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RAPAPORT... RBC Capital Markets delivered a somber message to the diamond market Thursday, saying pricing and demand are likely to soften before they improve. “While lower production will start building a floor under prices, we see little prospect of any significant improvement until well into 2009 and expect more juniors to cut back or leave the sector,” RBC analyst Des Kilalea wrote.
Kilalea published the research note following the recent London Mines & Money conference. He noted that a deeper concern was the lack of liquidity in the sector and diamantaires’ inability to gain credit. Raising capital, he maintained, will be extremely difficult. This was particularly evident in the diamond sector, as the diamond companies that presented at the conference suggested that current rough diamond prices are now too low to cover their costs.
This has impacted demand, as evidenced by smaller De Beers sights in December and by companies such as Gem Diamonds and Rockwell Diamonds cancelling their end-of-year sales. More diamond mining juniors announced this week that they are cutting back on output or suspending operations to cope with falling prices. De Beers and ALROSA started the trend in October by committing to cut production to match lower levels of demand in the market. Others, including Kopane Diamonds, DiamonEx, KimCor, Mwana Africa, BRC DiamondCore and Petra Diamonds, have adjusted their production as a result of weaker rough prices and rising costs.
NC
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