US Edition Gem Diamonds
267p +¼
Questor says HOLD
The company has been granted a 25-year licence for its Gope project in Botswana. The cash value of the diamonds in the area has been estimated at about $3.3bn (£2.1bn) by analysts.
It is likely that the mine will have to be underground rather than open pit because of the large amount of "overburden". This means that the diamondiferous material is not close to the surface. More detailed guidance on how it will be developed will be given alongside the company's full-year numbers on March 15.
The diamonds market showed a substantial recovery last year – with the price of rough stones now at a higher level than in 2008, before the credit crisis really started to bite. Prices have now risen by about 90pc since their nadir during the crisis.
The bull case for diamonds is one of limited supply set against rising demand. No substantial new mines have been discovered for decades – and Asian consumers are starting to get a real yen for diamonds. Previously, the US market consumed about half of all diamonds mined.
However, prices are not expected to rebound by as much during 2011. "We believe 2011 is going to be a solid year. We don't think it's going to be as good a year as 2010e_SLps because in 2010 you had all the restocking by the American retailers," Varda Shine, the head of De Beers' sales division, said yesterday in an interview with Reuters.
Questor actually recommended buying into the shares too early. They were first recommended as a buy at 290¾p on January 7, 2009 – and the shares are now sitting 9pc below this level, compared with a FTSE 100 up 34pc. However, they have also been tipped as a buy at 233p and this represents a remarkable recovery from their lows.
The rating on the shares remains a hold for now – and Questor's preferred way of playing the diamond recovery is in peer Petra Diamonds, which has a much stronger growth profile.
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