The diamond paradox: big stones sell for millions while traders struggle to make a living.
There’s a funny paradox in the modern-day diamond industry. On the one hand, there is huge media coverage and interest in large and important stones, while on the other side of the scales more than 99 percent of people are only buying diamonds weighing 1 carat, or less.
Not only that, but the diamond trade is seeing the most difficult trading conditions for several decades, and some explorers have been unable to meet the financial conditions of deals signed while some publicly traded miners have seen their share price crash.
In November alone, Lucara Diamond Inc, a medium-sized producer announced the discovery of a 1,111 carat rough diamond in Botswana estimated to be worth at least $60 million, along with two other huge diamonds weighing more than 300 and 800 carats, respectively. The 1,111 carat stone is the second-largest diamond ever found after the 3,106-carat Cullinan.
Also in November, Sotheby’s auctioned the 12.03-carat Blue Moon diamond for $48.5 million, setting what the auction house claimed was a world record for a diamond of any color. The internally flawless diamond sold at a Sotheby’s sale in Geneva on November 11, breaking the previous record set when the auction house sold the 24.78-carat Graff Pink diamond for $46.2 million in the same city in 2010.
The day before, Christie’s sold the 16.08-carat ‘Sweet Josephine’ pink diamond for $28.6 million at its auction in Geneva.
All of these events led to huge global media coverage and put the spotlight on diamonds, a not-unimportant factor during a downturn in demand for diamonds worldwide. But are they really meaningful as far as the diamond industry worldwide is concerned? How many people are bidding for such diamonds? Clearly, a tiny number of people are in a position to bid for these spectacular gems.
And then there are issues such as Paragon Diamonds, which operates the Lemphane mine in Lesotho, which was suspended temporarily from London’s Alternative Investment Market due to financial issues. The firm has seen its shares drop by a third this year and has had to renegotiate terms on its $750,000 debt while attempting to raise more than $15 million, largely in debt, to buy the Mothae mine, next to the Lemphane project, from Lucara for $6.5 million and then develop the two projects.
Or take Petra Diamonds whose shares have fallen on the London Stock Exchange from two pounds to 67p during 2015. It is finding fewer top range diamonds and also having to cope with higher operational costs and lower diamond prices. And other miners, such as Gem Diamonds and Firestone Diamonds, which both mine in Lesotho, have seen their share prices plummet.
Investors apparently are unwilling to put their money into firms which might make the occasional spectacular find when their bread-and-butter goods cannot find a home.
Meanwhile, hundreds, if not thousands, of diamond manufacturers and traders in the world’s trading hubs are sitting on millions of carats of polished goods for which they are unable to find buyers. Having bought rough at high prices throughout 2014 and 2015, they are unwilling to unload processed goods at currently offered prices.
What does the future hold? Apparently more of the same. Already Christie’s and Sotheby’s are preparing their next auctions of spectacular diamonds and colored gemstones. De Beers sightholders are still reluctant to buy goods and happy to defer their allocations for as long as possible, while prices seen at tenders are not exactly mind-blowing. And despite diamond manufacturers, particularly in India, having slashed production in a bid to dry out the market and put some firm momentum behind polished prices, goods are not exactly flying out of their vaults. The coming year does not look like it will be much easier than 2015, but let us all hope that it does bring the trade some much-needed relief.
