While arguably most investors look to gold and other precious metals as alternative benchmarks for economic viability, due to the severe impact of the novel coronavirus, it’s time for a rethink. Specifically, diamonds are on the rise as the global consumer market steadily recovers. And in this space, few growth firms are as ideally positioned to take advantage of this rally than Lucapa Diamond Company (ASX:LOM).
A global producer of high-value gemstones in Angola and Lesotho via the Lulo alluvial mine and Mothae kimberlite project, respectively, Lucapa recently announced strong results for its quarterly activities report for the period ended March 31, 2021. Highlights include record volumes mined and processed at Lulo, and record diamond revenues at Mothae. These and other powerful metrics positions Lucapa to extract significant demand from the most compelling story in the gemstone space today: China.
According to a recent report by Rapaport, “China’s polished-diamond imports rose almost fivefold in the first quarter as the mainland retail market extended its recovery, according to data from the country’s main bourse.” The report goes on to state:
Net shipments into China via the Shanghai Diamond Exchange (SDE) grew 393% year on year to $722 million during the three months ending March 31, the institution reported Tuesday. Import volume jumped 394% to 699,500 carats.
Despite an exceptionally favorable market for diamond producers banking on the recovery narrative, there could be more bullishness to come. According to a Reuters report last year, India’s Surat region polishes approximately 80% of the world’s diamonds. However, the Covid-19 crisis devastated operations, leading to unprecedented supply chain disruptions in the gemstone market.
Obviously, India is dealing with a deadly second wave of the SARS-CoV-2 virus. This, according to insiders monitoring Chinese ravenous demand for diamonds, could trigger enormous challenges for importing the sought-after commodity.
First, the crisis which India is dealing with has reached catastrophic levels. According to the U.S. government, India accounts for over one-third of new global coronavirus cases, forcing the White House to issue a travel restriction banning most non-citizens from entering the U.S.
Second, beyond Surat’s domination of the diamond polishing market, the other heavyweights in this sector, Belgium and Israel, are located farther away. This makes the prospect of higher diamond prices — particularly for the large gemstones which Lucapa specializes in — a very reasonable and realistic one.
Despite the clear upside implications for diamond producers, Lucapa remains grossly undervalued. As of the market close on April 30, 2021, Lucapa had a market capitalization of just under 56 million AUD or $43.2 million. This translates to a price of 6.3 cents AUD, relatively unchanged over the trailing five days.
Still, this discount will probably not last. While global traders chase the flavors of the week in highly speculative segments, LOM stock carries relevance like very few other investments. Raging demand from China combined with unparalleled supply chain disruptions will not stay unnoticed indefinitely. Make sure to consider Lucapa Diamond Company before the big wave hits.
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