UK-listed diamond producers are not being dragged down by Lucara's (LUC:TSX) auction flop where last night (29 Jun) it failed to sell the world's second largest gem-quality diamond. Analysts had expected the 1,111 carat stone, discovered in November 2015, to fetch at least $70 million but Lucara's reserve price wasn't met.
The surprise outcome may raise questions about whether this year's recovery in diamond prices is sustainable. So far investors don't appear to be worried with Gem Diamonds (GEMD) up 2.1% to 119.55p and Petra Diamonds (PDL) advancing 4.5% to 116.75p in mid-morning trading (30 June). Lucara fell 14.5% to C$3.35 following the auction news.
Lucara’s chief executive William Lamb blames the auction failure on the way potential buyers came up with their own valuations. He says they looked at the possible sales price based on the stone being polished and sold in the retail market.
The Lucara boss says no-one had ever previously sold a rough diamond via a public auction. The usual sales process involves a tender where you have to make a sealed bid with no chance to increase your price based on what others have submitted.
'Our preference is for the diamond to go to a private collector and not be polished,' he says. 'It would lose its uniqueness by being polished. We had people almost in tears when they saw the diamond in the auction showroom. It is like seeing the Mona Lisa. It is a once in a lifetime opportunity for a collector to own it.'
The miner may now lend the tennis ball-sized diamond to museums before attempting another sale.
Lamb also quashed speculation that Lucara may list on the London Stock Exchange, saying it already had a presence on three stock markets in Canada, Botswana and Sweden.
Lucara was previously understood to have held merger talks with Gem Diamonds.