Diamond Business Loses Luster -- WSJ
April 04 2020 - 3:02AM
Dow Jones News
By Alexander Gladstone
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (April 4, 2020).
The diamond industry faces a reckoning, with mines and
processing centers closed due to the coronavirus pandemic and
demand threatened by a looming global recession.
Market leader De Beers, a unit of Anglo American PLC, has
canceled a diamond auction, its third planned for this year, after
its second auction ended in early March with sales down 28% from
last year's event.
Meanwhile, smaller mining companies such as Petra Diamonds Ltd.,
Dominion Diamond Mines and Mountain Province Diamonds Inc. confront
rising risk of financial default after virus concerns led them to
close their mines.
As miners and processors try to survive the downturn, the retail
side of the business is also struggling with jewelry stores around
the world closed because of the pandemic.
An average-quality one-carat diamond now carries an average
retail price of $5,300, down from $6,200 in 2015, according to Paul
Zimnisky, the founder of research firm Diamond Analytics.
"Now is a great time to buy a diamond," said Edahn Golan, who
runs an Israel-based diamond market-research firm. "But it is also
a difficult time to buy a diamond," he said, referring to store
closures.
Even before the Covid-19 outbreak, prices for both rough and
retail diamonds had been sagging due to a supply glut coupled with
declining marriage rates among millennials.
Also, in India, where roughly 95% of the world's diamonds are
cut and polished, a multibillion-dollar banking scandal linked to
prominent jeweler Nirav Modi caused banks to hold back on credit to
diamond processors.
With the credit crunch already cutting into Indian processors'
demand for rough diamonds, all diamond processing came to a virtual
halt after Prime Minister Narendra Modi last week declared a
national three-week shutdown of nonessential businesses and
government offices.
"The industry was in a fragile place to begin with, and the
virus is a major blow," Mr. Zimnisky said. "The whole supply chain
is frozen."
Mr. Zimnisky's diamond-price index, based on aggregated prices
for rough diamonds globally, has declined 11% year-to-date and is
down more than 21% over the past five years.
Jersey-based Petra Diamonds, which operates mines in South
Africa, Botswana, and Tanzania, said March 27 that it has hired
Rothschild & Co. and Ashurst LLP as financial and legal
advisers to evaluate strategic options for addressing near-term
debt maturities. Days later, Petra said that Adonis Pouroulis, the
company's founder and chief executive, had stepped down from the
board after 23 years with the company.
Dominion Diamonds, a private company operating in Canada's
northern territories, told bondholders on a conference call
Thursday that it is quickly running out of cash, according to a
person familiar with the matter.
The value of Petra's $650 million in bonds has fallen to just 25
cents on the dollar while Dominion's $550 million in bonds are down
to 48 cents. Another Canadian diamond miner, Mountain Province, has
bonds trading at 73 cents, according to MarketAxess.
Rising unemployment amid the onset of a global recession also
threatens to mute a recovery for the diamond industry even after
the virus curve is flattened and production and processing
rebound.
"The diamond market is facing an unprecedented challenge in the
complete collapse of diamond jewellery retail sales during the
Covid-19 pandemic, " said Edward Sterck, an analyst at BMO Capital
Markets, in a March 30 note. "We think that the closure of a
significant number of jewellers globally and a lack of consumer
buying interest will this time necessitate significant cuts to
diamond supply, which have not yet happened."
Write to Alexander Gladstone at alexander.gladstone@wsj.com
(END) Dow Jones Newswires
April 04, 2020 02:47 ET (06:47 GMT)
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