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Diamond production & price

When you open a good stock market text book, one of the first things one can learn is how to identify the long-term trend and how to follow it. This is the first step towards a good investment and that is why for almost 10 years, I have suggested you that the long-term trend is on resources. I have advised oil and geothermal energy in the beginning in 2009 because energy in general (oil, gas, coal, uranium and renewable energy ...) is the heart of a resource based investment strategy. However it is not the unique possibility. Depending on your investment strategy, there are many other opportunities to complement, diversify, improve your investment in the resource sector such as metals, mining, agriculture, water, etc.
I can not be as certain about diamond today as I was for the oil during the winter of 2009, for the platinum in autumn 2008 (I will come back soon on the Platinum) or for zinc and gold in the spring of 2009. Indeed the situation is somewhat different and more complex. Additionally, information about the diamond is rare, but I think the diamond deserves much more attention from an investor point of view.

There are two ways to tackle the diamond topic. First with a pessimistic approach, one can think that the diamond is not unlimited as the production of natural diamond is threatened by the production of synthetic diamond and the slow down is the demand (basically those who thinks that the end of the diamond is now).
The second approach is to assume that the demand for natural diamond is like for the gold one, very unlikely to disappear, and therefore one should look for the mines which will be able to sustain supply.
Without synthetic diamond, the diamond price would simply be even higher. In fact it has been decades since the natural diamond alone is not enough for the rising demand. New applications in the industry using diamond are still increasing and the offer of natural diamond is limited. One produces 3 times more synthetic diamond in the world than natural diamond as shown on Figure 1. It is also interesting to notice that there is no difference between the production of natural and synthetic diamond. When there is a demand for diamond, both production curves are moving in the same direction.

Figure 1. Synthetic and natural diamond (*3.3) world production from 1988 to 2007
Production has declined slightly in 2008 and it will probably be the trend (even stronger) in 2009, although the figures are not yet available. Doubts are already there, all major producers have decreased their production sharply in early 2009. Diamond has suffered from the crisis all around the world except in China. China together with India are the future market for diamonds since even at the peak of the crisis the demand for diamonds there remained strong.

Figure 2
In South Africa, diamond production began more than 130 years ago and in many other African countries it has been extracted for almost a century. In Brazil diamond production started in the early 18th. In Russia, the intensive exploitation of diamonds began in the fifties. Since the early 90s the new Eldorado of the diamond is Canada (Northern Canada) in the coldest and most isolated regions. It is very expensive to build a diamond mine, the new diamond mine projects are worth the pharaohs’ pyramids with prices easily exceeding the billion dollars of investment. The largest producer of diamonds in the world (the equivalent of Rockefeller in the oil world), which has dominated production for over 130 years, has completed, in 2007, two mega projects in Canada. Despite the fact that its major production activity has been taking place in Africa (land of diamond) since a century, it did not seem concerned about the sustainability of the global demand for the shining stone and instead strongly invested in it.

Dr Thomas Chaize
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