The rapid spread of the coronavirus pandemic worldwide has squashed diamond miners’ hopes of a recovery in a sector that has been severely hit by weak prices and demand since 2018.
The market began suffering from the effects of the COVID-19 spread in early March, and measures to contain it have already pushed De Beers, the world’s largest diamond producer by value, to cancel its April sales event.
Russia’s Alrosa, the world’s number one diamond producer by carats, is studying options for online trade as global travel restrictions make traditional physical inspection of gemstones impossible.
Smaller producers, however, have been forced to make more extreme decisions, suspending guidance for the year and halting operations. Mines in South Africa, Lesotho and Canada have been put on care and maintenance for at least a few weeks to stop the spread of the virus.
According to VTB Capital’s estimates, increasing mining disruptions put at risk 2.5% of the rough diamond supply expected for the year.
What are the challenges some diamond stakeholders facing?
Canada’s Lucara Diamond (TSX: LUC) said on Wednesday, April 1, 2020, that it continued to operate, but acknowledged that the extent of how COVID-19 might change the business landscape was impossible to predict.
The company has also suspended production and sales outlook for the year. It had guided recoveries of between 370,000 to 420,000 carats for 2020. Sales had been estimated at between 350,000 to 390,000 carats, generating $180 to $210 million in revenue.
“The global diamond industry is experiencing the widespread impacts of COVID-19 throughout the value chain, manifested as fewer sales, weaker pricing and production curtailments at several mines,” chief executive director, Eira Thomas said in the statement.
“Though the Karowe diamond mine continues to operate according to plan, and the first quarter 2020 sale achieved results within expectations, the full impact of COVID-19 on our business remains uncertain,” Thomas added.
Petra Diamonds (LON: PDL) also had to halt its production outlook for fiscal 2020 after closing its mines in South Africa for a mandatory 21-day lockdown aimed at tackling the worsening coronavirus pandemic.
Ruby and emerald miner Gemfields (LON: GEM), which returned to the London Stock Exchange in February 2020, has suspended “all but critical operations” at its Kagem mine in Zambia and cancelled an upcoming auction.
“Rough diamond supply disruptions are mounting and might be amplified by precious metals and gems repository Gokhran’s slated acquisition of between $0.5 and $1 billion Alrosa’s rough diamonds this year”, said Dmitry Glushakov, VTB Capital’s head of metals & mining research.
According to Liberum analyst, Ben Davis, the cuts, however, are not enough to help the market swing to undersupply.
Davis said output cuts would reduce supply by around 12% and that, even if prices go up, as a result, small miners remain in dire straits.
