RBC Capital Markets, a global investment bank, recently attended the Indaba mining conference in South Africa, where the company noted some key comments from the conference on gold and diamond investment. RBC says, “like the Livingstone conference, gold dominated the scene. Mixed sentiment prevailed on just how bullish you could be on gold, although even the traditional bears seemed upbeat. As usual the DRC attracted the most attention. Despite a positive talk by the Government and ministry representatives, most people remained sceptical that the country was now de-risked and ready for investment. The general feeling was that most of the damage had been done, especially in the copperbelt.”

It also says that “M&A was a running theme. With the juniors struggling to survive and cash strong producers it is likely that consolidation will remain a strong topic throughout 2009. As usual, however, it will likely be difficult to pick through valuation expectations. Based on their presentations, [the company’s] picks of the conference were AngloGold, Randgold and Red Back. There was a limited audience for most of the junior names.”

In diamonds, RBC pointed to Chaim Even-Zohar’s (a well regarded industry analyst and principal of the Israeli diamond consultancy Tacy) prediction that rough diamond prices needed to fall some 30% for the sector to make money this year. It said, “according to Even-Zohar, with around $45 billion worth of diamonds (in various forms) in the polished diamond inventory pipeline, falling final demand for diamond jewellery could ripple back into a fall of up to 60% in demand for rough diamonds. Furthermore, jewellery demand could fall some 15% globally with the USA down 22%. In essence, the large drop in projected rough demand compared with his forecast of jewellery off take reflects the impact of inventory adjustment. Stabilisation, he says, could take 12 to 14 months and rough and polished prices are expected to remain weak.”

In RBC’s view, “a lingering longer-term threat comes from the building rough diamond inventory on the Russian government balance sheet. State producer Alrosa is restricting supply to the market by selling to the Gokhran (State body) and this will be an overhang. [RBC] believes that four leading cutting and polishing companies in Antwerp owe the banks $2.8 billion. If true, this is extraordinarily high as Antwerp in total would have been not much more than that a year ago. This poses serious threat to demand for rough diamonds.”