Commodities, Features

Diamonds are forever

With prices rising since early 2020, diamonds are considered a safe haven in times of uncertainty.

At the time of their discovery, which was thought to be in India in the 4th century BC, diamonds were valued because of their strength and brilliance, and for their ability to refract light and engrave metal. 

Graph of diamond price.

Diamonds were worn as adornments, used as cutting tools, served as a talisman to ward off evil, and for protection in battle. In more recent times, diamonds have become a symbol of celebration and, as they say, diamonds are forever.

From an investment standpoint, diamond prices have been rising from early 2020 and they are considered a safe haven in times of uncertainty.

Burgundy Diamond Mines gained its name from a 15th century duchess who was presented with the world’s first diamond engagement ring in an alliance with the Archduke of Austria, creating a union that changed the face of European politics. 

Taking its lead from the Duchess of Burgundy, the company believes business and passion are the secret to forging powerful mergers and acquisitions.

The company has an option to acquire 100% ownership of the Ellendale Diamond Project, including the Blina Alluvial targets, located in the iconic diamond district in the West Kimberley region of Western Australia. Previous production at the site produced 50% of the world’s fancy yellow diamonds.

Other projects include a 40% interest in the Naujaat Diamond project in Nunavut, Canada. The project is the largest undeveloped diamond property in Canada that is not under the control of a major mining company. The project is focused on the potential value contribution from an exceptional population of uniquely coloured fancy vivid orangey-yellow stones. This is a specific and rare colour and these diamonds are expected to sell at high premiums to white diamond prices.

In addition, Burgundy has deals in Botswana with Diamond Exploration Strategies and in Peru with the La Victoria gold and silver mine.

Burgundy’s share price in March (ASX: BDM; $0.22) created a large base between 2013 and the end of 2020, when the price broke up through $0.20 to surge to $0.50 in a few months.

Graph of Burgundy’s share price.

At this level, the price had exceeded its initial expectation from the base and experienced a turning point in momentum. Since then, the price has found support above its breakout level at $0.20, churning in a slightly downward sloping range throughout the rest of 2021 and into 2022. 

The action is an attempt to rebalance the price position and there is the possibility of more fluctuations between $0.19 and $0.29 before the action is resolved. 

A rise through $0.29 would signal the potential for a new upswing for the stock towards $0.35 and $0.40, and possibly towards $0.80 and $1.00. The risk would be a fall towards support at $0.16 triggered on a drop through $0.19.

The Lucapa Diamond Company (ASX: LOM; see table below) is listed on the Australian and Frankfurt stock exchanges. A growing diamond producer with high-value-producing mines, including the Lulo alluvial mine in Angola and the Mothae kimberlite project in the Kingdom of Lesotho, a small country (population 2.2 million) surrounded by South Africa.

Graph of Lucapa’s share price.

In Australia’s Northern Territory, 720km south-east of Darwin, the company’s Merlin Diamond Project includes two tenements – a 24km2 tenement with a mining lease and a 283km2 exploration tenement surrounding the mining lease. Prior to Lucapa’s involvement, a 104 carat Type IIa white diamond was discovered at the Merlin Diamond Project in 2002, the largest diamond ever recovered in Australia.

Lucapa’s other projects include early-stage diamond exploration in Brooking, Australia, and in the Orapa Area F, Botswana.

Both the Lulo and Mothae mines produce large and high-value diamonds, generating more than 75 per cent of their revenues from the recovery of +4.8 carat stones. Lulo has produced Angola’s two biggest recorded diamonds, weighing in at 404 carats and 227 carats, respectively. 

A volatile downward path has characterised the share price action for Lucapa from 2007. 

The June 2020 low at around $0.04 saw a significant change in momentum and produced a strong rally to $0.09 over a two-month period, with the subsequent price volatility taking on the appearance of a basing phase. 

The base may not be ready for completion and more price fluctuations may develop in the $0.06–$0.11 range. A break-up from the range would suggest a test of higher resistance at $0.15–$0.17 and the potential to set a new upward path for significantly higher prices. 

After 37 years of mining diamonds in the world-famous Argyle Mine in Western Australia, Rio Tinto (see table below) has turned its focus to the Diavik Diamond mine, 200km south of the Arctic Circle, at the bottom of Lac de Gras in Canada’s Northwest Territories. 

Graph of Rio Tinto’s share price.

Here they boast some of the world’s most beautiful and sought-after diamonds, with production of more than 6.2 million carats. Through innovation, world-class engineering technologies and partnering with Indigenous peoples, the company has mined some of the world’s most ethical diamonds with minimal impact on the local land, water and wildlife. 

As an Anglo-Australian multinational, Rio Tinto is listed in London and Australia and is ranked the second-largest metals and mining corporation in the world.

Rio Tinto (ASX: RIO) exhibits a powerful long-term price history from its early days in the 1970s to its peak in June last year at $137.33. At this level, the price stalled in momentum overrun and dropped back to support around $90. A reversal developed and was completed in January this year, with the price rise to $103. 

The stock has since continued to climb towards to the peak zone, but may slow as it moves towards and through $130, and a pullback/pause action may occur before the stock can break through and achieve a new peak around $150. Support lies at $113, but a drop back beneath $107 could further delay the upward path. 

This feature appeared in the April issue of Australian Resources & Investment.

Words by Regina Meani.

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