Rough year creates opportunity in diamonds: Q&A

Diamond equities have had a rough ride in 2015, but what about next year? In an interview in early November, Matthew O’Keefe, VP and senior analyst at Dundee Capital Markets, explains why diamond prices have been hard hit over the past year, and why he expects 2016 to be a more exciting year for the diamond sector. Diamonds in Canada: For quite a while diamond stocks were the only segment of the mining sector that was doing well. That’s changed over the past year with diamond producers down on average 32% for the year and developers down 18%. Why have diamond equities started to follow the other commodity equities down? Matthew O’Keefe: The main driver has been diamond prices – they have been weaker and weakening since last year and that’s put pressure on equities. Year-to-date, rough diamond prices are down about 16% and polished prices are down about 7%. The catalyst that started the decline was the closure last year of the Antwerp diamond bank and that really put a lot of pressure on the middle pipeline – the cutters and polishers – where a lot of the inventory, both polished and rough, has been stored traditionally. The result has been a bit of a liquidity crisis for the middle pipeline, so they have had to sell more inventory and reduce the amount of inventory they’re carrying. So it’s not so much that demand for diamonds has dried up – it’s that there’s been a shock to the system putting more diamonds up for sale than the system can handle in the short term. The pipeline has to be rebalanced, which means moving out a lot of what’s now become oversupply. This interview originally appeared in the November 2015 issue of Diamonds in Canada and may be read at NorthernMiner.com/news/rough-year