GEMGUIDE - 1 - SEPTEMBER / OCTOBER 2017

DOMINION DIAMOND TAKE OVER

Dominion Diamond Corporation, owner of 90% of theEkati diamond mine and 40% of the Diavik diamondmine in northern Canada has been bought out by the

Washington Group Companies which is a North Americanmining, industrial and transportation business founded by in-dustrialist and entrepreneur Dennis R. Washington. The salewas finalized in July for a reportedUS$14.25 per share or in total approxi-mately $1.2 billion. The transaction repre-sented a 44% premium to Dominion'spre-taker over value of $9.92 on March17, 2017. Washington has already ap-pointed Patrick Evans as the CEO to re-place the already departed BrendenBell.  As of June he was the CEO ofMountain Province Diamonds, a DeBeers’ joint-venture partner in the Gah-cho Kué diamond mine in the Northwestterritories of Canada. “Having operated amining company in the Northwest Terri-tories, Patrick already has a familiaritywith the region and strong relationshipswith local officials and indigenous lead-ers,” Washington Companies presidentLawrence Simkins said. Washington rep-resentatives have at this point stated itwill be business as usual for Dominionand they will continue to run it as a sep-arate business entity.

RUSSIAN DIAMOND MINING DISASTERAt the begging of August, rescue teams were still searchingfor eight workers missing in a Russian underground mineowned by the world’s largest diamond miner, Alrosa. Themine is known as ‘Mir’ which is the Russian word for peaceand is in the remote and inhospitable Yakutia region of east-ern Siberia. Soviet geologists discovered the first diamonddeposits at the site in the 1950s. Mir accounts for 9% of Al-rosa's rough diamond production of gem quality diamonds.Alrosa said production at the mine had been halted. Risks forAlrosa's total output are limited because its other mines canincrease production if needed.

The water flooded into the mine shaft from an open-castmine pit above. A total of 134 miners out of the 142 minersthat were down in the mine at the time of the disaster werebrought to the surface after the flood started. No casualtieshave been reported so far, however, chances are slim that theeight missing miners could still be rescued.

This is not the first time Alrosa has had issues with safety atMir and the Russian papers are again reminding their readersof a mine shut down due to safety risks in September of 2012due to non-compliance with industrial safety requirements.In the report of the inspector Rostekhnadzorit, it was revealedthat the work on the construction of the drainage at 210 me-ters of the mine was being “conducted with a significant de-viation from the existing design documentation, laggingbehind the construction schedule, the construction of non-project water drain schemes, the liquidation of water mani-festations in panels without project justification and thenon-compliance with the design specification of the equip-

DIAMOND MARKETJon C. Phillips, GG (GIA), CG (AGS)

Just when we thought we could sit back and enjoy a cool drink on the deck with friends this summer themarket news has exploded. A mining company take over, workers are missing in a flooded Russian mineand rough prices rise as polish prices hit a ceiling.

DIAMOND MARKET

FIGURE 1. The Mir mine in Russia. Source: Alrosa website.

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GEMGUIDE - 2 - SEPTEMBER / OCTOBER 2017

DIAMOND MARKET

ment being installed.” Rostekhnadzor went on to state that,“these violations pose a threat to life and health of people,”and suspended the mining works at the 210 and 265 meterslevel of the Mir mine for 30 days.

Vladimir Dyukarev, who was the first vice president and gen-eral director of Alrosa from 1995 to 2002, was quoted as say-ing, "Alrosa had certain, problems related to thedesign and construction of underground minesand primarily the Mir Mine. It's no secret thatthe geological structure of the diamond depositsis not simple, there are also cryogenic factors(permafrost and defrost), high methane satura-tion, and bituminous manifestations, as well asaggressive salt and water brines in the case ofwaterlogging. Plus there were high risks of ac-cidents, so the likelihood of emergency situa-tions to be reduced to an acceptable level alsorequired additional funds. This picture to manyspecialists was clear even in the beginningyears, and now I believe, the majority will agreewith me.” At the time of writing, Russian author-ities were looking at pressing criminal chargesfor the recent negligence.

IS IT A HARD CEILING OR A SOFT CEILING?Polished diamond prices continue to remain rel-atively stable while rough prices have increasedin some areas (better qualities) and have fallenslightly (lower qualities) in others. We are seeinga slight comeback for princess cuts and the definite trend ofelongated fancy cut stones doing better than the popularsquarish stones of just a year ago. So, rectangular cushionsand radiants are doing better than square cushions and radi-ants. I believe this will influence the popularity of ovals andpear shapes bringing them up as well. Excellent cut GIA re-ports on fancies are very popular and even the chain storesare stocking 30-50-70 point fancy shapes for this fall. Thiscould be the year of the fancy shape but only if they are cutwell! The Chinese market is showing some life again andIndia is still adjusting to the new tax and also the demonetiz-ing of large bank notes. Most Indian dealers are sitting withlarge polished inventories.

There is a lot of rough in the market during these summervacation months but most of it is not moving as it is sitting in

vaults rather than being polished. The summer shutdownsare in full swing with many dealers looking for a well-de-served break. The secondary market is also very quiet for thesame reasons. Antwerp was recently shocked by bankseizures of assets and to also find that three well known In-dian dealers were fined millions of dollars regarding conflictdiamond smuggling.

Antwerp World Diamond Council (AWDC) just publishedfor the year 2017 to date (Jan.-July), that the volume ofrough exports has increased nearly 19% to 77.8 millioncarats compared to the same period a year ago, whilefalling 2% in value to $7.7 billion. A similar trend is foundon the import side, as rough volumes increased nearly3% while their value has fallen by 13%. An independentindustry analyst wrote recently, “Producers have beenunloading excess inventory consisting of primarily lower-quality goods and have seen their average-price-per-caratfigures skewed lower so far this year despite raisingprices on a like-for-like basis. For example, De Beers hasseen over a 20% decrease in average price per carat soldin H1 2017 over H2 2016, but has alluded to a 2-4% in-crease in their “average price index” over the same pe-riod of time.” u

n

Low: Q1 2009

High: Q2 2011n

Zimnisky Global Rough Diamond Price Index10 Year Quarterly

Last Value: 154.610 Year Change +38.4 (33.7%)

Starting Index Value: 100 on April 4, 2004

© PaulZimnisky.com, 2017

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

235

200

167

133

100

65

Inde

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Note 1: Starting Index Value: 100 on April 4, 2004; All values nominal More information can be found at RoughDiamondIndex.comNote 2: Quarterly data based on value on first Saturday of calendar quarter Please read full disclosure belowNote 3: Retroactive revisions to index data are made on a quarterly basis © Paul Zimnisky.com, 2017

typically after public miners release official quarterly sales figures