Increased demand means diamond prices are just beginning to sparkle again.
Part of the reason is that the urban Chinese population (about 1.3 billion people) caught on to the trend of giving diamond engagement rings to their fiancés. This pushed diamond prices up between 5% and 10% just this year.
But it looks like this commodity might not be forever.
Continuing political turmoil and diminishing supplies at the source means the world could be seeing a diamond shortage very soon.
There are two companies that investors should take a shine to in order to get ahead of the diamond price rise.
On the political side, continuing turmoil between Russia could effect, among many other things, the production of the word’s largest diamond producer. Economic sanctions could have a grave effect on Russia’s Alrosa, which produces 27% of the world’s diamonds and holds about one-third of the diamond reserves.
But diamonds come from more places than just Russia… right?
The problem is, existing diamond mines are being rapidly depleted.
Major mines in Botswana and Canada have only about 10 years’ worth of diamonds left. And a large supplier in Australia, Ellendale, is basically shutting down at the end of this year.
What’s more, there hasn’t been a substantial diamond discovery since 1997. This has directly impacted the inventory of rough diamonds, which has been in decline since the peak in 2005.
Now here’s the good part…
With demand still rising a predicted 5% each year and supplies set to dwindle, a real crunch may develop in the diamond market starting in 2018.
Bain & Company forecasts that in 2019, production at global diamond mines will actually decline by nearly 2%. This loss of annual output is expected to continue for at least five years.
So how can investors play the looming diamond shortage?
Plus, Dominion already owns 40% of the adjacent Diavik Mine, and it’s believed to be in talks with Rio Tinto PLC ADR (RIO) to buy the remaining 60%.
Another good option is Mountain Province Diamonds (MDM). The company is in a 49%/51% joint venture with diamond powerhouse De Beers to develop the Gahcho Kué Diamond Mine in Canada. It’s the biggest new diamond mine currently under development, and some believe it has the potential to become one of the world’s top-10 diamond mines.
Bottom line is that diamonds, with strong fundamentals, look set to be a sparkling investment in the years ahead.
And “the chase” continues,