonds from third parties for $4.9 million ($220 per carat).
Namakwa noted a change in trends in the three months ending May 31, which saw “an increase in rough prices and to a lesser extent polished prices, as well as an increase in liquidity and volumes.” However, the sustainability of these trends remains unclear, it added.
“The continued weakness in the U.S. retail market makes it very difficult for the wholesale polish trade to raise prices in line with the bullish pattern seen in rough diamonds,” the company explained. “Overall, the time frame for recovery in polished prices remains uncertain with current buying and selling mainly taking place in the dealer market with limited activity in the retail segment.”
Namakwa added that while prices for certain categories of rough diamonds recovered to pre-crisis levels, both rough and polished prices will remain volatile “until fundamental retail demand strengthens.”
Namakwa shares fell 4 percent to 36.89 pence in early Tuesday morning trade on the London Stock Exchange (LSE).
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