Mining’s old guard needs strong medicine
A new report details subpar investor returns in the mining industry over the last decade, particularly big cap diversified companies which have not adapted to new realities.
South Africa’s Petra Diamonds (LON:PDL) could get up to $15 million for a 20.08-carat blue rock it found in September at its iconic Cullinan mine, when it goes for sale at a planned tender in Johannesburg next month.
Petra found the type IIb, “exceptional” gem-quality stone at its Cullinan mine in September. It has not given any further information on the diamond’s quality.
“We expect this stone to fetch a good price — we are hoping for at least $13 million to $15 million — despite the rough market’s well-publicized travails,” Shore Capital’s Yuen Low said in a note Monday. “If this proves the case, it should provide a welcome, significant boost to [Petra’s fiscal-year] 2020 profits.”
Investment bank Berenberg valued the “exceptional” blue gem quality diamond at between $10 and $15 million, based on prices Petra has achieved for similar roughs from Cullinan in previous years. In 2015, the miner sold “The Blue Moon of Josephine”, a 29.6 carat blue stone, for $48.5 million, marking a world record price per carat at auction for any diamond at the time.
Previously, the miner had found a massive 122.52-carat blue diamond that sold for $27.6 million, and a 29.6-carat one of the same colour, which fetched almost $26 million.
Petra has been trying to turn around its fortunes after piling up debt to expand Cullinan, where the world’s largest-ever diamond was found in 1905. That rock was cut into two stones – the First Star of Africa and the Second Star of Africa – and are now part of Britain’s Crown Jewels, held in the Tower of London.
The company is just one of the many diamond miners hit by ongoing market weakness that has hit producers of small stones hardest, due to an oversupply in that segment.
Increasing demand for synthetic diamonds has also weighed on prices. Man-made diamonds require less investment than mining natural stones and can offer more attractive margins.
Oversupply of tiny diamonds and increasing demand for synthetics have negatively weighed on prices.
Buyers, those that polish and cut diamonds for retailers, have been hit this year by lower prices and tighter credit, prompting them to delay purchases.
Tiffany’s reported in August a 3% decline in like-for-like sales, while shares in Signet, the world’s largest retailer of diamond jewellery, have lost more than 60% of their value this year.
De Beers, the world’s No.1 diamond miner by value, has responded by axing production — with a target of 31 million carats this year compared with 35.3 million in 2018. It has also given buyers more room to maneuver, by allowing them to refuse half the stones in many of the diamond parcels.
Viewings of the 20.08-carat diamond will run from November 1 to 7 at Petra’s marketing offices in Johannesburg.
The tender will take place at the city’s Diamond Exchange and Export Centre, beginning on November 8 and closing at 12 p.m. on November 15.
Petra will report production and sales results for the September quarter on October 21st.
