How do you go about investing in diamond mines and diamond Juniors? Of course investing in diamonds by purchasing from jewelers is not the best way since one is maying a premium for the diamonds which may take years to recoup. But investing in diamond mines and diamond juniors can be a different story provided some study and due diligence is done.
Diamond have the potential to withstand economic fluctuations and downturns as well as inflation, currency devaluations and other financial issues that can disrupt the price of oil or precious metals such as gold. As an enthusiastic example of this, IQ just recently applied with the SEC to launch a physically backed, with diamonds, Diamond Fund.
So let’s look at the types of diamond investment available.
Diamond Auction Sales
One can buy diamonds directly through diamond auction houses. Usually one has to be a dealer to do that but, more importantly, one has to know a lot about diamonds. Being able to assess the value of a bag of diamonds, both cut and uncut is vital as is the ability to trade and negotiate a price. One is not so much investing in diamonds here as trading in diamonds. Provided one knows what one is doing and has plenty of experience and knowledge in the field this can be a satisfactory way to make money. But if one is simply buying bags of diamonds to keep and expect them to increase in price, that is a bit iffy and with the expertise a poor way to invest in diamonds.
Diamond juniors are more concerned with exploration and these types of companies are high risk but potential high reward. One of the main components of diamond juniors is strategy. What does a particular diamond junior plan to do and how do they plan to do it? What costs are involved and what is their plan to bring new sources of supply into the diamond arena? Checking the business plan and proposal is vital. Diamond deposits are extremely hard to locate and the odds against locating one is very high. Quite apart from the existing market and price of diamonds, this is what you would call a highly speculative investment.
Much of the capital is spent up from with companies spending “a quarter of a million dollars every time it drills a hole in Northern Canada” according to William Lamb, CEO and president of Lucara. The costs vary of course but that is the ball park figure and amounts just either side of that figure are not unusual. Consequently it is the larger miners with the larger cash reserves and established deposits that can afford to venture forth seeking new deposits. And if a deposit is found, then there is the cost of establishing and working the mine which can take years. Also there is no guarantee that the mine is going to be profitable long term.
Of the 6,500 kimberlites discovered since the 1800s, fewer than 50, or less than 1 percent, have become profitable mines, according to one statistic. So the results of a diamond juniors mining success is very risky. If it pulls it off it can be extremely profitable for the investors but they should be fully aware of the odds and not invest funds they cannot afford to lose. Treat it like a lottery. The chances of winning are extremely remote, but if you do win….
Existing Diamond Miners
It can take anywhere from two to four years to being a new diamond mine online and producing profitably. Existing diamond miners have the advantage here as they have existing mines in operation and producing revenue, have the capital to expend on further exploration and setting up new mines and often have the equipment and labor on hand saving additional costs there also. An existing mining company can often afford to ally with a diamond junior if they consider the diamond junior has found a promising lode or kimberlite.
When it comes to investing in diamond mining companies such criteria as the value using earnings with the market ascribing a multiple to determine a fair price can be applied to companies producing an asset of course which usually precludes diamond juniors.
A number of factors which potential diamond investors can use to assess diamond companies include the size and potential of the company. What other diversity are they engaged in, such as precious metal or base metal mining. The structure of the company. The potential of the diamond mine or mines. The type quality and quantity of gem stones being produced. the quality of the gem stones being produced. The location of deposits can affect the time and expense afforded by the company and this can have a bearing on the potential. Also to be considered is the segregated nature of the diamond deposits. These can range from kimberlite pipes, fissure systems, alluvial deposits in river systems and in the sea. Of course factors such as the strategies employed security measures etc all play a part in the initial assessment of choice in deciding who to invest in.
So when it comes to investing in diamond mines and diamond juniors there is a lot to consider and work through before one decides to invest in a diamond mining company junior or not.