Diamond industry set to lose its sparkle
MINING experts have raised concerns about the future of the diamond industry in sub-saharan Africa due to the cancellation of global diamond auctions as a result of coronavirus-imposed travel restrictions. Fiona Perrotthumphrey, a senior mining adviser, at Rothschild in the UK, this week warned that the mining sector entered the coronavirus (Covid19) pandemic in worse shape than the 2007/8 global financial crisis. Perrott-humphrey said the same could however not be said about the diamond industry where the margins had been poor for a number of years.
She said junior diamond miners had been highly leveraged and there was a lack of bank finance for the industry for some time.
“It is the unprecedented shock of travel bans and lockdowns that have brought the regular diamond auctions to a halt. It appears that this industry will not emerge in the same shape,” Perrott-humphrey said.
De Beers, one of the world’s biggest diamond producers, last month said that its third sales cycle of 2020 was not held due to Covid-19-related restrictions on the movement of people and products. The company provided customers with the flexibility to defer all their allocations from Sight 3 until later in the year.
De Beers revised its production guidance for 2020 to between 25 million and 27 million carats down from a previous estimate of between 32m and 34m carats, subject to continuous review based on the disruptions related to Covid-19 as well as the timing and scale of the recovery in trading conditions.
Perrott-humphrey said it was not all doom as the pandemic had resulted in the rally of the gold price.
“The unprecedented monetary and fiscal stimulus by governments is expected to keep interest rates lower for longer. This has stimulated investment demand for gold. With weak currencies, producer countries have recorded their highest prices of gold in recorded history including South Africa,” she said, referring to the gold rand price reaching R1 million a kilogram last month.
Covid-19 has rattled the mining industry in South Africa with companies announcing plans to reduce capital expenditure, and some withdrawing their production guidance for 2020.
Some, including Village Main Reef, announced plans to reduce their headcount while a number of executive directors announced they had opted to take salary cuts.
Perrott-humphrey said going forward investors would focus on the manner in which governments interfered in mining companies.
“Investors consider political risk as one of the criteria when they look at investing in mining companies.
“This crisis has brought this into focus as governments can absolutely dictate how an individual company and industry operates.
“There will be scrutiny on which governments they (investors) trust and which they do not.”