Johannesburg - A weakening Indian rupee is likely to
contribute to volatility in rough diamond prices for the rest of the year, but
longer-term price prospects are bright, the chief executive of London-listed
miner Gem Diamonds said.
Clifford Elphick, who formed Gem Diamonds in 2005, said
prices would eventually resume their upward trend because of the simple fact
that demand will continue to exceed supply.
“There’s no question that the volatility in Europe is having
an impact, and on top of that the appreciation of the dollar against the rupee
is a big issue,” Elphick said in an interview.
“But at the end of the day, supply and demand determine
price and I’m confident that prices will get better,” he said.
“There are only so many diamond mines, and the population of
the world is wanting ever-more diamonds... people are consuming diamonds more
than they are being mined.”
India is the world’s biggest importer of rough diamonds and
vies with Japan and China as the second-biggest consumer of polished diamonds.
However, a 6% decline in the value of the rupee against the
dollar since January has made it more expensive for Indians to import raw
diamonds, while exports of cut diamonds are being restrained by the eurozone
Economic growth in India has also slowed markedly.
Rough diamond prices fell sharply in the second half of 2011
as markets tumbled and investors retreated. Prices stabilised in the first few
months of 2012 but have since turned volatile.
“In the very short-term, between now and October-November,
we may well be in for choppy rides as confidence disappears,” Elphick said.
“Prices will continue their upward trend over the long term,
definitely over the medium term. Over the short term, I can’t be so confident.”
Elphick’s optimism about the longer term is shared by BMO
Capital Markets, which said earlier this month that it expected rough diamond
prices to rise by between 3% and 7% a year from 2013.
Gem Diamonds said earlier this week that initial production
at its Ghaghoo mine in Botswana, which is under development, would be delayed
until the first half of 2014, following a ground collapse that killed two
Elphick declined to say when he expected operations to
return to normal at the site.
“They’re not back to normal today; they may well be quite
soon,” he said. “I don’t want to get back to normal operations if there is any
risk of such a thing happening again.”
Production at Ghaghoo was scheduled to start in 2013 at an
initial rate of 100 000 carats per year, rising to a peak steady-state
production of 780 000 carats per year, according to the company’s website.
Gem Diamonds has two mines in production, the Letseng mine
in Lesotho and the Ellendale mine in Australia.
The company considered buying the Ekati mine in Canada
earmarked for potential sale by BHP Billiton [JSE:BIL] last year but decided
not to proceed.
A deal could have edged Gem closer to FTSE 250-listed Petra
Diamonds or even put it ahead of its rival in a sector dominated by giants De
Beers - soon to be majority-owned by Anglo American [JSE:AGL] - and Russia’s
Gem Diamonds, which counts upscale jeweller Tiffany &
Co among its customers, continues to
explore options for the Ellendale mine, famous for its prized yellow diamonds.
“This is a mine that has a short life,” Elphick said. “It
probably has another three or four years of life to it, and short-life
operations are not really what we want to have in our portfolio,” Elphick said.
“If a buyer emerged at the right price, we would certainly consider an offer.”
Gem Diamonds’ shares, which have fallen about 18% over the
past 12 months, have risen 4% since the beginning of this year. They closed at
200.5 pence on Wednesday on the London Stock Exchange.