Engineering and Mining Journal - Whether the market is copper, gold, nickel, iron ore, lead/zinc, PGM, diamonds or other commodities, E&MJ takes the lead in projecting trends, following development and reporting on the most efficient operating pr
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22 E&MJ; • DECEMBER 2015 www.e-mj.com REGIONAL NEWS - AFRICA Paragon's Lesotho Projects to Focus on High-value Diamond Production For all their status as a coveted jewel, dia- monds have never really matched gold as an investment quality mineral; some wealthy investors now, however, are betting that this is set to change. U.K.-based Paragon Diamonds is devel- oping the Lemphane and Mothae projects in the tiny mountain kingdom of Lesotho. Among the company's backers is a consor- tium of well-connected Gulf Arab investors who intend to acquire gems as a store of long-term value. "These investors are connected to the royal families of the UAE and Saudi Arabia," said Hugo Philion, a member of the management team at Paragon. "Through them, we will be talking to some very interesting people who want to acquire our sizeable supply of large investment grade diamonds direct from the mine, and who are intent on making Dubai the No. 1 diamond center in the world." Through Dubai-based International Triangle General Trading, the investors have made a debt and equity package of up to $28 million available to Paragon. The company expects to begin mining early next year. Although regarded as precious, dia- monds have generally been a commodity mineral, Philion noted. Sold to consumers for wedding rings and to industry for cut- ting tool bits, they have also been a notori- ously poor store of value. According to industry benchmark Rapaport Diamond Index, prices of stones have fallen by as much as 80% in real, inflation-adjusted terms over the last 30 years, as reported by the Wall Street Journal . At the same time, analysts have complained that that the scarcity of dia- monds has long been an artificial construct devised by South African producer De Beers, which has dominated the industry for more than a century. A seller of a dia- mond ring, for example, will be lucky to get $0.10 on the dollar compared to what a jeweler originally sold it for. Critics say there are gems aplenty, and besides, they can now be manufactured to a standard nearly indistinguishable from the real thing. "On a real basis adjusted for infla- tion, the performance of most diamonds has really not been that impressive compared to other asset classes," said Paul Zimnisky, a New York-based independent diamond ana- lyst and consultant, via email. There's another view, however. Some believe that diamonds—or at least their supply—may not be forever after all. In particular, the high-end quality stones could vanish from the market as fewer are found. "Only the highest quality, rarest, most desired diamonds have outperformed: the blues, the pinks, the reds and larger flaw- less whites," Zimnisky said. "With the price point of these diamonds starting in the high-tens and hundreds-of-thousands of dollars, the investor base is limited." "Limited" in this sense is a relative term. Paragon's Philion is confident there are enough high-net-worth individuals out there who are looking for added investment items to add to their portfolios. He points to the opening in September of the world's first exchange for physically settled dia- monds—the Singapore Diamond Invest- ment Exchange. This is the first time that diamonds can be bought and sold through brokers in a similar way to other commodi- ties; traditionally, sales have been through individuals and based on a handshake, with no trace of the actual price settled to help other buyers determine market level for different types of stones. U..K.-based Paragon Diamonds plans to bring two projects into production in Lesotho in 2016. (Photo: Paragon Diamonds)