www.miningmx.com | diamonds Rough diamond supply to drop this year

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James Allan, Allan Hochreiter

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Rough diamond supply to drop this year
Brendan Ryan
Posted: Thu, 24 Jul 2008

[miningmx.com] -- WORLD rough diamond production is likely to drop by 10 million carats to 138 million carats in 2008 but an average 13% price increase should boost the total sales value to US$14.3bn from $12.6bn in 2007.

That�s according James Allan of corporate finance advisory firm Allan Hochreiter who said the main drop would come from Australia where production will be 6 million carats down this year with Canada showing a 2 million carat drop.

Russia and Botswana will both show drops of one million carats while South African production would be 0.3 million carats lower.

Addressing the Botswana Resource Sector Conference being held in Gaborone, Allan said he expected retail diamond jewellery sales this year to be 2% to 3% higher than the $76bn recorded in 2007.

Allan said the United States retail jewellery market was likely to be �flat to 5% down� but the Asia Pacific and Asia Arabic markets would be 15% up while demand in both Japan and Europe should be 5% higher.

Despite these reasonably strong fundamentals the shares of the diamond producers had suffered badly over the past year.

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The best performer amongst the 37 listed diamond producers worldwide was Clifford Elphick�s LSE-listed Gem Diamonds which was 11% down from its peak. The worst was Shore, which fell 74%.

Allan pointed out the weakness in diamond equities was part of an overall bear trend in junior mining stocks.

Platinum junior mining company shares had fallen between 20% and 97% over the past year while the TSX Venture Exchange was down 30% overall since November, he said.

He said there multiple reasons for this including general market uncertainty and incidents of �sector disappointment� where the failure of one diamond company had rubbed off negatively on others in the diamond sector.

Other factors included a switch by investors to companies with positive cash flows which had hit many junior mining and exploration companies. There had also been incidents of forced sales and redemptions by various hedge funds and other institutions.

Allan said investors should keep the faith because of the value being shown amongst the diamond stocks.

�In a bear market even good news gets discounted. There have been very few times where you have a situation in which the underlying industry is so strong yet the share prices are so weak,� he said.

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