As you may know, I’m flat out following developments in Davos and will have plenty to share in the weeks ahead. I’m fully focused in the Alpine discussions so today’s Worldview comment comes to you from Jackie Cameron. In this piece she goes digging for diamonds, and assesses why they might not ‘be forever’ as investors dump London-listed SA miner Petra Diamonds. And the sell-off looks to be company-specific as Chinese millennials are set to boost demand in the east as diamonds are the new status symbol. – Alec Hogg
By Jackie Cameron
UK asset manager M&G Investment Funds has been offloading shares in Petra Diamonds, the South African miner listed on the London stock exchange (ticker: PDL). Petra Diamonds announced on 16 January that an open-ended investment fund in the M&G stable had reduced its stake to just under 5% in indirect voting rights.
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M&G won’t divulge the reason for trimming its holding. Quite possibly it was spooked when company chairman and founder Adonis Pouroulis offloaded £2m in shares in the mining company shortly after the company cancelled its dividend for the year.
With a market cap of about £835m, PDL has had a bumpy, unpredictable ride on the stock market – also not an encouraging sign for risk-averse investors. A trading update will be provided on 23 January.
The share sales follow a period in which the company has been painting a rosy picture about its future. Petra Diamonds plans to become free cashflow positive by the second half of the year, it said in its 2016 annual report. The mining company with interests in South Africa, Tanzania and Botswana says it has provided guidance to analysts that capital expenditure should be on a declining trend following a peak in FY 2016.
However, highlighting the fickle nature of the diamond sector, Pouroulis said production was up 16% in 2016 while revenues were only up 1%, with higher volumes offset by rough diamond prices. The company cites a slowdown in retail demand, in particular in China, among reasons the diamond market has been under pressure.
Chinese demand for diamonds seems likely to grow. While Petra is contributing to generic diamond marketing campaigns, others in this sector – from other producers to jewellery manufacturers – are also keeping China’s consumers excited about real gems.
Where jade has been the adornment of choice, young Chinese people are increasingly opting for diamonds as a status symbol. A few years back, when I lived in China, I was struck by the conspicuous trend of men wearing diamond engagement rings to match their fiancées’ fingers.
Last month, Bloomberg detailed how the Chinese consumer appetite for diamonds has evolved. No longer primarily a purchase gifted by a loved one to demonstrate relationship commitment, a diamond is also a show-off fashion accessory and even investment for some.
Chinese millennial women, aged 18 to 34, are not waiting for offers of marriage before wearing diamonds. They pay for rings, pendants and necklaces for themselves. De Beers – world’s biggest diamond producer – estimates millennials now account for two-thirds of diamond jewellery sales by value in the most-populous country.
While the gems sparkle with opportunity for Chinese consumers, the future is evidently less certain for Petra Diamonds investors who might find better bets elsewhere. That’s if you read into the signals coming from M&G’s Laurence Pountney Hill headquarters in central London and Petra Diamonds’ very own chairman.
