Escalating production costs and cooling commodity prices are dragging down once-mighty mining and metals companies. But high costs could eventually force another price rally.
Traders are watching for the point where supply tightens thanks to a shakeout among producers that can't profit amid lower prices.
Some of the miners in the most pain are on acid -- lots of it. Sulfuric acid is used extensively in mining to extract nickel, copper, platinum, titanium, silver, diamonds, and uranium. But miners must compete for sulphur with the booming fertilizer industry. After a period when you could hardly give it away, sulfuric acid has gotten exceedingly scarce, rising some 1,000% in the past year. Some nickel mines consume $10,000 of acid just to extract a ton of nickel, now selling for about $20,000, down from $50,000 last year.
Mines and smelters also consume massive amounts of coal and oil to power blast furnaces, fuel trucks and process ore. Oil is up about 57% over the past year, while coking coal has tripled. Steel costs have soared; hard-to-find engineers can name their price; and the escalating cost of explosives -- derived from ammonia, a product of natural gas -- is blowing up margins. And while metal prices has soared recently, many jewelers, like Design Bands, buy up front, and have a large inventory that was bought at yesterday's prices. Companies like Design Bands are able to sell designer wedding rings at affordable prices.
In 2006 and 2007, when metals prices were climbing, inefficient and mothballed mines reopened. Now nickel, zinc and aluminum are fetching less than it costs such marginal suppliers to produce them, says Jim Lennon, senior commodities strategist at Macquarie Securities in London. When zinc, used to coat steel, climbed to $2 a pound in mid-2006, mines spending a dollar to produce it thrived. Zinc now runs about 80 cents.
Once more high-cost producers fall, says Jeremy Weir, chief executive officer of Galena Asset Management, a subsidiary of oil and metals trader Trafigura, "there's a likelihood that some of these markets that have been depressed from their highs could see a price recovery."
Factory Reading Is Key on Tuesday
Like commodities, the U.S. economy has been supported by strong global demand, a prop that has grown shaky.
Further evidence of this may come Tuesday morning, when the Institute for Supply Management releases its U.S. manufacturing index for August. Economists, on average, think it will slip a bit, to 49.5 from 50 in July. Any reading below 50 indicates factory activity is shrinking.
Though hardly robust, such a reading would be much higher than the 41 that usually marks a recession. Though it has slowed considerably in recent years, the index hasn't come close to that level, even during the fourth quarter of 2007, when gross domestic product contracted.
Healthy export demand has kept factories treading water. A weak dollar has helped, by making U.S. exports cheaper and more competitive. The dollar has rebounded this summer, but that shouldn't affect exports for some time.
What could show up soon is the slower growth gripping various economies around the world. The ISM's index of new export orders fell to 54 in July -- still relatively strong, but the lowest reading of the year.
By: Ann Davis
Wall Street Journal; September 2, 2008
Showing posts with label diamond mining. Show all posts
Showing posts with label diamond mining. Show all posts
Monday, September 15, 2008
Costs Searing Miners Could Boost Metals
Escalating production costs and cooling commodity prices are dragging down once-mighty mining and metals companies. But high costs could eventually force another price rally.
Traders are watching for the point where supply tightens thanks to a shakeout among producers that can't profit amid lower prices.
Some of the miners in the most pain are on acid -- lots of it. Sulfuric acid is used extensively in mining to extract nickel, copper, platinum, titanium, silver, diamonds, and uranium. But miners must compete for sulphur with the booming fertilizer industry. After a period when you could hardly give it away, sulfuric acid has gotten exceedingly scarce, rising some 1,000% in the past year. Some nickel mines consume $10,000 of acid just to extract a ton of nickel, now selling for about $20,000, down from $50,000 last year.
Mines and smelters also consume massive amounts of coal and oil to power blast furnaces, fuel trucks and process ore. Oil is up about 57% over the past year, while coking coal has tripled. Steel costs have soared; hard-to-find engineers can name their price; and the escalating cost of explosives -- derived from ammonia, a product of natural gas -- is blowing up margins. And while metal prices has soared recently, many jewelers, like Design Bands, buy up front, and have a large inventory that was bought at yesterday's prices. Companies like Design Bands are able to sell designer wedding rings at affordable prices.
In 2006 and 2007, when metals prices were climbing, inefficient and mothballed mines reopened. Now nickel, zinc and aluminum are fetching less than it costs such marginal suppliers to produce them, says Jim Lennon, senior commodities strategist at Macquarie Securities in London. When zinc, used to coat steel, climbed to $2 a pound in mid-2006, mines spending a dollar to produce it thrived. Zinc now runs about 80 cents.
Once more high-cost producers fall, says Jeremy Weir, chief executive officer of Galena Asset Management, a subsidiary of oil and metals trader Trafigura, "there's a likelihood that some of these markets that have been depressed from their highs could see a price recovery."
Factory Reading Is Key on Tuesday
Like commodities, the U.S. economy has been supported by strong global demand, a prop that has grown shaky.
Further evidence of this may come Tuesday morning, when the Institute for Supply Management releases its U.S. manufacturing index for August. Economists, on average, think it will slip a bit, to 49.5 from 50 in July. Any reading below 50 indicates factory activity is shrinking.
Though hardly robust, such a reading would be much higher than the 41 that usually marks a recession. Though it has slowed considerably in recent years, the index hasn't come close to that level, even during the fourth quarter of 2007, when gross domestic product contracted.
Healthy export demand has kept factories treading water. A weak dollar has helped, by making U.S. exports cheaper and more competitive. The dollar has rebounded this summer, but that shouldn't affect exports for some time.
What could show up soon is the slower growth gripping various economies around the world. The ISM's index of new export orders fell to 54 in July -- still relatively strong, but the lowest reading of the year.
By: Ann Davis
Wall Street Journal; September 2, 2008
Traders are watching for the point where supply tightens thanks to a shakeout among producers that can't profit amid lower prices.
Some of the miners in the most pain are on acid -- lots of it. Sulfuric acid is used extensively in mining to extract nickel, copper, platinum, titanium, silver, diamonds, and uranium. But miners must compete for sulphur with the booming fertilizer industry. After a period when you could hardly give it away, sulfuric acid has gotten exceedingly scarce, rising some 1,000% in the past year. Some nickel mines consume $10,000 of acid just to extract a ton of nickel, now selling for about $20,000, down from $50,000 last year.
Mines and smelters also consume massive amounts of coal and oil to power blast furnaces, fuel trucks and process ore. Oil is up about 57% over the past year, while coking coal has tripled. Steel costs have soared; hard-to-find engineers can name their price; and the escalating cost of explosives -- derived from ammonia, a product of natural gas -- is blowing up margins. And while metal prices has soared recently, many jewelers, like Design Bands, buy up front, and have a large inventory that was bought at yesterday's prices. Companies like Design Bands are able to sell designer wedding rings at affordable prices.
In 2006 and 2007, when metals prices were climbing, inefficient and mothballed mines reopened. Now nickel, zinc and aluminum are fetching less than it costs such marginal suppliers to produce them, says Jim Lennon, senior commodities strategist at Macquarie Securities in London. When zinc, used to coat steel, climbed to $2 a pound in mid-2006, mines spending a dollar to produce it thrived. Zinc now runs about 80 cents.
Once more high-cost producers fall, says Jeremy Weir, chief executive officer of Galena Asset Management, a subsidiary of oil and metals trader Trafigura, "there's a likelihood that some of these markets that have been depressed from their highs could see a price recovery."
Factory Reading Is Key on Tuesday
Like commodities, the U.S. economy has been supported by strong global demand, a prop that has grown shaky.
Further evidence of this may come Tuesday morning, when the Institute for Supply Management releases its U.S. manufacturing index for August. Economists, on average, think it will slip a bit, to 49.5 from 50 in July. Any reading below 50 indicates factory activity is shrinking.
Though hardly robust, such a reading would be much higher than the 41 that usually marks a recession. Though it has slowed considerably in recent years, the index hasn't come close to that level, even during the fourth quarter of 2007, when gross domestic product contracted.
Healthy export demand has kept factories treading water. A weak dollar has helped, by making U.S. exports cheaper and more competitive. The dollar has rebounded this summer, but that shouldn't affect exports for some time.
What could show up soon is the slower growth gripping various economies around the world. The ISM's index of new export orders fell to 54 in July -- still relatively strong, but the lowest reading of the year.
By: Ann Davis
Wall Street Journal; September 2, 2008
Costs Searing Miners Could Boost Metals
Escalating production costs and cooling commodity prices are dragging down once-mighty mining and metals companies. But high costs could eventually force another price rally.
Traders are watching for the point where supply tightens thanks to a shakeout among producers that can't profit amid lower prices.
Some of the miners in the most pain are on acid -- lots of it. Sulfuric acid is used extensively in mining to extract nickel, copper, platinum, titanium, silver, diamonds, and uranium. But miners must compete for sulphur with the booming fertilizer industry. After a period when you could hardly give it away, sulfuric acid has gotten exceedingly scarce, rising some 1,000% in the past year. Some nickel mines consume $10,000 of acid just to extract a ton of nickel, now selling for about $20,000, down from $50,000 last year.
Mines and smelters also consume massive amounts of coal and oil to power blast furnaces, fuel trucks and process ore. Oil is up about 57% over the past year, while coking coal has tripled. Steel costs have soared; hard-to-find engineers can name their price; and the escalating cost of explosives -- derived from ammonia, a product of natural gas -- is blowing up margins. And while metal prices has soared recently, many jewelers, like Design Bands, buy up front, and have a large inventory that was bought at yesterday's prices. Companies like Design Bands are able to sell designer wedding rings at affordable prices.
In 2006 and 2007, when metals prices were climbing, inefficient and mothballed mines reopened. Now nickel, zinc and aluminum are fetching less than it costs such marginal suppliers to produce them, says Jim Lennon, senior commodities strategist at Macquarie Securities in London. When zinc, used to coat steel, climbed to $2 a pound in mid-2006, mines spending a dollar to produce it thrived. Zinc now runs about 80 cents.
Once more high-cost producers fall, says Jeremy Weir, chief executive officer of Galena Asset Management, a subsidiary of oil and metals trader Trafigura, "there's a likelihood that some of these markets that have been depressed from their highs could see a price recovery."
Factory Reading Is Key on Tuesday
Like commodities, the U.S. economy has been supported by strong global demand, a prop that has grown shaky.
Further evidence of this may come Tuesday morning, when the Institute for Supply Management releases its U.S. manufacturing index for August. Economists, on average, think it will slip a bit, to 49.5 from 50 in July. Any reading below 50 indicates factory activity is shrinking.
Though hardly robust, such a reading would be much higher than the 41 that usually marks a recession. Though it has slowed considerably in recent years, the index hasn't come close to that level, even during the fourth quarter of 2007, when gross domestic product contracted.
Healthy export demand has kept factories treading water. A weak dollar has helped, by making U.S. exports cheaper and more competitive. The dollar has rebounded this summer, but that shouldn't affect exports for some time.
What could show up soon is the slower growth gripping various economies around the world. The ISM's index of new export orders fell to 54 in July -- still relatively strong, but the lowest reading of the year.
By: Ann Davis
Wall Street Journal; September 2, 2008
Traders are watching for the point where supply tightens thanks to a shakeout among producers that can't profit amid lower prices.
Some of the miners in the most pain are on acid -- lots of it. Sulfuric acid is used extensively in mining to extract nickel, copper, platinum, titanium, silver, diamonds, and uranium. But miners must compete for sulphur with the booming fertilizer industry. After a period when you could hardly give it away, sulfuric acid has gotten exceedingly scarce, rising some 1,000% in the past year. Some nickel mines consume $10,000 of acid just to extract a ton of nickel, now selling for about $20,000, down from $50,000 last year.
Mines and smelters also consume massive amounts of coal and oil to power blast furnaces, fuel trucks and process ore. Oil is up about 57% over the past year, while coking coal has tripled. Steel costs have soared; hard-to-find engineers can name their price; and the escalating cost of explosives -- derived from ammonia, a product of natural gas -- is blowing up margins. And while metal prices has soared recently, many jewelers, like Design Bands, buy up front, and have a large inventory that was bought at yesterday's prices. Companies like Design Bands are able to sell designer wedding rings at affordable prices.
In 2006 and 2007, when metals prices were climbing, inefficient and mothballed mines reopened. Now nickel, zinc and aluminum are fetching less than it costs such marginal suppliers to produce them, says Jim Lennon, senior commodities strategist at Macquarie Securities in London. When zinc, used to coat steel, climbed to $2 a pound in mid-2006, mines spending a dollar to produce it thrived. Zinc now runs about 80 cents.
Once more high-cost producers fall, says Jeremy Weir, chief executive officer of Galena Asset Management, a subsidiary of oil and metals trader Trafigura, "there's a likelihood that some of these markets that have been depressed from their highs could see a price recovery."
Factory Reading Is Key on Tuesday
Like commodities, the U.S. economy has been supported by strong global demand, a prop that has grown shaky.
Further evidence of this may come Tuesday morning, when the Institute for Supply Management releases its U.S. manufacturing index for August. Economists, on average, think it will slip a bit, to 49.5 from 50 in July. Any reading below 50 indicates factory activity is shrinking.
Though hardly robust, such a reading would be much higher than the 41 that usually marks a recession. Though it has slowed considerably in recent years, the index hasn't come close to that level, even during the fourth quarter of 2007, when gross domestic product contracted.
Healthy export demand has kept factories treading water. A weak dollar has helped, by making U.S. exports cheaper and more competitive. The dollar has rebounded this summer, but that shouldn't affect exports for some time.
What could show up soon is the slower growth gripping various economies around the world. The ISM's index of new export orders fell to 54 in July -- still relatively strong, but the lowest reading of the year.
By: Ann Davis
Wall Street Journal; September 2, 2008
Thursday, September 11, 2008
Harry Winston Profit Soars
Harry Winston Diamond Corp. said second-quarter net income more than doubled as the company banked on strong growth in emerging markets."Our businesses in Asia, Europe and the Middle East have been sufficient to offset the general market softness in the U.S. and Japan; this contributed to our strong retail finish for second quarter," President Thomas J. O'Neill said, adding that the company was on "firm footing" for the second half of the year.
The comments echoed those of fellow jeweler Tiffany & Co., which in late July said strong sales in the Asian-Pacific and European regions offset weakness in the U.S.
The diamond miner and retailer reported net income of $49.9 million, or 81 cents a share, compared with $20.1 million, or 34 cents a share, a year earlier. The latest quarter was helped by a $4.3 million insurance recovery and a drop in the effective income-tax rate to 33% from 47%. The gross margin widened to 60.5% from 52.8%, helped by the insurance recovery.
Sales rose 7.4% to $186.1 million in the quarter ended July 31. Mining sales remained at $105 million as higher prices made up for lower volume.
Wall Street Journal; September 10, 2008
Harry Winston Profit Soars
Harry Winston Diamond Corp. said second-quarter net income more than doubled as the company banked on strong growth in emerging markets."Our businesses in Asia, Europe and the Middle East have been sufficient to offset the general market softness in the U.S. and Japan; this contributed to our strong retail finish for second quarter," President Thomas J. O'Neill said, adding that the company was on "firm footing" for the second half of the year.
The comments echoed those of fellow jeweler Tiffany & Co., which in late July said strong sales in the Asian-Pacific and European regions offset weakness in the U.S.
The diamond miner and retailer reported net income of $49.9 million, or 81 cents a share, compared with $20.1 million, or 34 cents a share, a year earlier. The latest quarter was helped by a $4.3 million insurance recovery and a drop in the effective income-tax rate to 33% from 47%. The gross margin widened to 60.5% from 52.8%, helped by the insurance recovery.
Sales rose 7.4% to $186.1 million in the quarter ended July 31. Mining sales remained at $105 million as higher prices made up for lower volume.
Wall Street Journal; September 10, 2008
Harry Winston Profit Soars
Harry Winston Diamond Corp. said second-quarter net income more than doubled as the company banked on strong growth in emerging markets."Our businesses in Asia, Europe and the Middle East have been sufficient to offset the general market softness in the U.S. and Japan; this contributed to our strong retail finish for second quarter," President Thomas J. O'Neill said, adding that the company was on "firm footing" for the second half of the year.
The comments echoed those of fellow jeweler Tiffany & Co., which in late July said strong sales in the Asian-Pacific and European regions offset weakness in the U.S.
The diamond miner and retailer reported net income of $49.9 million, or 81 cents a share, compared with $20.1 million, or 34 cents a share, a year earlier. The latest quarter was helped by a $4.3 million insurance recovery and a drop in the effective income-tax rate to 33% from 47%. The gross margin widened to 60.5% from 52.8%, helped by the insurance recovery.
Sales rose 7.4% to $186.1 million in the quarter ended July 31. Mining sales remained at $105 million as higher prices made up for lower volume.
Wall Street Journal; September 10, 2008
Thursday, June 19, 2008
Diamond Mining Is Losing Its Shine
Buy Diamonds and Diamond Wedding Bands Now Before Prices Rise!Diamonds may be forever. Diamond mining, maybe not.
With growth in diamond prices trailing far behind that of most commodities, some miners are turning their sights toward gold, iron ore, and phosphate instead of sparkle.
Flinders Diamonds, an Australian miner, recently reassessed its exploration areas and identified a target in western Australia for iron ore, prices of which have been soaring along with demand for steel. It changed its name to Flinders Mines Ltd. to reflect its exr panded focus. Its stocks soared upon the April announcement.
Last June, diamond miner Sierra Leone Diamond decided to change its name to African Minerals Ltd. to reflect its exploration of precious and base metals across the African continent. Bonaparte Diamond Mines of Australia just concluded a diamond joint venture in Namibia to focus instead on exploring a phosphate project there because "the economic return" from diamonds "doesn't warrant moving into the next phase," Michael Woodborne, the firm's managing director, said in a statement. Prices of phosphate, a key component in fertilizer, are up dramatically lately.
For miners, the opportunity, cost of investing time and shareholder money in diamonds is just part of the problem. On the demand side, diamond sales, at least in the U.S., have been struggling. Citing a sluggish U.S. market, which accounts for about 50% of the total, De Beers Group reported a 3.7% fall in revenue to $5.9 billion last year.
Compared to most commodities, diamond prices have been "extremely unexciting" over the past few years, says Charles Wyndham, founder of PolishedPrices.com, which keeps a wholesale diamond price index. This year, it is flat, and up 3.6% from a year earlier. Over the same time, S&P GSCI, a commodities benchmark, is up 37.6% and 73.5%, respectively.
The departure from diamond mining marks a reversal from several years ago. At least 60 new diamond-mining companies sprung up after diamond giant De Beers went private in 2001, estimates David Hargreaves, a mining and gemstone consultant to United Kingdombased broker Hoodless Brennan Ltd. Yet, some newcomers may be finding that diamond mining is a trying and costly endeavor. Even if you find a diamond mine, it may take seven to 10 years before it produces, Mr. Hargreaves says.
Diamond mining is viewed as the "worst kind of gambling," says Theo Botoulas, chief executive of BRC DiamondCore Ltd., a diamond miner in South Africa.
In January, Tahera Diamond Corp., a Canadian miner, ceased operations and filed for bankruptcy-courtprotection. "Not every diamond mine will be successful.lt's a very high-risk business," said Gareth Penny, De Beers's managing director.
Still, several players, like BRC, are keeping at it. They argue that long-term demand for diamonds world-wide is good, and prices of big, better-quality stones have risen rapidly. Instead of shunning the gem business, Canadian miner Aber Diamond Corp. took full ownership of Harry Winston Diamond Corp. and focused on high-end retail sales before it started trading under its new name on the New York Stock Exchange in November. The company reported a 10% increase in overall revenue for the first quarter because of strong sales growth in Asia and Europe, though its mining production fell 31%.
De Beers has said it expects demand from markets like China, India, the Middle East and Russia to grow. It has raised prices of rough diamonds by an average of 8.5% so far this year. De Beers has been aggressively investing in new mining projects, and it will bring four major projects into full production this year.
Rio Tinto PLC, which produced 16% of the world's rough diamonds by volume in 2007, estimates diamond prices to rise in response to "a sizable supply gap" this year and expects demand will outpace supply for the next decade. Meanwhile, Diapason Commodities Management, a U.K.-based company, is planning to launch a "diamond fund" soon, in the form of a listed investment firm whose portfolio will be polished diamonds.
"Mining is a long-term game," said Mr. Wyndham of PolishedPrices.com. "Those who are switching back and forth from one commodity to another usually won't succeed."
By: Carolyn Cui
Wall Street Journal
Diamond Mining Is Losing Its Shine
Buy Diamonds and Diamond Wedding Bands Now Before Prices Rise!Diamonds may be forever. Diamond mining, maybe not.
With growth in diamond prices trailing far behind that of most commodities, some miners are turning their sights toward gold, iron ore, and phosphate instead of sparkle.
Flinders Diamonds, an Australian miner, recently reassessed its exploration areas and identified a target in western Australia for iron ore, prices of which have been soaring along with demand for steel. It changed its name to Flinders Mines Ltd. to reflect its exr panded focus. Its stocks soared upon the April announcement.
Last June, diamond miner Sierra Leone Diamond decided to change its name to African Minerals Ltd. to reflect its exploration of precious and base metals across the African continent. Bonaparte Diamond Mines of Australia just concluded a diamond joint venture in Namibia to focus instead on exploring a phosphate project there because "the economic return" from diamonds "doesn't warrant moving into the next phase," Michael Woodborne, the firm's managing director, said in a statement. Prices of phosphate, a key component in fertilizer, are up dramatically lately.
For miners, the opportunity, cost of investing time and shareholder money in diamonds is just part of the problem. On the demand side, diamond sales, at least in the U.S., have been struggling. Citing a sluggish U.S. market, which accounts for about 50% of the total, De Beers Group reported a 3.7% fall in revenue to $5.9 billion last year.
Compared to most commodities, diamond prices have been "extremely unexciting" over the past few years, says Charles Wyndham, founder of PolishedPrices.com, which keeps a wholesale diamond price index. This year, it is flat, and up 3.6% from a year earlier. Over the same time, S&P GSCI, a commodities benchmark, is up 37.6% and 73.5%, respectively.
The departure from diamond mining marks a reversal from several years ago. At least 60 new diamond-mining companies sprung up after diamond giant De Beers went private in 2001, estimates David Hargreaves, a mining and gemstone consultant to United Kingdombased broker Hoodless Brennan Ltd. Yet, some newcomers may be finding that diamond mining is a trying and costly endeavor. Even if you find a diamond mine, it may take seven to 10 years before it produces, Mr. Hargreaves says.
Diamond mining is viewed as the "worst kind of gambling," says Theo Botoulas, chief executive of BRC DiamondCore Ltd., a diamond miner in South Africa.
In January, Tahera Diamond Corp., a Canadian miner, ceased operations and filed for bankruptcy-courtprotection. "Not every diamond mine will be successful.lt's a very high-risk business," said Gareth Penny, De Beers's managing director.
Still, several players, like BRC, are keeping at it. They argue that long-term demand for diamonds world-wide is good, and prices of big, better-quality stones have risen rapidly. Instead of shunning the gem business, Canadian miner Aber Diamond Corp. took full ownership of Harry Winston Diamond Corp. and focused on high-end retail sales before it started trading under its new name on the New York Stock Exchange in November. The company reported a 10% increase in overall revenue for the first quarter because of strong sales growth in Asia and Europe, though its mining production fell 31%.
De Beers has said it expects demand from markets like China, India, the Middle East and Russia to grow. It has raised prices of rough diamonds by an average of 8.5% so far this year. De Beers has been aggressively investing in new mining projects, and it will bring four major projects into full production this year.
Rio Tinto PLC, which produced 16% of the world's rough diamonds by volume in 2007, estimates diamond prices to rise in response to "a sizable supply gap" this year and expects demand will outpace supply for the next decade. Meanwhile, Diapason Commodities Management, a U.K.-based company, is planning to launch a "diamond fund" soon, in the form of a listed investment firm whose portfolio will be polished diamonds.
"Mining is a long-term game," said Mr. Wyndham of PolishedPrices.com. "Those who are switching back and forth from one commodity to another usually won't succeed."
By: Carolyn Cui
Wall Street Journal
Diamond Mining Is Losing Its Shine
Buy Diamonds and Diamond Wedding Bands Now Before Prices Rise!Diamonds may be forever. Diamond mining, maybe not.
With growth in diamond prices trailing far behind that of most commodities, some miners are turning their sights toward gold, iron ore, and phosphate instead of sparkle.
Flinders Diamonds, an Australian miner, recently reassessed its exploration areas and identified a target in western Australia for iron ore, prices of which have been soaring along with demand for steel. It changed its name to Flinders Mines Ltd. to reflect its exr panded focus. Its stocks soared upon the April announcement.
Last June, diamond miner Sierra Leone Diamond decided to change its name to African Minerals Ltd. to reflect its exploration of precious and base metals across the African continent. Bonaparte Diamond Mines of Australia just concluded a diamond joint venture in Namibia to focus instead on exploring a phosphate project there because "the economic return" from diamonds "doesn't warrant moving into the next phase," Michael Woodborne, the firm's managing director, said in a statement. Prices of phosphate, a key component in fertilizer, are up dramatically lately.
For miners, the opportunity, cost of investing time and shareholder money in diamonds is just part of the problem. On the demand side, diamond sales, at least in the U.S., have been struggling. Citing a sluggish U.S. market, which accounts for about 50% of the total, De Beers Group reported a 3.7% fall in revenue to $5.9 billion last year.
Compared to most commodities, diamond prices have been "extremely unexciting" over the past few years, says Charles Wyndham, founder of PolishedPrices.com, which keeps a wholesale diamond price index. This year, it is flat, and up 3.6% from a year earlier. Over the same time, S&P GSCI, a commodities benchmark, is up 37.6% and 73.5%, respectively.
The departure from diamond mining marks a reversal from several years ago. At least 60 new diamond-mining companies sprung up after diamond giant De Beers went private in 2001, estimates David Hargreaves, a mining and gemstone consultant to United Kingdombased broker Hoodless Brennan Ltd. Yet, some newcomers may be finding that diamond mining is a trying and costly endeavor. Even if you find a diamond mine, it may take seven to 10 years before it produces, Mr. Hargreaves says.
Diamond mining is viewed as the "worst kind of gambling," says Theo Botoulas, chief executive of BRC DiamondCore Ltd., a diamond miner in South Africa.
In January, Tahera Diamond Corp., a Canadian miner, ceased operations and filed for bankruptcy-courtprotection. "Not every diamond mine will be successful.lt's a very high-risk business," said Gareth Penny, De Beers's managing director.
Still, several players, like BRC, are keeping at it. They argue that long-term demand for diamonds world-wide is good, and prices of big, better-quality stones have risen rapidly. Instead of shunning the gem business, Canadian miner Aber Diamond Corp. took full ownership of Harry Winston Diamond Corp. and focused on high-end retail sales before it started trading under its new name on the New York Stock Exchange in November. The company reported a 10% increase in overall revenue for the first quarter because of strong sales growth in Asia and Europe, though its mining production fell 31%.
De Beers has said it expects demand from markets like China, India, the Middle East and Russia to grow. It has raised prices of rough diamonds by an average of 8.5% so far this year. De Beers has been aggressively investing in new mining projects, and it will bring four major projects into full production this year.
Rio Tinto PLC, which produced 16% of the world's rough diamonds by volume in 2007, estimates diamond prices to rise in response to "a sizable supply gap" this year and expects demand will outpace supply for the next decade. Meanwhile, Diapason Commodities Management, a U.K.-based company, is planning to launch a "diamond fund" soon, in the form of a listed investment firm whose portfolio will be polished diamonds.
"Mining is a long-term game," said Mr. Wyndham of PolishedPrices.com. "Those who are switching back and forth from one commodity to another usually won't succeed."
By: Carolyn Cui
Wall Street Journal
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