Rough diamond market remains strong – RBC Capital Markets

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LONDON, April 11, 2010 – The rough diamond market remains strong, presenting attractive investment opportunities in the sector, RBC Capital Markets said in a research note dated April 8.

“Tender and sale results of rough diamonds from all major producers show that the strength in the market continues,” it said.
However, RBC Capital Markets noted “still some concern about the fragile nature of U.S. demand.”

The research note said: “The strength in rough diamond prices will see significant gains in revenue and cash flow for all diamond miners in 2010.”
It added, “This will continue, we believe, to attract investor interest to a sector characterised by a scarcity of investment opportunities. We continue to favour companies which are in production or near to production.

”The list is very small and includes Petra Diamonds, Harry Winston, Gem Diamonds and a few near-to-production developers in Canada and southern Africa.”
RBC Capital Markets said that within the next 10 years, it believes that China and India could equal the U.S. in terms of diamond jewellery demand.
“Already leading producers and retailers report that Asia is the fastest growing market they serve. As the U.S. recovers, this will put more upward pressure on prices.”

MARANGE

RBC Capital Markets noted a growing volume of production from the alluvial fields at Marange in Zimbabwe.
Marange is a large deposit of diamonds in conglomerate in the south east of Zimbabwe.
RBC Capital Markets noted that an issue of concern to the diamond sector is that gems from Marange are being sold without the necessary Kimberley Process (KP) certificates.
Diamantaires say the volume of rough which is leaving Zimbabwe from the Marange diamond fields is growing strongly, according to RBC Capital Markets.

“If these diamonds are indeed finding their way into traditional cutting centres (how KP certificates are obtained is not known), it raises the question as to whether conditions in the rough market might be stronger than thought,” the note said.
“If the market has been able to absorb these diamonds, there is a suggestion that in the middle to low end of the market, demand is firmer than anticipated?
“One diamantaire warns though that prices of cheaper goods are overheated at present, and an increase in Marange rough could lead to some weakness.”