While it may feel like Groundhog Day in New South Wales and Victoria right now, investment markets continue to move.
Late last week, attention turned to US Federal Reserve (The Fed) Chair Jerome Powell, who spoke about the outlook for the US economy, and for financial markets, in light of the spread of the Delta variant of COVID-19.
For some time now, market players have expected The Fed to announce that they would soon taper their quantitative easing program, which would involve The Fed printing less money going forward.
Turns out we aren’t likely to see meaningful change for some time to come, as The Fed noted that there were still considerable risks in the economy, and that they weren’t too worried about higher rates of inflation, even though inflation is over 5% per annum in the United States right now.
This lack of urgency from The Fed suggests that those inflation rates, and the fear of higher inflation, are likely to persist for some time to come.
Higher rates of inflation are of course one of the catalysts (though not the only one) that we think will support much higher pink diamond prices in the years to come, alongside the continued attention that this asset class is continuing to generate.
Why Argyle is irreplaceable
Last week, we shared some insights from an article in The Australian, which focused on the closure of the Argyle Diamond Mine, and the final Argyle Pink Diamonds Tender, which is being showcased to investors and select Ateliers at this very moment.
This week, our attention turns to the West, where a feature article (see headline image below) provides even greater detail on the history of the Argyle Diamond Mine, how long it took to put into operation, the volume of diamonds produced, and even how the Argyle brand itself was built over time.
Most importantly, the article highlights why pink diamonds continue to offer such a compelling investment opportunity today.
The article provides a rich and detailed history on how the Argyle Diamond Mine was first conceptualised, and then eventually built. It turns out that as far back as the 1940’s, there were geologists suspecting that the Kimberly region of Western Australia where Argyle is located had similar features to the terrain accompanying the high-profile diamond discoveries in South Africa.
By the early 1970s, diamonds were found, but commercialisation was still a further decade away, as it wasn’t until 1979 that it became clear just how vast the deposit was.
Even then there were a few more years of exploration and feasibility studies to come, with commercial production at the Argyle Diamond Mine commencing in the early 1980s, some forty years after geologists first hypothesised such a discovery was out there, waiting to be found.
There is a critically important lesson in that multi-decade timeline for investors – as even if another diamond deposit were found somewhere in the world – it would likely take decades before it could be commercially mined.
Make no mistake, The Argyle Diamond Mine is irreplaceable, and a proud part of Australian history.
The article also highlights just how rare pink diamonds are, with just over one million carats of rough pink diamonds produced in the entire history of the Argyle Diamond Mine.
This comes to just over 0.1% of the total diamonds produced, given more than 850 million carats of rough diamonds were extracted from the Argyle Diamond Mine prior to its closure last year.
This extraordinary volume, most of which was categorised as either colourless, or champagne, helped differentiate where the real value, and the true investment opportunity lay, with the article noting that; “the immense value and rarity of the pinks, blues, violets and reds, was clear from the moment they were found.”
The fact these diamonds have appreciated by approximately 600% since the year 2000 (a point the article also makes), attests to that immense value, something that more and more investors are realising every day.
The key takeaway
While the story of the Argyle Diamond Mine itself, and the last ever Argyle Diamond Tender are generating all the attention at present, it’s the investment implications that really matter going forward.
To that end, this excerpt from the article will resonate with investors, including clients at Australian Diamond Portfolio, with the journalist noting that (bolded emphasis ours): “the legacy of these diamonds will endure, and their value only increase, not simply due to their rarity, brilliance and mysterious alchemy, but because of the astonishing story behind them.”
As Rio Tinto minerals chief executive Sinead Kaufman notes in the article; “this is not where the Argyle story ends, it is the beginning of a new one, of a robust secondary market as Argyle diamonds continue to be bought and sold and they establish their potential as a finite unrepeatable natural resource.”
We couldn’t agree more, and it’s why we remain convinced that the 20% plus price gains that we’ve seen in the pink diamond market in the last year are just the beginning, with much higher prices to come this decade.
As always, we hope you’ve enjoyed this week’s edition of “In the Loupe” and look forward to any questions or comments you may have.