Replicating the first-half results of 2018 was always going to be a challenge for Gem Diamonds, and against that high bar the miner came up short in H1 2019.
Despite higher production and sales volumes, Lucara Diamond recorded a much lower profit in Q2 2019 than the same period a year earlier, as the extended slump in the diamond trade demonstrates it offers no immunity. L Lucara reported net earnings of $700,000 for the quarter on revenue of $42.5 million, figures which compare unfavorably with a profit of $19.7 million on revenue of $64.5 million in the same quarter in 2018.
Following the discovery of a 64-carat rough that the company considers the highest-quality diamond from the Mothae Mine to date, Lucapa Diamond Company has announced earnings of $6.2 million (AUS$8.8 million) from the latest sales of diamonds from the Lulo alluvial mine in Angola and the Mothae kimberlite mine in Lesotho. The latest sales from Lulo and Mothae take total sales from both mines to US$35.5 million (A$50.2 million) for the year to date.
The De Beers Group recorded a 27% decline in first-half earnings to $518 million (2018: $712 million) due to the challenging midstream trading environment and slowing consumer demand growth, parent company Anglo American stated in their interim financial results. The difficult market has led to a decrease in rough diamond prices and has put pressure on the margins of those in the trading business, the company said.
For months now, the news emerging from across the diamond industry has been colored various shades of sombre, with each analysis referring to some version of the same list of issues ailing the trade: falling polished prices combined with excessive polished inventories, a financing squeeze on Indian manufacturers and a lack of profitablity, low demand for rough, economic uncertainty generated by an unstable geopolitical climate ... take your pick. The question Paul Zimnisky examines is whether this all adds up to a 'crisis'.
A combination of factors has led to widespread uncertainty and a global downturn in the diamond industry during the first half of 2019. Antwerp - the world’s leading diamond trade centre - has not escaped its impact, particularly in the rough diamond trade. Economic uncertainty generated by an unstable geopolitical climate has also fostered a heightened sense of caution among the banks that finance the trade, as well as diamond brokers and consumers of luxury goods.
The Hong Kong Jewellery & Gem Fair last week (20-23 June) provided a snapshot of a cautious diamond industry in the midst of a period of weak sentiment and even weaker demand, according to several traders we spoke with this week. And they do not see any quick fixes on the horizon. While it may not be the largest diamond show of the year, Hong-Kong June is the most important mid-year jewelry sourcing event in Asia, and as such provides us the opportunity to take the pulse of the polished diamond trade. The consensus? Sentiment is poor.
‘Wait and see’
Alrosa's rough diamond production in Q1 2019 declined significantly from the same period in 2018, as did its sales, impacted by a sharp decline in prices and a larger share of small-size diamonds in the sales mix and lower prices mostly for medium-size diamonds.
The Antwerp rough diamond trade had its best month of the year thus far, particularly in terms of value, though like much of the rough trade globally it is operating at much lower levels than in 2018. Exports of polished goods slowed in March while prices continue their steady climb above the record average prices achieved in 2018.
Canadian diamond miner Stornoway encountered a host of difficulties in 2018 on its way to a US$246.8 million (CA$329.4 million) loss, substantially widening the loss of US$85.6 million (CA$114.2 million) recorded last year. The miner's challenges included delays in the ramp-up of the Renard 2 underground mine, the processing of low-grade stockpiles during the transition from open pit to underground operations and weak diamond prices.
Following modest holiday sales, slow trading at the February/March Hong Kong show and a sluggish BaselWorld, typical first quarter inventory restocking of polished diamonds was "subdued" and "cautious" this year, while rough sales tumbled as manufacturing slowed, according to a Rapaport News press release.
Russian diamond mining giant Alrosa has released it results for FY 2018, reporting a 6% increase in the value of diamonds sold to $4.4 billion, and a 9% rise in revenue despite an 8% decline in the volume of goods sold, totalling 38.1 million carats for the year. The miner attributes the increase in sales and revenue to stronger prices and improved mix of gem-quality diamonds. While Q4 diamond sales increased 34% q-o-q to 9.0 m carats, the main increase was from industrial quality diamonds, causing Q4 sales to decline 13% q-o-q (-7% y-o-y) to $824 million as large-size diamond sales fell.
With 86 percent of all rough diamonds flowing through Antwerp on their journey from mine to market, trends from the diamond capital give a fairly good indication of what is happening in the rough trade globally. According to February's figures from the Antwerp World Diamond Centre (AWDC), the trade in smaller, lower-priced goods is picking up again, but this does not mean demand is robust, as prices continue to tumble - something that cannot be said for the polished trade, where prices remain high.
De Beers reported a 4% rise in total revenue for FY 2018, reaching $6.1 billion, but its earnings slid by 13% to $1.25 billion driven by expenditures such as the $87 million acquisition of Peregrine Diamonds and the launch of Lightbox Jewelry. Rough diamond sales rose by 4% to $5.4 billion (2017: $5.2 billion), driven by improved overall consumer demand for diamond jewelry and a 1% increase in the average rough diamond price index.
The state of the diamond mining industry as 2019 enters full swing is concerning to many throughout the trade. The fall in prices of small, lower-quality diamonds, a staple of many miners, had participants at the Africa Mining Indaba last week concerned about the sustainability of their operations if the market does not correct this year, with some even concerned about their survival.
South Africa-focused miner Petra Diamonds has seen its shares tumble 27% since Monday's announcement of its H1 2019 results, despite an 8% increase in sales and a 10% rise in production. The culprit? Near-historical low prices earned from its rough diamonds from its flagship Cullinan mine. Prices achieved from the miner's Cullinan goods slumped 31% compared to last year, earning just $96 per carat, and compared to a nine-year average of $140 per carat from 2009 to 2018, the miner said.
The Antwerp diamond trade was nothing if not balanced in 2018. The industry traded a total of $46 billion in 2018, representing an increase of less than a percentage point over 2017 ($45.9 billion). The value of value of the goods flowing in and out of Antwerp was once again divided equally between rough and polished goods, with the polished trade good for $22.9 billion and the rough trade representing $23.1 billion.
Diamond production in Angola remained flat in 2018 at 9.43 million carats, but revenue from diamond sales increased by 9% to $1.2 billion from $1.1 billion due to a 27% rise in the average price per carat, the chairman of the state mining company Endiama, Ganga Júnior, announced this week. Diamond production fell slightly from 9.44 to 9.43 million carats, but the average price per carat of the 8.26 million carats sold increased to $149 per carat from $117 per carat.
Stornoway Diamonds got its production levels back on track in Q4 2018 after "challenging" year of ramping up their underground operations at the Renard mine in Canada, giving them the confidence to raise their production guidance for 2019. Production, sales and revenue all declined significantly from the miner's 2017 levels, but they recorded a 24% increase in the average price per carat earned despite a market downturn in the second half of 2018.
Stellar Diamonds and parent company Newfield Resources are on the verge of commencing development of their Tongo Diamond Project in Sierra Leone. When completed, it will be the second largest diamond operation in the country. The Diamond Loupe spoke with CEO of Stellar Diamonds and Executive Director at Newfield Resources Karl Smithson, first in Antwerp and again when he was on site in Tongo (“in the middle of the bush”) about the project, how it is progressing and what to expect going forward.
Canadian miner Mountain Province Diamonds reported a 17% jump in carat production for the full year 2018, with sales rising 30% to $US240 million. The company's 49% share of production from the Gahcho Kué mine it shares with De Beers totalled 3.4 million carats, (full GK production 6.9 million carats) compared to the 2.9 million carats (5.9m) recovered last year, following from a 25% rise in total tonnes mined (ore & waste) and a 15% rise in total tonnes treated.
Lucara Diamond Corp. has completed its highly anticipated inaugural diamond sale through Clara Diamond Solutions, its digital sales platform for selling rough diamonds individually, based on polished characteristics and demand.
The rough diamond trade in Antwerp during the month of November was marked by a resurgence of imports and exports of lower-priced rough after three sluggish months concerning the volumes of goods traded, while the polished trade experienced a general slowdown.
Discussions between the Government of Botswana and De Beers Group are already underway as the long-standing partners look to strike a new deal. The current 10-year agreement for the sorting, valuing and sales of Debswana’s diamond production (Debswana is a 50/50 mining joint venture between Botswana and De Beers) is set to expire at the end of 2020. Botswana is reportedly pushing for a larger stake in its "new marriage" with De Beers ahead of the negotiations for the next sales agreement, writes The Southern Times.
Riding the current wave of depressed rough diamond sales throughout the industry in recent months, De Beers' ninth sale of 2018 earned (provisionally) $440 million, the miner's lowest earnings in a sales cycle since October 2017. Soft demand from India has been the predominant factor in the decline of rough sales - particularly of smaller goods - across the industry.
Canadian miner Mountain Province Diamonds has sold US$17.7 million (CDN$23.3 million) from 245,751 carats at an average realized value of US$72 per carat at its ninth rough diamond which closed on November 14, 2018. The total proceeds from the sale were the lowest of the year thus far, but the average price per carat was the highest since the $85 per carat earned at the company's fifth sale of the year in June.
Several sources, including Bloomberg and Rapaport, have reported that De Beers has slashed its prices on lower-quality diamonds at its latest sight this week, with the discounts ranging from high-single digits to as much as 10%. Difficult trading conditions have been widely reported in the rough diamond market in recent months, although the market for higher-quality and larger goods has remained strong with firm pricing in all categories.
The Antwerp diamond trade in October booked value gains across all categories - particularly for polished-diamond exports and imports - with the exception of rough-diamond imports, which followed the recent decline in production and sales from the diamond miners.
Russian diamond mining giant ALROSA experienced a slight downtick in revenue and profit during the third quarter as compared with Q2, as significantly weaker sales volumes were offset by higher average prices and an improved sales mix. The miner has, however seen strong growth for the first nine months of the year, and last week commenced commercial diamond production at its newest mine, the Verkhne-Munskoye Diamond Field in Yakutia.
Mountain Province Diamonds, which owns 49% of the the Gahcho Kué mine in the Northwest Territories in Canada, earned $24.2 million in its latest diamond sale in Antwerp, its eighth of the year. The miner sold 366,505 carats at an average realized value of US$66 per carat, which the miner said was in line with their expectations and reflect current market conditions.
Canadian diamond miner Stornoway sold 184,620 carats in two tender sales for gross proceeds of $24.7 million at an average price of US$103 per carat (C$134 per carat) as price weakness returned to smaller and lower quality diamonds, a decline of 7% compared to the second quarter. Prices in the larger and higher quality items have remained firm. By way of comparison, the miner sold 201,283 carats at two tenders in Q2 for $28.6 million, at an average price of US$109 per carat.
The polished-diamond trade in Antwerp during September again witnessed a surging average price per carat, particularly for imports (+22%), however, the trading center remained quiet after the traditionally slow summer holiday, as a result of which the volume of goods traded declined notably. Some have attributed the September slowdown to the Jewish holiday period, while others tell us that Indian companies are still hesitant to acquire smaller goods, with many having already purchased what they need for the upcoming Diwali holidays.
Ari Epstein, CEO of the Antwerp World Diamond Centre (AWDC), along with several representatives from the Antwerp diamond industry today met King Letsie III of Lesotho in Brussels. Lesotho, a mountainous country fully surrounded by South Africa and numbering only two million inhabitants, is the world’s seventh most important diamond-producing country in terms of value. Lesotho’s entire diamond production, worth $342 million in 2017, is traded on the Antwerp market.
The polished-diamond trade in Antwerp rode a higher average price per carat, particularly for exports (+6%), to solid value gains during the traditionally slow month of August, when the industry takes a three-week hiatus. The volume of rough goods traded during the month declined notably without having much impact on the overall value of those goods, as the average price per carat for rough goods is also outpacing that of the year prior by approximately 6%.
Russian diamond mining giant ALROSA said its first half net profit rose by 19 percent year on year to $865 million (RUB 58.3 billion) as higher average prices for gem-quality stones helped offset a drop in the volume of sales. Revenue increased by 8% to $2.5 billion (RUB 168 bn) on the back of higher average prices and a better sales mix, despite the 8% drop in sales by volume, with sales of gem-quality diamonds shrinking by 14%. ALROSA's EBITDA grew by 22% to $1.3 billion (RUB 89.1 bn), supported by higher top line and lower production costs.
Rising prices of rough and polished diamonds led to substantial value gains for Antwerp’s diamond trade in July, which surged during the weeks preceding its traditional August recess, according to data from the Antwerp World Diamond Centre (AWDC). Rough diamond imports surged by 23% and exports by 18% compared to the same month a year ago, while polished imports gained 28% in value and exports gained more than 8% compared to the month of July 2017.
Global rough diamond production in 2017 grew to levels not seen since 2008, and achieved its highest overall value since the Kimberley Process started gathering statistics in 2004 - and most likely the highest value ever for a single year of production. The volume of diamond output in 2017 surged by 19% to 150.9 million carats (126.4m cts in 2016), with the average price increasing 8% to $105 per carat.
Antwerp's polished diamond trade in June rode rising prices to another month of gains, according to data from the Antwerp World Diamond Centre (AWDC), as the Belgian polished trade reasserted its modest upward trend in 2018. The value of polished exports increased 4% year-over-year to $1.04 billion despite 6 percent decline in the volume of goods traded, backed by a 10% climb in average price per carat, to $2,395 from $2,183. The average price did fall short of a May high of $2,688 per carat, likely skewed by the value of goods flowing to Las Vegas for the JCK trade show.
Angolan President João Lourenço has vowed to reform Angola’s diamond industry, increasing its transparency in order to facilitate the exportation of goods, attract foreign investment and increase government revenue from the country's natural resources.