 TORONTO (miningweekly.com) – Toronto-listed Harry Winston has begun to see some improvement in the pricing and demand for its share of the rough diamonds produced at the Diavik mine, in Canada's Northwest Territories, and is cautiously optimistic that the worst may be over for the diamond market, chairperson and CEO Robert Gannicott said on Friday.
Harry Winston has a particularly broad view of the diamond sector, because it not only markets its own rough diamonds, but also buys polished diamonds seperately for its high-end jewellery and watch business.
Last month, for the first time since since mid-2008, the company didn't see a decline in any of the polished diamond categories that it monitors and buys, Gannicott said.
As far as rough diamonds are concerned, there was evidence earlier this year that the decline in demand and prices had stalled, particularly for items that could be quickly turned into polished diamonds for jewellery like engagement and wedding rings.
Last month, demand was further improved across all categories, and there was also signs of increasing prices, Gannicott said.
'“Is this a bottom? We would love to think so. If it is not a bottom, it is certainly a plateau,” he said.
The fact that the people who are buying rough diamonds for polishing are coming back to the market again and are prepared to pay a bit more indicates that they, at least, have some confidence that this is probably a bottom, he commented.
Gannicott said that the apparent recovery in rough diamonds was a response to the big discrepancy that has developed between rough and polished diamond prices, when retailers and polishers destocked in the latter part of last year.
While rough prices have fallen by around 40% to 50%, the price of polished diamonds have probably only weakened by an average of between 15% and 20%, he estimated.
Polished diamonds prices have stood up well because demand for diamond jewellery has not been affected as much as may have been expected, in the economic crisis.
“People still get married, still get engaged,” Gannicott said.
Further, diamond producers have reacted quickly to curtail the supply of rough diamonds, either by closing mines or stockpiling production.
The two biggest producers, De Beers and Alrosa “have almost departed the scene”, Gannicott commented.
In fact, the global production cutbacks have probably been more severe than the decline in demand for diamonds on the retail end, he said.
“But that was intentional in that it allow the pipeline to empty out.”
POSITIVE CASH FLOW
Harry Winston owns 40% of the Diavik mine, and Rio Tinto owns the balance and is the operator.
Earlier this week, the company announced that the mine will be closed for six weeks from July 14, and then again in early December for the same period, in response to the difficult market conditions.
A project to develop an underground mine has also been delayed.
Gannicott said that he will meet with the mine management next week, for a briefing on the operational plans and expectations for this year.
He said he expects the operators will retain some flexibility to adjust production to match changes in diamond demand, but that he expects the mine will generate positive cashflow over the year.
Last month, Harry Winston agreed to sell 19,9% of the company, plus an effective 15% interest of the Diavik diamond mine, to Canadian gold-miner Kinross, for $150-million.
The deal closed earlier this week, and Harry Winston has now paid off all the senior debt that related to its mining division, Gannicott said on Friday.
Harry Winston, formerly known as Aber Diamonds, bought high-end jewellery retailer Harry Winston in 2006.
The company posted a $73-million in the three months ended January 31, after production and sales declined, and the firm recorded a goodwill write-down relating to its retail operations.
A year earlier, fourth quarter net earnings were $90,4-million.
Shares in the company fell 2,6% on Friday, to C$3,75 apiece by 15:59 in Toronto.
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