Stornoway Diamonds is seeking a buyer after the weak market forced the miner to enter insolvency for the second time in just over four years.
Deloitte Corporate Finance is conducting the sale and investment solicitation process (SISP) for the Stornoway’s entire business, property and assets, the professional services firm said Tuesday. The miner, which operates the Renard deposit in Canada, has insufficient liquidity to operate and is in “a precarious financial situation,” Deloitte explained in a filing at the Superior Court of Quebec.
Stornoway reported a net loss of CAD 13.1 million ($9.6 million) for the nine months that ended September 30, according to the court documents. That compares to a profit of CAD 42.2 million ($30.7 million) for the full year of 2022.
“[India’s] unilateral ongoing import freeze and ongoing downward pressure on price[s] since March 2023…have resulted in a dramatic loss of revenue for Stornoway, and [have] seriously impaired Stornoway’s ability to sell its inventory at acceptable and profitable market prices,” the filing stated.
Prices for the company’s rough have been progressively decreasing throughout the year, Stornoway noted. From a total of six sales held since January, the miner has seen prices fall from $118 per carat to $82 per carat.
“Management estimates that Stornoway’s working capital is not sufficient to allow it to meet its financial obligations, commitments and necessary budgeted expenditures for the foreseeable future,” the filing said.
Last month, Stornoway halted operations at Renard, laid off 425 of its 500 employees, and filed for creditor protection as it sought to weather the slowdown.
This is not the first time Stornoway has faced liquidity issues. In 2019, the miner was forced to sell the business to its major lenders after accumulating debt it attributed to “continued downward pressure” on the rough market.
Stornoway currently lists assets of about CAD 287.3 million ($209.6 million) from inventory, property and plant equipment, cash and other sources.
Ahmed bin Sulayem, who this week was elected to take charge of the Kimberley Process, a multilateral body tasked with cleaning up the diamond trade, said any proposed scheme “must take into account African diamond producing nations” such as Botswana, the Democratic Republic of Congo and South Africa.
But the Emirati warned that a Belgian proposal to put restrictions on the international trade of diamonds, which the G7 is considering adopting, “falls well short of this important goal”.
The EU’s chief diplomat Josep Borrell last week said the bloc was set to move ahead with a ban on Russian diamonds after securing sufficient backing from the G7 group of developed nations.
The diamond dispute is only the latest rift between Europe and African capitals. A ministerial meeting set for next week has been postponed after officials decided there was little chance that the two sides would agree on a joint communiqué containing language regarding Israel’s war against Hamas and Russia’s war in Ukraine, according to three people briefed on the discussions.
When the world’s most important diamond buyers arrived at De Beers’ offices in Botswana late last month, they were presented with a rare offer by their host: the option to buy nothing at all.
De Beers markets its rough diamonds in a series of tightly scripted sales, where handpicked buyers are normally expected to take all their contracted allocations at a price set by De Beers, or face potential penalties in the future. But with prices in free fall around the world, the one-time diamond monopoly has been forced to allow more and more flexibility, finally removing the restrictions altogether.
The concessions are the latest in a series of increasingly desperate moves across the industry to stem this year’s plunge in diamond prices, after slowing consumer demand left buyers stuck with swelling inventories. De Beers’s great rival, Russian miner Alrosa PJSC, already canceled all its sales for two months, while the market in India — the dominant cutting and trading center — had self imposed a halt on imports.
At the recent De Beers sale, its buyers, mostly from India and Antwerp, seized on the unusual flexibility, between them buying just $80 million of uncut gems. Normally De Beers would have expected to shift between $400 million and $500 million at such a sale. Outside of the early days of the pandemic — when sales were halted altogether — the company has not sold so few gems since it started making the results public in 2016.
The speed and severity of the collapse in diamond prices caught many by surprise.
The industry had been one of the great winners of the global pandemic, as stuck-at-home shoppers turned to diamond jewelery and other luxury purchases. But as economies opened up, demand quickly cooled, leaving many in the trade holding too much stock that they’d bought for too much money.
What looked like a cool down quickly turned into a plunge. The US economy, by far the industry’s most important market, wobbled under rising inflationary pressure, while key growth market China was hit by a real estate crisis that sapped consumer confidence. To make things worse, the insurgent lab-grown diamond industry started making major gains in a couple of key segments.
While there are many different diamond categories, broadly prices for wholesale polished diamonds have tumbled about 20% this year, firing a more dramatic fall in rough — or uncut — stones that have plunged as much as 35%, with the steepest declines happening though late summer and early autumn.
The industry’s response was to choke off supply in an almost unprecedented way, which finally seems to be working.
Prices at some smaller tender sales and auctions have risen between 5% and 10% in the past week as shortages of some stones start to emerge. With Indian factories set to reopen next month after prolonged Diwali closures, there is now renewed confidence that the worst has passed.
“The diamond industry has successfully taken action to stabilize things,” said Anish Aggarwal, a partner at specialist diamond advisory firm Gemdax. “That now creates a window to rebuild confidence.”
The plunge in diamond prices has coincided with weakness across the luxury space. LVMH Moet Hennessy Louis Vuitton SE, the luxury titan with 75 labels ranging from Christian Dior to Bulgari, has disappointed investors this year as China’s recovery underwhelmed and demand from US consumers cooled, with the stock shedding more than $100 billion in value since mid April. On Friday, Cartier owner Richemont reported a surprise decline in earnings as revenue from luxury watches unexpectedly fell and high-end consumers reined in spending.
Yet there are specific peculiarities to the diamond industry that make it more vulnerable to slowing consumer demand. De Beers sells its gems through 10 sales each year in which the buyers — known as sightholders — generally have to accept the price and the quantities offered.
When prices are rising, as they did for much of the past two years, these buyers are often incentivized to speculate, betting that paying for unprofitable stones now will pay off if prices continue to rise. Buyers are also rewarded for making big purchases by being given bigger allotments in the future, known in the industry as “buying for position.”
These mechanisms often lead to speculative bubbles, which pop when consumer demand slows and polished diamond inventories build up.
In response, Alrosa stopped selling diamonds altogether for two months, while the Indian diamond sector introduced a halt on imports that will run to mid December. De Beers has allowed its customers to refuse all purchases without it having any impact on the future allocations for its last two sales of the year.
While the two dominant diamond miners have a long history of curtailing supply or letting buyers refuse some goods when demand weakens, the speed and scale of the combined actions is extremely unusual outside of a major crisis such as the outbreak of the pandemic.
While prices have stopped falling — and in some areas rising again — much will depend on the crucial holiday season, which spans from Thanksgiving to Chinese New Year, and how the big miners who have accumulated large stocks of unsold gems feed them back into the market.
There also remains uncertainty in the industry about how much of the slowdown is being driven by macro-economic weakness, versus a more worrying shift in consumer choices. Lab-grown diamonds have made rapid progress in some key segments of the market, while there are lingering concerns in the industry about whether Gen Z consumers look at diamonds the same way as previous generations do.
“We expect there to be some cyclical recovery in the diamond markets,” said Christopher LaFemina, an analyst at Jefferies. “But we believe there are also structural issues here that could lead to weaker than expected demand for the longer term.”
Australia’s Lucapa Diamond has unearthed a 235 carat type IIa diamond from its prolific Lulo mine, the second largest recovered at the Angola operation since it opened in 2015.
The find comes barely a week after the recovery of a 208 carat diamond at the same mine, which is the third-largest ever recovered from Lulo.
The new diamond was dug up from Mining Block 550, immediately south of Mining Block 19, which Lucapa said is the area that has yielded eight precious rocks over 100 carats to date.
Not surprisingly, the mine is considered the world’s highest dollar per carat alluvial diamonds operation, in which Lucapa has a 40% interest. The rest is held by Angola’s national diamond company (Endiama) and Rosas & Petalas, a private entity.
The partners have now recovered 40 diamonds weighing more than 100 carats and four over 200 carats at Lulo. In 2016, only a year after beginning commercial production, Lulo produced the largest ever diamond recovered in Angola a 404 carat white stone later named the “4th February Stone”.
“Lulo continues to demonstrate it is a prolific producer of large diamonds. To unearth three +100 carat diamonds with two being over 200 carats in such a short space of time from different areas of the concession, makes us more determined to find the primary source, by dedicating even more resources to the exploration program,” Lucapa managing director, Nick Selby, said in the statement.
Angola is the world’s fifth diamond producer by value and sixth by volume. Its industry, which began a century ago under Portuguese colonial rule, is successfully lessening government regulations and restrictions in favour of a greater participation by private entities.
De Beers has signed an agreement with South Africa’s National Union of Mineworkers (NUM) that will avoid a threatened strike at the Venetia deposit.
The deal will provide workers at the South African mine with a wage increase of 7% in 2023, De Beers said last week. The employees will also receive a 6% hike in each subsequent year until April 30, 2028.
Workers will also be able to participate in the Employee Share Ownership Plans (ESOPs), it explained.
De Beers reached the agreement with NUM with the aid of the Commission for Conciliation, Mediation and Arbitration (CCMA) following four months of failed talks during which the NUM set out 10 initial demands. Three of those — related to shifts and overtime — were tabled, while six others have been settled. The wage debate was the only outstanding issue, but the breakdown in discussions drove NUM to plan a strike at the deposit. The agreement affects 1,500 of the mine’s workers.
“We are pleased that we reached a favorable outcome following a very tough negotiation process against the backdrop of challenging market conditions that continue to have an adverse impact on our business and the overall diamond industry,” said Moses Madondo, managing director of De Beers Managed Operations, which oversees the company’s mines in South Africa and Canada. “The agreement provides a measure of certainty to our employees for the next five years as we focus on ramping up the underground mine at Venetia, which is set to extend the life of mine to at least 2046.”
Visit rapaport.com/sanctions for facts and support. Martin Rapaport will fast for three days next week — Tues.-Thurs., Nov. 7-9 — to protest WDC’s support for Kimberley Process that certifies Russian diamonds. Trade is urged to fast for one day, Tuesday, Nov. 7, as WDC and KP meet in Zimbabwe. Prices of rounds stabilizing; 1 ct. RAPI +0.3% this week but -2.2% for Oct. Fancies still falling. Surat factories to close for three weeks over Nov. 12 Diwali holiday. NY DDC to hold Israel trade week Nov. 27-30.
Lucapa Diamond has recovered a 208 carat diamond at its prolific Lulo mine in Angola, the third largest ever found at the operation.
The company said the high quality, type IIa diamond was unearthed at the lizeria, or terrace area, of its Mining Block 31 portion of Lulo, known for delivering high value stones.
The diamond is also the second 100 carat plus stone Lucapa retrieved in October, following the recovery of a 123 carat, type IIa rough at the start of the month.
The mine, which hosts the world’s highest dollar per carat alluvial diamonds, began commercial production in January 2015. Only a year later, it delivered the largest ever diamond recovered in Angola a 404 carat white stone later named the “4th February Stone”.
Lucapa finds Lulo mine’s third largest diamond It is the second 100 carat plus diamond found at Lulo in October. The operation has delivered 39 diamonds weighing more than 100 carats each to date.
Lucapa has a 40% stake in the Lulo mine. The rest is held by Angola’s national diamond company (Endiama) and Rosas & Petalas, a private entity.
Angola is the world’s fifth diamond producer by value and sixth by volume. Its industry, which began a century ago under Portuguese colonial rule, is successfully being liberalized.
Stornoway Diamonds has suspended operations at its Renard mine in Canada amid the prolonged slowdown in demand for rough.
“The growing uncertainty of the diamond price in the short and medium term, coupled with the significant and sudden drop in the price of the resource on the world market, has had a major impact on the company’s long-term financial situation,” Stornoway said Friday. “This was in part due to the halt in the import of rough diamonds to India, and [in part to] the global geopolitical climate.”
The company will put Renard on care and maintenance to “preserve the assets and facilitate a rapid return to normal operations,” it explained. It will keep 75 of its 500 workers on staff to perform necessary tasks.
Stornoway will also seek creditor protection under the Canadian Companies’ Creditors Arrangement Act (CCAA), which allows financially troubled corporations owing more than $5 million to restructure their businesses and avoid bankruptcy. As part of this effort, the miner is “implementing a process for soliciting investment and sale proposals,” it added.
The Indian diamond-manufacturing sector announced in September that it was implementing a two-month moratorium on rough imports, from October 15 to December 15, to help reduce some of the oversupply that has built up in the midstream due to weak industry demand.
This is not the first time Stornoway has sought creditor protection under CCAA. In 2019, one of its creditors, Osisko Gold Royalties, acquired and revived the company during a restructuring process. Under the new ownership, the miner restarted operations in 2020 following a six-month halt due to Covid-19.
Botswana’s state-owned Okavango Diamond Company (ODC) has temporarily halted its rough stone sales as part of an industry-wide drive to reduce the glut of inventory caused by lower global demand for jewelry, its managing director Mmetla Masire said on Tuesday.
ODC, which reported a record $1.1 billion in revenue in 2022, holds 10 auctions a year to sell its 25% allocation of production from Debswana Diamond Company, a joint venture between Anglo American’s (AAL.L) De Beers and Botswana, in terms of the partners’ gem sales agreement.
Debswana produced about 24 million carats last year, with ODC getting an allocation of about 6 million carats.
The company has cancelled its November auction and a decision on the December sale is still to be made as the industry battles slowing demand for cut and polished diamonds in the U.S and China, Masire said.
“For the first time, we have had to build up inventory as we do not want to just irresponsibly release goods into a market which is already oversupplied,” Masire said in an interview. “For now, we have stopped the auctions, we will decide on the December auction.”
Last month, trade bodies in India, which cuts and polishes 90% of the world’s rough diamonds, urged members to halt rough diamond imports for two months to manage supplies and aid prices due to weak demand.
In August, De Beers said it would allow its customers to defer some of their purchases for the rest of the year.
As part of a new agreement between De Beers and Botswana, ODC’s allocation is set to rise to 7 million carats. Masire said the company was working on introducing contract sales, a model that De Beers uses to sell 90 % of its supply, among other new sales channels.
“We are still to decide on what percentage of our allocation will be sold through contract sales to complement our auctions,” Masire said. “We are likely to have two-year sales contracts and we are looking at going into partnership with only a limited number of buyers so that we can better serve them.”
The diamond sorting center in Mirny, Sakha Republic, Russia, November 14, 2013.
De Beers has put its weight behind the World Diamond Council (WDC) plan for sidelining Russian goods amid continued controversy over the competing proposals.
“In pursuit of a collaborative, coherent and collective solution that supports the aims of the G7, we have joined with 22 diamond-industry organizations through the World Diamond Council to progress the ‘G7 Diamond Protocol’ proposal,” De Beers CEO Al Cook wrote in an open letter to Group of Seven (G7) leaders on Thursday. “
The protocol — one of a few plans for keeping Russian diamonds out of G7 nations — calls for importers to declare on invoices that stones do not originate from mining companies operating in Russia. The companies making the claims will undergo audits.
While the WDC-led proposal has received wide industry support, it has also drawn criticism for creating a burden for small-scale industry members — including by Rapaport Group Chairman Martin Rapaport.
One other plan, from the Belgian government and supported by the Antwerp World Diamond Centre (AWDC), proposes using technology to confirm the source of goods, with the European city as a suggested center point for the trade of stones with known provenance.
Two further proposals — from India and a French jewelry group — were also on the table at a G7 meeting on Thursday, Reuters reported.
In another letter earlier this month, the African Diamond Producers Association (ADPA) attacked the process for not consulting people on the continent and claimed some of the plans would harm its members and artisanal miners. It highlighted the “G7 Certificate Scheme” — an apparent reference to the Belgian plan — as well as the WDC protocol.
“The proposed changes will bring supply-chain disruption, added burden, and costs to the ADPA mining nations,” the ADPA wrote in the October 13 letter to the Zimbabwe Minister of Mines and Mining Development, Soda Zhemu, who is chairing the Kimberley Process (KP) this year.
The plans will set a precedent for segregating diamonds by origin and damage producing countries’ ability to cut and polish their rough, the group argued.
In the case of the Belgian proposal, “additional costs will be incurred when a parcel of rough diamonds needs to be first shipped to Antwerp to then be reshipped to the country of origin to be polished,” said the Angola-based ADPA, which represents 19 countries that together account for 60% of global rough production.
Efforts to sift Russian diamonds out of G7 markets have taken on momentum since the bloc — which comprises Canada, France, Germany, Italy, Japan, the UK, the US, and the European Union — pledged to “work closely together to restrict trade” in those goods in May.
Where Are All the Russian Diamonds?
However, while there has been agreement about the need to stop Russia obtaining diamond revenues to fund its war in Ukraine, the process of implementing this has proven complex.
“Throughout our discussions, two things have been clear: why we should do this is easy, but how we should do it is hard,” said Cook.
The executive called for G7 leaders to obtain input from the industry and not exclude relevant groups, including artisanal miners.
“We look forward to further engagement with the G7 around the World Diamond Council proposal and urge those that have submitted proposals to work together to create an effective and practical solution,” Cook continued.
The industry had expected any measures to go into effect in January 2024. However, that schedule is now looking unlikely, JCK reported Friday, citing sources involved in the plans.
“We fully agree with Al [Cook]’s view that the results of our efforts to meet the G7 objectives should be collaborative, coherent and collective,” said WDC executive director Elodie Daguzan in a statement to Rapaport News. “In [the] WDC’s own words, it is what we call ‘an industry proposal that is effective and implementable now and that leaves no one behind.’ Also, we understand that the statement made by ADPA is not against the WDC-facilitated protocol but rather against the G7’s objectives without engagement with African producers.”
