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Gold/Mining/Energy : Canadian Diamond Play Cafi -- Ignore unavailable to you. Want to Upgrade?

To: que seria who wrote (1654)	12/11/2003 11:33:01 AM
From: kidl	Respond to of 16206

Someone's long term outlook ... The strong scope for a greater gap in the supply of rough diamonds in coming years may be a driver for a significant increase in the value of diamonds. Experienced diamond analyst James Picton told the World Diamond Conference that demand which has been growing at 4% a year and better would accelerate as Australia¹s Argyle diamond-mine started winding down and Canada¹s Ekati mine reached the end of its life. Picton, who works for UK broking house WH Ireland, said that while the Rio Tinto-managed Diavik mine, in Canada, is to come on stream, several of these would be needed to make up for the projected shortfall in the supply of roughs. Unless there are dramatic changes in the course of the buoyant diamond market, Picton sees rough prices which rose on average by 20% this year rising by 20%-40% in real terms by 2012. Rough diamond demand by 2012 could represent a value of $14-billion by 2012, raising the question of where those extra diamonds may come from. On top of existing supply, a commissioned Diavik could fill $550-million of demand. But this would still leave a shortfall, said Picton, of about $3,5-billion. ³That¹s the equivalent of another De Beers,² Picton commented. To take a two-way bet, to see negative vibes coming into the demand for rough diamonds, Picton said, total world debt sovereign, corporate and private totals more than $100-trillion, versus world gross domestic product (or income) of $32 trillion a ratio of more than three to one. The US dollar has been falling since 2001 and gold has been rising. The US trade deficit is annualising at $550-billion, and foreigners are unwilling to finance it any longer. ³Falls in the US dollar will eventually be met by competitive devaluations as other major countries try to maintain economic stability,² Picton said. Picton also raised an important point. ³Why did Nicky Oppenheimer, along with Anglo American and the Botswana government, take De Beers private?² Some theories were that Nicky Oppenheimer didn¹t like handling investor meetings; by nature he likes diamonds more than gold, platinum, coal and other minerals commodities in which Anglo American had invested. The third theory was that Nicky was becoming a bit uncomfortable¹ with disclosure rules. ³While all three arguments may be true, they don not explain why Nicky Oppenheimer stood both his grandfather¹s and father¹s life-long stance OEon its head¹. ³Nicky sold half the family stake in Anglo, borrowed several billion dollars and invested it all in a 40% beneficial stake in De Beers. ³You don¹t stand family folklore on its head by selling half the family silver and borrowing billions of dollars just because you don¹t like impertinent shareholders or even because you have an inherent liking for the diamond business,² Picton said. Picton felt there were two related reasons for the privatisation. Clever people in De Beers and E Oppenheimer & Son had spotted, before 2001, that diamonds were heading for at least a decade of rough production shortage, Picton speculated. De Beers¹ diamond operations had been valued by an ignorant stockmarket on an average price:earnings ratio of around four for 20 years. In some years the diamond PER was negative. The PER of alluvials producer Trans Hex Group was typically around eight. In the official buyout document, De Beers technical financial report gave a median valuation of the group¹s diamond business of almost $8-billion compared with a market value of De Beers before the announcement of $3-billion. In late 1998 it was as low as $500 000. When De Beers took out a 6,25% partner in the Venetia mine the imputed value of the mine alone was about $1-billion. ³So De Beers was very cheap, but the consortium had to move before the good times arrived, and move the consortium did. After decades of general disdain the market howled for a better and better offer. ³But the key point is that Nicky Oppenheimer was confident enough in diamonds to take on heavy debt and put the family fortune largely at risk,² Picton said. Paydirt.