Rapaport has labeled 2016 as “The Year Trust Returned to the Diamond Trade” and in our article evaluating what analysts foresee for 2017, industry analysts painted 2016 as on the rebound, and a likelihood of increased sales and diamond production in 2017.
To find out what this meant to diamond miners, we asked Dunnedin Ventures (TSXV:DVI) CEO Chris Taylor and Lucara Diamond (TSX:LUC) CEO William Lamb for their thoughts on 2016 and expectations for 2017.
Despite the optimism stated by analysts, Lamb told us that, “2017 is going to be a tough year for the rough producers,” while Taylor anticipates that positive retail sentiment will, “trickle down through the rest of the industry, all the way to production and would be good for the industry as a whole.”
Investing News Network: At the end of last year what did you expect from 2016?
Chris Taylor: There was some decreased Chinese demand that led to profit margin pressure on the cut and polished stone segment of the market. Going into 2016 the mid-tier companies cleared their inventories and I think they were buying up again after they pushed all that supply unto the market in 2015, early 2016. There was better profitability on the rough stone production side in the first half of 2016, but the net effect was a decline of maybe 15 percent in prices from 2014 levels.
William Lamb: With the recovery of the two very large diamonds, we were looking at a very exciting year. At the end of the year, we were still unsure about the sales process or what the potential value of the diamonds was (one of which we are still working on), but all in all, it was great end to 2015 with many prospects in 2016. We have set a new record for revenues generated in a single year at $295 million USD and we still have two exceptional diamonds to sell — the 1,109ct Lesedi La Rona and its sister, the 374 carat piece of the original stone. The marketing public exposure the company received boosted our market cap and share price to all time highs while we continued with business as usual in Botswana.
INN: What was the highlight of 2016 for you?
CT: 2016 was a bit of a turning point for us — we had a couple of positive surprises. By working with our advisor, Chuck Fipke, we used some of the methods that he pioneered at Ekati and we did a till sampling program across our property. What that identified was a number of new, potentially diamond-bearing source. For the first time on our property, in addition to the high grade kimberlite dikes that we were already familiar with, we now have a number of kimberlite pipe targets that also are generating diamond indicator minerals.
Looking at the data, we also have a number of gold-bearing metasediment formations that are present at the project, and those gold-bearing units were later intruded by the diamond bearing kimberlites. Ours is the only location in the world that I am aware of where you see diamond-bearing kimberlites coming up into a pre-existing gold system.
WL: There are many. The mine passed the 5,000,000 hours without a Lost Time Injury which is an amazing achievement and is testament to the culture on site. We set a world record for the highest value paid for a rough diamond at $63.1 million for the 813 carat Constellation diamond. 2016 was also the year where the Company paid back more in total dividends that the entire sum of money ever raise in the Capital Markets.
INN: What do you expect for the diamond sector in 2017?
CT: Sales of diamond jewelry do tend to follow a broad retail sale cycle, so if retail sales are generally doing well because of good economic underpinnings, diamond sales tend to do commensurately well. I would anticipate that there is quite a bit of optimism around the broad economy now in a post-Trump election era. I would say that if the economy is doing well, particularly in the US which is a major portion of the diamond market, you would have strong demand for diamond goods and you would have upward pressure on prices. So I anticipate that will trickle down through the rest of the industry, all the way to production and would be good for the industry as a whole.
WL: 2017 is going to be a tough year for the rough producers. Looking at the rough volumes sold into the market during the year, coupled with the polished diamond index being as low as it was in Jan 2010, we have a pipeline which is very full. Adding the events in India to this and it does not paint a bright picture. There is, however, a silver lining in the demonetization may assist with selling down the polished inventory and returning the diamond market to a more balanced supply demand business.
INN: What excites you the most about 2017?
CT: We have submitted our multi-year exploration permit application to the Nunavut Planning Commission for kimberlite bulk sampling and drilling. In 2017, we expect to recover enough tonnage of kimberlite from three or four bulk samples to assemble a thousand carats of diamonds that we’ll then evaluate to determine what the commercial value of our diamonds is. News that we expect to generate over 2017 includes drilling to expand our maiden Inferred Resource beyond the 4 million carats of diamonds we have already published, identification of additional diamond targets through ongoing exploration, and bulk sampling of the kimberlites to determine diamond values. We may also see additional areas where there is gold mineralization in the host rocks,based on the gold mineralization observed in historical work on our project and at the adjacent Meliadine gold mine of Agnico Eagle Mines.
WL: One of the learnings coming out of the Lesedi La Rona auction is that it is very difficult for even skilled diamantaires to imagine the size of the polished the stone will yield. We are currently conducting a detailed analysis on the diamond which will enable a more accurate assessment of the value. We plan to go back to the market in the first half of the year with the stone again. We will also be completing two capital projects which allows us greater flexibility in the plant through the implementation of additional XRT units.
INN: What advice do you give diamond investors most frequently?
CT: I would look for stories where you have proven results on the diamond side and good indications that there’s potential for additional discovery. In terms of diamond mining, I’ll speak to a Canadian context — the best place to go and look for diamonds is where you’ve already found the big diamonds, and projects like ours where you have populations of attractive diamonds and big diamonds. Those are the places that should be attracting investment dollars first. So much of the Canadian diamond exploration industry takes place in very, very remote areas in the Canadian Arctic. We are up in the Arctic but we are quite close to infrastructure — the targets that we’re working on are very close to an all-season access road to the Meliadine Gold Mine, for instance, and the project is equidistant between two communities. That reduces our exploration costs.
WL: When one looks at the diamond industry and how Lucara fits into it, we have a very select value distribution. When everyone else if shouting about decreases in the price of diamonds, we only see a small fraction of this affect Lucara’s revenue stream. The production of large and exceptional diamonds provides the company with a level of risk management not seen by most other producers.
INN: Apart from your own company, are there any other companies you think our investor audience should be following closely in 2017?
CT: I’ve been following Kennady Diamonds (TSXV:KDI) for several years, and two of our directors are also directors of Kennady Diamonds. Kennady has recently published an Indicated Resource for one of their kimberlites. That’s a great story people should follow and a good company to pay attention to whose growth we definitely aim to emulate.
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Securities Disclosure: I, Pia Rivera, hold no direct investment interest in any company mentioned in this article.
Editorial Disclosure: Dunnedin Ventures is a client of the Investing News Network. This article is not paid-for content.
Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in contributed article. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.