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Rough Diamonds from various areas of the Ekati diamond mine.

Harry Winston Diamond Corp. is free of its jewellery and watch division, after clearing all regulatory hurdles in its sale to Swatch Group Ltd. on Thursday. But as the Canadian company changes its name to Dominion Diamond Corp. and focuses on the mining business, it is committing itself to an industry facing many challenges – from the ground to the consumer.

Several uncertainties threaten to squeeze diamond companies: Will retail growth in China grow or remain muted? Will cutters and polishers run out of credit and consolidate? Will the generally depressed share prices of mining companies continue to weigh on the diamond industry?

"It's a pretty opaque world," said Edward Sterck, a mining analyst at BMO Nesbitt Burns.

Prices for rough diamonds, which have been unstable since the 2008-9 slump, have been rising, and there are expectations that will continue. But share prices of companies such as Stornaway Diamond Corp. and Mountain Province Diamonds Inc. haven't followed suit. Both are well off their 2011 stock price highs.

But the diamond cutters and polishers (called diamantaires) are facing the most serious financing problems, according to Mr. Sterck. Much of this stems from their increasing reliance on debt to fund their businesses. "One of the big concerns has been if we see a big contraction in the availability of credit, they'll be forced to sell down product to pay down borrowings and reduce their credit," Mr. Sterck said.

Combined with the fears that more synthetic stones are entering the market, and that supply will be tightened as major mines such as the Harry Winston-owned Ekati Diamond Mine pump out fewer precious stones, it's a nail-biter for cutters and polishers whose profit margins are already tight, according to RBC Dominion Securities analyst Des Kilalea.

The good news is that diamond miners and cutters may be beginning to move away from bank debt, which Mr. Kilalea says has dramatically increased in the industry over the last decade. "In addition many bankers are concerned that debt levels are funding speculative activity in rough [diamonds], which causes price spikes and leads, very often, to losses further down the line for manufacturers who end up buying rough at prices which are not justified," he wrote in a report.

In the future there may be more consolidation in the diamond industry as retailers look to control more parts of the production process. The partnership between Harry Winston and Swatch to co-own a polished diamond sourcing venture is a step in that direction.

For Dominion Diamond, which mines in the Northwest Territories, the sale of its retail business to Swatch for $750-million (U.S.) plus $250-million in debt improves its financial standing. (The transaction should close on March 26.)

But it doesn't make the company immune to the rocky terrain ahead for diamond miners. Mr. Sterck said in a research note that "risks remain around the closing of the Ekati transaction and Ekati's near-term mine plan and cash flows."