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.
The U.K.’s financial regulator has added a small diamond pricing firm to its roster of companies managing market benchmarks, opening the way to making the precious stones a more investable asset.
The Financial Conduct Authority has authorized U2 Diamond Prices Ltd. as a benchmark administrator, joining firms such as FTSE International Ltd. and ICE Benchmark Administration Ltd. The move will allow financial institutions to offer products that reference its pricing.
While there have been many attempts to turn diamonds into an investable financial asset, few have succeeded with transparent pricing often one of the biggest hurdles.
“It opens the door to creating diamond-linked financial products from which all other commodities have benefited for a long time,” said U2 Chief Executive Officer Geoffrey Wyatt.
There have been attempts create diamond investment vehicles stretching back to at least the 1980s, when Thomson McKinnon Securities Inc. introduced a product. The company folded after the 1987 stock market crash. Since then, multiple companies have launched various products, with few gaining traction. Diamond Circle Capital Plc was the first publicly listed fund to invest in the gemstones, but shuttered in 2012.
Many of those funds focused on high-end diamonds, often as large as 10 carats. While those stones have held their value better than smaller gems, they are often illiquid and hard to price. U2 has been providing diamond pricing for more than 15 years using transactions from traders and manufacturers. It will provide indexes based on diamonds sized at 0.3 carats, 0.5 carats and 1 carat, as well as composite indices.
One hope for the industry is that creating a physically backed diamond product could spur new demand for polished diamonds and help reverse a slide in prices that has gone on for years. The polished diamond industry is worth about $25 billion a year.
“Diamonds have performed poorly as an asset class,” said Wyatt. “The creation of financial products will allow a whole new source of money to invest in diamonds, that should increase both demand and prices. This will be new money that can come into the industry and provide a new distribution channel.”
(By Thomas Biesheuvel)
