In the media

Rising diamond prices bode well for Lace mine

06 June 2013


Rising diamond prices bode well for AIM quoted mine developer DiamondCorp (LON:DCP), which is planning to ‘test the market’ in the coming months.

For five consecutive months rough diamond prices have risen and they are now at the highest level for almost two years.

According to reports prices for rough stones are up around 9% in the year to date, compared with lagging polished diamond prices.

Experts say this is a sign that confidence is returning to the diamond market, which had been among the first to slump amid cut backs during the financial crisis.

It is predicted that polished diamond prices will soon show a similar recovery as consumer confidence returns to the 'high end' luxury market.

Analysts believe this will prove to be great news for junior diamond companies like AIM’s DiamondCorp (LON:DCP) which is (re)developing the Lace mine in South Africa.

Once up and running Lace is expected to yield 500,000 carats per year, with first revenues anticipated in the second half of 2014. And crucially, thanks to a recent agreement with American jewellery firm Tiffany, the remainder of the development work is fully funded.

Like the rest of the sector, however, DiamondCorp shares have endured a tough eighteen months or so.

But, as diamond prices are improving and the start of production is on the horizon, DiamondCorp is now planning to test the market, by selling packages of diamonds gathered in previous bulk sampling programmes.

This is scheduled to happen in the coming months.

Given the apparent trend in the marketplace it has the potential to buoy DiamondCorp’s valuation during this pivotal pre-production period, according to Carole Ferguson, mining analyst at SP Angel.

“I think that would be good news for DiamondCorp because the last valuation was [based on] $60 per carat, which is what we’ve used in our ‘base case’ models, but in the past there have been higher assumptions of up to $170 per carat,” she said.

“So I think if they do test the market it will be good news.”

“It will help reinforce people’s expectations that, when the company starts producing diamonds, it will be a good quality package [of diamonds].”

SP Angel, broker to the company, rates DiamondCorp as a ‘buy’ with a punchy 23p price target – which is almost 500% higher than the current price of just 3.88p.

“We feel the stock is very undervalued. They are not producing, they’re going through the development phase. And the market doesn’t want to give them credit for that [work] yet.

“There has to be more newsflow on how the development is going, but, work only got underway earlier this year.”

“It is an undervalued story, particularly if you believe in the supply-demand fundamentals for the rough diamond market.”

Ferguson highlights that generally across the sector share prices have fallen back a lot after last year, which was a bad for diamond prices.

She explains there were worries about what was going to happen, with low consumer confidence in the two big consumer markets of America and Japan.

Some companies had also disappointed in terms of actual operations as well, she said. “There was, to some degree, a lack of credibility and investor confidence.

“So I think an improving diamond market is going to be helpful, but you do have to look all the companies on a project-by-project basis.”

“What is interesting is that last year we only saw high prices for high quality or big stones.”

“But now, this year, in the rough market at least, prices are rising across the board. The prices for smaller stones are going up as well.”

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