Challenges Facing the Australian Diamond Industry

2012 diamond debut
The diamond market of 2012 is not replicating that of 2011, when prices soared for more than half of the year. Instead, this year’s market is off to a lukewarm start following a correction that began unfolding in Q4 of 2011. These conditions are widely expected to remain, at least through the first quarter.

Emerging nations – especially India and China – are widely regarded as essential growth markets for diamonds, and are expected to be drivers for strong industry performance going forward. Yet there is some concern about a slowdown in these economies.

Almost all of Australia’s diamonds are exported, with the majority of Argyle production going to India. The Indian diamond market, is not especially robust. Last year, while the prices were up, the value of India’s diamond imports increased, however, the volume decreased, with Q4 showing severe weakness.

India has been grappling with inflation and a weak rupee, which has resulted in USD-priced goods becoming much more expensive. The rupee is recovering, but the Indian government is also looking for cash. One means of getting it is through the new two percent tax on polished diamond imports announced last month.

How this tax will impact the market remains to be seen. During the first eleven months of 2011, India’s polished imports rose to $18.8 billion.

Since India is a manufacturing hub, much of what flows in heads back out to other other markets.

Asian buyers appear laid back recently. Chinese sales were steady for last month’s new year festivities. However, concerns about a potential economic slowdown are believed to be behind cooling sentiments among suppliers and consumers there.

Likewise, the US is the largest diamond consumer. Demand was satisfactory for the December holiday season, but with festivities gone, enthusiasm for diamond purchases appears to have also simmered down.

The Luxury Consumption Index shows that luxury consumer confidence slid in January, and average spending was also reportedly down in Q4.

The Eurozone crisis has weakened the appetite for diamonds in that region.

Lately discussions about the diamond market are accompanied by the word “caution.” The shakey demand picture illustrates a good reason why.

“Diamonds are a luxury product,” IBISWorld says, and “demand tends to fall disproportionately heavily during times of economic downturn and rise sharply when economic conditions and consumer confidence improve. Investors should factor this into their decisions.”

Diamond outlook
With increased production and rising prices, IBISWorld foresees a profitable turnaround for Australia’s industry. Diamond and gemstone mining sits at the top of its list of growth industries, and is expected to rake in nearly $600 million this year.

Rio Tinto warns of significant risks related to the Eurozone crisis, the threat of contagion to developing nations – especially China – and the potential for financial crisis. However, the company also expects a revival in the diamond market as excess stocks are cleared, noting that medium run consumer demand looks positive.

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World’s Most Expensive & Largest Rough Diamond

Frederick Wells discovered a shining thing on the walls of the Premier mine, whilst he was on a routine inspection of the Mine in the Transvaal Colony, South Africa. Frederick Wells worked at the Premier Mine as a superintendent. He was eighteen feet below the surface of the earth, and the shiny object was on the steep wall of the mine a few feet above him. It was 26th of January 1905, when Frederick noticed the light and climbed up the side of the mineshaft and removed what appeared to be a diamond crystal of such a size that he initially suspected that it was piece of glass.

The Premier Mine in the Transvaal Colony, South Africa is the heartbeat of the global diamond industry, the birthplace of some of the most flawless, glamorous stones in history, including our namesake, the famous Cullinan Diamond. The gems unearthed at the Cullinan mine have inspired myths and romances; they’ve been possessed by royalty, starlets and adventurers.

The Cullinan mine is the richest source of rare blue diamonds in the world, and home to the Cullinan Star Cut (TM) – the world’s most expensive diamond with a star at its heart. From deep beneath the ground, to the fine art of cutting and polishing, it has emerged as a legend for producing great diamonds.

The mighty Cullinan Diamond weighed 3106 carats and was of exceptional purity, D in color, flawless in cut form and a rare type Ha. The Cullinan Diamond is the world’s most expensive and largest rough gem-quality diamond ever found. It is still to this day three times larger than any other gem diamond discovered, the next largest being the “Excelsior” diamond at 995 carats discovered at Jagersfontein in 1893. The best of the diamonds indeed come from South Africa.

The Prime Minister of Transvaal, Louis Botha, suggested that the diamond be presented as a gift to King Edward VII. Due to lingering rancor after the Boer War, the gift did not sit well with Parliament, which only voted 42 to 19 in favor of its acceptance. After much debate and at Winston Churchill’s urging, the king accepted The Cullinan. In gratitude, Churchill was presented with a replica of the diamond.

But, to present the world’s most expensive Cullinan Diamond to King Edward, it had to be transported to another country. In order that the diamond be transported safely from South Africa to Britain, a team of British detectives travelled on the steamer that would carry the stone. But the ‘diamond’ on the ship was actually a fake. The real diamond was sent to London by parcel post in a plain package.

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Petra Diamonds first half profit falls

Petra Diamonds on Tuesday reported a loss after tax of US$26.7 million, after a profit of $24.5 million previously, as its results for the six months ended December 2011 were affected by unrealised foreign exchange losses of $35.7 million.

The London listed diamond miner pointed out, however, that $16 million have reversed since the period end due to the strengthening of the rand. Production was up 64% to 953,553 carats.

The diamond miner reported a loss per share of 5.23 cents for the first half from earnings per share of 6.79 cents a year ago. Adjusted EPS before unrealised foreign exchange movements and non-recurring transaction costs rose to 2.46 cents from 0.86 cents previously.

Revenue was up 13% to $101.4 million due to increased production, offset by the weakening in rough diamond prices experienced since July 2011 following on from the prevailing climate of global economic uncertainty led by the Eurozone sovereign debt crisis.

Profit from mining activity grew 25% to $30.7 million reflecting the introduction of Finsch into the group from 14 September and the continuing improvement of the mines' performance under Petra management - all in turn significantly mitigated by the weaker diamond prices.

Adjusted EBITDA was 24% higher at $25.0 million.

The weakening in rough diamond prices from July to December 2011 resulted in Petra's gross revenues being approximately $23 million lower than management's expectations for H1 FY 2012.

"It is important to note that both production and sales are expected to be substantially higher in H2, due to a full six months' contribution from Finsch and the release of unusually high Group closing H1 inventory into H2 sales," the company said.

The company's first tender for H2 FY 2012 was concluded in early February and revenues of $44.4 million were achieved on the sale of 306,149 carats. In H1 Petra held three sales tenders, while in H2 five tenders are scheduled, again supporting management's confidence in substantially higher H2 revenues.

Gross mining and processing costs for the SA operations increased in Rand terms by approximately 19% due to the contribution of Finsch towards these costs, partially offset by a weakening Rand to effect an 8% increase in US Dollar terms.

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Yellow Sun-Drop diamond goes for $10.9m at Sotheby's

An extremely rare yellow diamond known as the Sun-Drop has sold at auction in Geneva for just over $10.9m (£6.8m).

Sotheby's auctioneer David Bennett said the sum - paid by a telephone bidder who preferred to stay anonymous - set a world record for a yellow diamond.

The 110.3 carat pear-shaped diamond is said to be one of the largest diamonds ever to appear at auction.

Discovered in South Africa last year, it was sold by New York-based Cora International.

The diamond was certified by gemologists as "fancy vivid yellow", the rarest and most desirable colour for a yellow diamond, Sotheby's had said.

The colour is the result of traces of nitrogen trapped within carbon molecules and hardened over the course of millions of years.

The diamond had a pre-sale estimate of $11-15m. With commission and taxes, the buyer paid out $12.36m.

"It sold for a record for a yellow diamond... It was exactly within our expectation for this spectacular stone," Mr Bennett told reporters after the sale.

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India to Show More Loose Diamonds in Hong Kong

India's Gem & Jewellery Export Promotion Council (GJEPC) today announced that the Indian pavilion at the upcoming Hong Kong Jewellery Show would include an additional location that would feature leading loose diamond dealers.

Hong Kong is a premium destination for Indian gem and jewelry exports. Last year, $10.65 billion worth of Indian manufactured diamonds, gems and jewelry were exported to Hong Kong.

GJEPC Chairman Rajiv Jain observed, "The Hong Kong Jewellery Show has always been a great platform and once again, we hope to see fruitful results for our participants. China and India, the two eastern giants, are now a formidable force to reckon with. The GJEPC looks forward to witnessing the two giants take center stage globally in gems and jewelry."

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UAE joins ban on Zimbabwe’s blood diamonds

UAE joins the international ban on the trade of ‘blood’ diamonds coming from Marange fields in Zimbabwe, Arabian Business reported on Thursday.

Dubai Multi Commodities Center (DMCC) said that the UAE has signed the U.N.-backed Kimberly Process, which controls the misuse of trading the rough diamonds to feed conflicts.

The Marange fields, which were seized by Mugabe government in 2006, are located in eastern Zimbabwe, and have the largest-known concentration of diamonds in the world.

Reports have linked Marange’s profits with human rights abuses and violence, and suggested that Zimbabwe President Robert Mugabe has profited from illegal trade stemming from the fields.

UAE stance change after the cable release
Early December, a cable from the U.S. Embassy in Zimbabwe leaked by Wikileaks alleged much of the trade passed through the Gulf.

In a statement, the DMCC said diamonds from Marange would no longer be permitted.

“We can confirm that the UAE KP office is in full compliance. The notice issued states that the ban will remain in place until further instruction from KP.”

Other signatories include the UK, US, India and Australia.

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Diamond prices goes up as demand increases

Everybody say diamonds are a girl's best friend, but they could be a man's worst enemy--if predictions of increasing prices come true.

Experts be expecting double-digit increases by the end of the year or early next year and they say prices will keep rising over the next four years.

Experts say the biggest increases will be for the really superior diamonds, with the best cut, clarity, color and size--as opposed to diamonds that are less perfect or rare.

But Jay Feder Jewelers says the increasing direction of diamond prices is not a sure thing--thanks to European and U.S. economies slowing the economy of China and India.

"The buying in Indian and Chinese markets has dried up a bit. So, it does not signify we are not expected to see price increases. We very well could, particularly if their trade starts to go one more time. Currently, we’ve seen quite a pullback from the Indian and Chinese markets," says JJ Slatkin of Jay Feder Jewelers.

The potential for price hikes doesn't seem to diffuse the sparkle in the eyes of potential future buyers.

"It's about the person I'm giving it to. And how much it would mean to them. It doesn't subject how much it costs," says Denver resident David Chung.

However others say even though a diamond is forever--a flush bank account isn't.

"Whatever would fit in my budget," says Bob Cook of Denver.

Diamond experts say India, China and the Middle East will account for 40-percent of the global diamond insist in three years.

Just six years before, they accounted for 8-percent.