The Diamond Crisis

A diamond is forever, as long as you don’t sell it. And here’s the problem. Is the most famous and desired stone still a good investment? Is buying a diamond ring equivalent to owning a precious asset, which can be resold in a few years? And there are also those who buy diamonds as a form of investment, like gold bars. Not to mention those who try to sell diamonds with the underlying narrative that it is a safe purchase, which maintains or increases its value over time. Unfortunately, this is not the case, even if up until now diamonds have been, in fact, a rather solid asset from a value point of view.

The De Beers affair, however, shows that this is no longer the case. The brand most famous for its diamonds (which half a century ago coined the slogan “a diamond is forever”) is controlled by the mining giant Anglo American. The State of Botswana owns 20%. And De Beers has become a kind of ball and chain for the group. Anglo American had to write a loss of 3.1 billion dollars on the 2024 budget, against profits of 238 million in 2023, caused almost entirely by De Beers. The diamond company had been written down in the balance sheet last year by 1.6 billion dollars to which, now, another 2.9 billion are added. For those who do not deal with finance: it is as if Anglo were telling its shareholders: De Beers is worth much less than before, -4.5 billion in two years, and therefore we must write it on the balance sheet.

For this reason, the CEO of Anglo American, Duncan Wanblad, has confessed that he wants to get rid of De Beers, either by selling it to another company, obviously at a bargain price, or by listing it on the stock exchange, which means passing the buck to new shareholders. Will he succeed? Last year De Beers lost 25 million dollars, while in 2023 it had recorded profits, but only 72 million. So, why is the big diamond company in the red? One reason is that the Chinese are buying fewer diamonds, due to the slowdown of their economy. Another reason, however, is linked to the success of lab-generated diamonds, which cost less than natural ones. This is why in the last two years the price of diamonds has fallen by about 50% for rough gems and 35% for cut ones. In short, diamonds are forever, but their value is not.