Harry Winston , immortalized in Marilyn Monroe's Diamonds are a Girl's Best Friend , announced Wednesday that it has cancelled a planned winter shutdown at Diavik Diamond Mines in the Northwest Territories because the market for diamonds is improving. Here's a look at why bling is back:
"Talk to me Harry Winston, tell me all about it" The recession exacted a harsh toll on diamond producers and retailers, causing "a near collapse" of the market. But consumer confidence is starting to come back and prices are firming up, the Canadian-based diamond supplier and retailer said.
"We are pleased to be able to resume our regular supplies of Diavik diamonds to our valued customer base," Robert Gannicott, chairman and chief executive officer of Harry Winston Diamond Corp., said, in announcing that the mine is now back in full production after a summer shutdown. Plans are now in the works to expand production.
"We do not foresee a return to extreme conditions that would warrant a further shutdown."
In a conference call last week, Mr. Gannicott said demand is picking up and prices are regaining some of their lustre.
"Our July rough diamond sale realized price is a full 50 per cent higher than those seen in March, [showing]that the diamond pipeline regained its poise after the near collapse of the previous six months," he said in the conference call.
World demand is picking up, even in tough times Mr. Gannicott said strong demand from Asia and India has boosted prices and sales, although it hasn't been enough to make up for the slump in the United States.
Australian diamond mine owner Joseph Gutnick, of Legend International Holdings, also reports that demand for the gem has started to improve after dropping significantly during the global financial crisis. But while people are starting to buy diamonds again, they are buying less expensive diamonds, Mr. Gutnick said in an interview with the Australian Broadcasting Corp.
"They were going to buy two-carat diamonds in good times, they buy one-carat diamonds now," he said.
"But they always buy diamonds. It's a girl's best friend."
Marilyn Monroe couldn't have agreed more "He's your guy when stocks are high,
But beware when they start to descend.
It's then that those louses go back to their spouses.
Diamonds are a girl's best friend."
What the analysts say
"We view the decision to operate through the winter to be a positive sign for operations and for the diamond market," analyst Tanya Jakusconek of National Bank Financial said in a research note Wednesday. "Our initial guesstimate is that the reversal of the shutdown could increase production to approximately 6 million carats for calendar 2009 versus our previous estimate of 5.5 million carats."
In an earlier report earlier this month, Ms. Jakusconek noted that prices were beginning to show improvement.
The Diamond Trading Company, which sells roughly 40 per cent of the world's uncut diamonds through an arcane bartering process called sight sales, reported sight sales of $323-million (U.S.) in April, $548-million in June and $350-million in July. This was "a significant increase" over the first two sight sales of the year, which were reported at $129-million and $142-million respectively, Ms. Jakusconek wrote, but were well down from sales in the $750-million range in the prior year.
"Diamond polishers have been eager to purchase rough diamonds, which are still restricted in supply [because of world-wide production cutbacks] leading to firmer prices in the second quarter," she wrote.
The outlook: Holiday season should add shine to sales
"As the market heads into the busy holiday season, it is expected that the shortages will lead to further upward price movement," Ms. Jakusconek said in her research report. "The company [Harry Winston]indicated that polished diamond demand continued to be resilient in the Far East and a cautious return of interest from U.S. buyers was noted."
Analyst John Hughes of Desjardins Securities also registered cautious optimism in a recent research note.
"Although market conditions remain difficult for producers of both rough and polished diamonds, Harry Winston management indicated jewellery manufacturers are beginning to slowly restock their inventories and rough diamond prices appear to be stabilizing."
Rio Tinto PLC, joint owner of Harry Winston's Diavik Mine, has also recently announced plans to resume production at its Arygle Mine in Western Australia in response to recovering demand. Argyle supplies about 20 per cent of the world's new diamonds and 90 per cent of prized pink diamonds, used only in jewellery.
And Debswana, a joint venture between diamond mining giant De Beers and the Botswana government, has resumed production at three of its four mines in Botswana after reducing its inventories.
But financial results still far from sparking
Harry Winston, which owns 40 per cent of the Diavik diamond mine and 100 per cent of Harry Winston Retail, reported a second quarter loss of $24.5-million, or 32 cents a share, compared with profit of $49.9-million, or 81 cents a share, in the corresponding period a year earlier. The mining segment recorded sales of $46-million, a 56-per-cent decrease from the corresponding period a year earlier, while the retail segment reported a 40-per-cent decrease in sales to $48.8-million.
Harry Winston, which operates retail "salons" around the world, said it expects the operating environment to remain challenging for the remainder of the year.
However, Harry Winston added, "many retailers are anticipating fourth quarter sales to improve over last year's disappointing holiday season."
The news of Harry Winston's decision to cancel its winter shutdown played well with investors, with shares up almost 4 per cent to $9.52 (Cdn) in mid-day trading on the Toronto Stock Exchange. This was well up from its 52-week low of $2.19 earlier this year, but well below its 52-week high of $20.75.