Cheap diamonds are getting cheaper, and one miner is taking action.
London-based Gem Diamonds Ltd. is halting production at its Ghaghoo mine, which produces diamonds at the lower-end of the price scale, until profitability is more feasible. A 32 percent decline in the price of its diamonds over the last two years emphasized “the weak state of the diamond market for this category,” the company said in a statement Thursday.
Gem Diamond’s shares, which fell as much as 4 percent in early trading, were little changed at 1 p.m. in London. The market has been calling for Ghaghoo’s closure for some time as the mine would not have generated expected returns, Panmure Gordon analyst Kieron Hodgson said by phone.
Gem has already taken a $40 million write down on Ghaghoo, whose name derives from its extremely remote location within the Central Kalahari Game Reserve, resulting in a net loss of $26.6 million in the first half of last year.
The global diamond market has been hit by oversupply and a drop in demand from India. Anglo American Plc’s De Beers, the world’s biggest diamond producer, has saidthe country’s surprise move to ban higher denomination currency notes is hampering demand.
A ramp-up of production at a number of other mines is also putting pressure on the cheaper end of the diamond market. “A further 7-8 million carats of lower value diamonds is expected to come into the global market over the next 18 months,” Hodgson said.
Panmure Gordon has a 156 pence price target and a “buy” rating on Gem Diamonds.