Reviewing recent trading and management statements released by three diamond miners - Petra Diamonds (Petra), Gem Diamonds (Gem) and Namakwa Diamonds (Namakwa) - Kilalea said Petra remained RBC's "favoured exposure".
He said: "Gem's investment thesis is leverage to diamond prices until such time as a growth strategy emerges. While Gem's aim of cutting/polishing selected rough may boost returns, it is unlikely, in our opinion, to materially boost growth. We prefer Petra which has growth." Turning to Namakwa, Kilalea said: "The interim management statement offers indications of success in Lesotho and the Democratic Republic of Congo. Much still needs to be done before these projects will change the investment case for Namakwa, in our view. Short-term risks are mostly in a nervous rough diamond market at present, where prices appear to contain some speculative froth." Kilalea said many in the diamond cutting centres were expecting prices to pull back 5% to 10% because of "still sluggish jewellery sales in the United States, Europe and Japan and indications of some slowing in demand growth in China".
