RE: coverage14 Feb 2019 08:46
Industry experts say synthetic production accounts for a small percentage of the market, but is growing fast. De Beers is investing $94 million over four years to build a U.S. factory that will churn out 500,000 carats a year, for example, while Chinese producers are stepping up output.
Prices are also under pressure. Diamond miners say sales are seasonal and fall off after the Christmas rush, but the industry's giants have nonetheless reported weaker prices.
Alrosa, the world's biggest diamond seller by volume, said in January sales were down 44 percent year on year, while De Beers, the biggest seller by value, said the first 2019 sales cycle was 25 percent lower than in 2018.
"Diamond prices have come under pressure from a toxic combination of deteriorating consumer confidence in China, growth in synthetic jewellery capacity, working capital finance withdrawal ... and jewellery recycling," Davis said.
The tougher landscape is widening the disparities within the diamond mining industry itself.
Big players, led by De Beers and Alrosa, have the money and technology to expand in places such as Namibia and Russia, while mid-tier miners like Petra, and smaller players look to eke out the resources from older mines.
Petra gained control of Cullinan, east of Pretoria, for $80 million. Previous owner De Beers had dismissed the 116-year-old mine as not profitable enough. For Petra, it is its flagship project and its most capital-heavy, and thus central to shareholder confidence.
DIRTY COLOUR
A single large, valuable stone could bring in millions of dollars and lighten Petra's debt load. So far, however, the only large stones recovered from the new mining section have been a dirty colour, and low quality.
Kemp said the new section, which analysis suggests should be rich, had yet to show what it can produce.
"We expect a large stone at some point," he said.
In the absence of rarer gems and weak prices for small diamonds, averages for Cullinan stones have slipped from $140 per carat in the first half of its 2018 financial year to an expected $96 for the first half of this year - the lowest since 2010.
That helped prompt a 30-percent fall in Petra's share price since it published prices in January, extending a steep decline over the previous two years. The miner has bought and developed four other African mines.
Jacques Breytenbach, Petra's finance director, said pricing at Cullinan was variable from one period to the next, and that the market tended to be weaker at the end of the calendar year due to destocking. An increase in diamond tenders in the second half of Petra's financial year would make a big difference to cash generation, he added.
Small miners are more vulnerable to adverse industry trends than the bigger players, whose volumes improve the probability of success, according to Bernstein analyst Paul Gait.
"Their size allows the laws of large numbers to work on their side," he said. "You're not just re
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