Investing in diamond equities is quite different from investing in gold equities, explains Matthew O’Keefe, vice president and senior analyst with Dundee Capital Markets, one of a handful of Canadian analysts covering the diamond space. O’Keefe says diamond deposits require “an order of magnitude” greater study than gold deposits in order to properly determine grade, and says diamond prices are almost exclusively driven by consumer demand. In this interview with The Gold Report, O’Keefe sheds some light on two undervalued diamond producers, as well as three promising developers.
The Gold Report: You’re different from most analysts on Bay Street in that you cover both diamond producers and developers. What are some key differences between gold producers and diamond producers that investors should know about?
Matthew O’Keefe: The big difference is really the drivers for the respective commodity prices. Gold prices are largely driven by currency exchange rates and the safe haven/investment demand, whereas diamond prices are about supply and demand and global economic growth. Diamonds are a luxury good that people buy in a consumer-driven economy.
China has been a big part of that story for diamonds as it moves from its investment-driven economy driven by infrastructure, which took a lot of base metals, to a consumer-driven economy, which is more about buying finished goods and includes diamonds and jewelry. China still has the highest growth rate for diamond demand, though that has weakened recently with the pullback in the Chinese economy. But that’s the biggest difference—diamonds are much more of a consumer product.
TGR: How do diamond deposits differ from gold deposits?
MO: A diamond deposit is like the ultimate “nuggety” gold deposit. These deposits require a certain level of additional bulk-sampling work and geostatistics on the capping of the gold grade. This is similar to diamonds but with diamonds, because they’re lower …read more