(MENAFN- ProactiveInvestors)
The title of the 1971 James Bond movie “Diamonds are Forever” doesn’t really work when you consider many of the world’s major mines are in decline.
The stones already dug out of the ground will outlive us by a mere two or three million years which is as close to forever as makes no difference.
But that doesn’t mean we’re going to keep finding new stones.
Aside from the Diavik Mine in Canada which started producing in 2003 there have been no important new discoveries since the early 1990s.
Just thirty significant diamond mines are operating in the world today.
Meanwhile the long-term consumer demand story remains intact.
The sparkling gemstones remain the ultimate aspirational purchase.
So as the middle classes of developing economies such as China and India continue to grow and become wealthier demand will continue to tick upward.
Essentially it’s become a market where supply struggles to keep pace with demand.
That’s good news for the miners already digging.
During the next ten years growing GDP and urbanisation in emerging markets plus shifting consumer tastes are set to drive rough diamond demand according to analysts at Bain & Company.
The firm expects global demand for rough to grow annually by a rate of 5.9%.
But research from Dominion formerly the Harry Winston Diamond Corporation shows diamond supply from existing or new mines is expected to grow annually by only 2.5% until around 2018 when production is expected to level off and probably decline.
Miners therefore are in the enviable position of operating in a consolidated sector with a large and competitive client base.
Three miners - De Beers part owned by Anglo American (LON:AAL) Russia’s Alrosa and (ASX:RIO LON:RIO) – accounted for 80% of world supply by value in 2013 according to Kimberly Process diamond statistics with thousands of manufacturers vying for their rough.
“If you look at the iron ore market the tanks are being filled with new projects” said Kieron Hodgson analyst at Charles Stanley Securities.
“The same can’t be said for diamonds; there just aren’t as many new projects in the hopper.”
This means existing diamond miners have become incredibly attractive for long term investors as they operate in an environment that supports price growth.
What’s more in a worst case scenario any price decline would be limited.
However the market can be tough to access.
Polished diamond prices vary widely depending on a diamond's carat colour clarity and cut.
Investing in a supplier seems to make more sense.
“In our view Petra Diamonds (LON:PDL) is a suitable long-term risk adverse investment” said Hodgson.
“The firm has a number of key projects coming to fruition; it can generate considerable amounts of cash and has made dividend commitments."
The most important characteristic of the firm according to Hodgson is that is has seven different mines a huge portfolio of assets by diamond mining standards and can produce everything from white crystals to coloured stones.
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