Hello Claude,
SUF's friends at de Beers have historically done a fanastic job maintaining diamond pricing thru the CSO. Over the past several years, more raw production has escaped de Beers chain as output from the Argyle mine in Australia, some Russian stones and some Angolan rocks have made it around the de Beers process. While it might seem that de Beers is losing some influence, recent developments suggest otherwise.
The new production from Ekati (BHP & Dia Met) is being marketed 35% thru the CSO, with the rest going independently. Apparently, this new supply has been met by enthusiastic demand as values have been improving over the past few months.
de Beers has had to increase supply at it last 3 sites, the almost monthly occurrences where rough diamonds are sold by the CSO. Anecdotal evidence suggests that valuations are increasing.
de Beers share price has risen dramatically. From under $12, DBRSY(Q) has gone nicely over $19. With a reported diamond inventory greater than $4billion, this suggests the market is pricing in some diamond valuation increases. (Some might suggest that part of the rise is attributable to that wonderful mine at M1, but in de Beers world, its small, albiet intensely profitable)
There is an emerging trend known as branding. Apparently, the logic goes, that de Beers may individually "trademark" stones, so that retail purchasers might enjoy the comfort of owning a quality "de Beers" diamond as opposed to the lower quality stuff sold in many of these discount joints and bulk diamond dealers. Depending on whose opinion you believe, this could be highly popular and profitable, with the brand attracting much value, like the Coke symbol or the Nike swoosh. Imagine ten years down the road having to decide the relativ valuation between a de Beers diamond and a no-name.
In my opinion, since diamonds really have no intrinsic value, like gold, but unlike other metals with wide industrial usage, demand is the key. If you believe that 2-3 billion Asians, who have been beaten up economically over the past couple years, will emerge from the sidelines to enhance demand for many commodities, then diamonds should enjoy the upslope of this growing demand.
Regards,
Confluence |
