Gleam returning to diamond sector

Posted by Peter Koven - Financial Post

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Johan Dippenaar, Petra’s CEO, with the 507.55-carat diamond

Exciting discoveries and improving demand are bringing the shine back to diamonds, a sector that was almost left for dead only six months ago.

The startling recovery has even revived Canada’s dormant junior mining sector, which is being led back to prominence by Vancouver-based Peregrine Diamonds Ltd.

But the talk on Tuesday centred on Africa-focused miner Petra Diamonds Ltd., which said it recovered a spectacular 507-carat white diamond from its Cullinan mine in South Africa.

“It looks like it’s for sure in the top 20 largest high-value stones ever found in the world,” Johann Dippenaar, Petra’s chief executive, said in an interview.

Ed Note: Price in Pence


He would have been a lot less excited about it a few months ago, when the outlook for diamonds was extremely grim.

When the financial system was on the verge of collapse last year, credit for diamond polishers and wholesalers vanished overnight. Consumer demand also disappeared as recession-wary people simply stopped buying luxury goods.

As a result, wholesalers were forced into a major de-stocking phase and stopped buying rough diamonds. Prices plummeted between 50% and 60%, according to experts.

The market is now well into recovery, with prices bouncing back and optimism that a new wave of demand from Asia will propel the market in the future.

“We’re looking east towards those markets,” Mr. Dippenaar said. “Traditionally they are not big consumers of diamonds, but they will eventually become big consumers of diamonds.”

In Canada, investors have started to wade back into the long-neglected junior space over the past month because of some positive announcements.

The most notable is from Peregrine, which controls the Chidliak project on Baffin Island.

Last week, the company said that a 399-kg sample from Chidliak recovered many large diamonds, including 131 that were bigger than the 0.6-mm sieve size.

The project is still at an extremely early stage. But the results to date are raising comparisons to the Ekati and Diavik diamond mines, which were discovered in Canada’s far north in the 1990s.

“There haven’t been diamond results like this since the early-to-mid 1990s,” said Peregrine president Brooke Clements.

Peregrine shares are up more than 250% since early last week


John Kaiser, publisher of the Bottom Fish Online stocks report and one of the only analysts left covering Canada’s diamond sector, said each new disclosure from Peregrine adds to the likelihood that the company is sitting on something very significant. But the story has been largely overlooked by investors, who have lost a fortune on diamond plays over the last decade.

They are not ignoring it anymore, as Peregrine shares are up more than 250% since early last week.

“There is a possibility that this is Ekati and Diavik all rolled into one,” Mr. Kaiser said.

A couple of other Canadian diamond juniors are brushing themselves off from last year’s crash and catching the eye of investors again.

Shore Gold Inc. is back on the radar after completing a positive pre-feasibility study on its Star diamond project in Saskatchewan. That is providing confidence that the long-dormant project might finally get built, although the proposed US$1.6-billion capital cost is a concern.

Another junior, Mountain Province Diamonds Inc., struck a new joint venture agreement with partner De Beers Canada on their Gaucho Kué project in the Northwest Territories. The project was going nowhere under their previous deal, and Mountain Province has now finally started a feasibility study.

Earlier this month, Harry Winston Diamond Corp. cancelled a planned winter shutdown of the Diavik mine due to an improving market. And yesterday, De Beers Canada cancelled a similar shutdown at its Snap Lake mine.

Financial Post