In recent years, the industry has benefited from increased efficiency

Diamond companies are finally showing their potential, as all four companies in a highly concentrated industry announced a program of paying out initial dividends over the past 12 months.

Despite lower diamond prices in recent months due to the reduced availability of loans for the industry, despite the strengthening of the dollar and the slowdown in the consumption of luxury goods in China, diamond mining companies have remained at a profit.

Over the past year, four out of five, or 80% of the world's number of publicly traded diamond producers engaged in one type of business and quoted on the stock exchange, having a market capitalization of at least $ 250 million, were profitable; And all four have recently started paying dividends.

Russian ALROSA (RTS: ALRS) was the only company in this group that did not receive a profit due to a strike caused in 2014 by the exchange rate of the currency for its debt in US dollars. The loss of 64 billion rubles ($ 1.3 billion) occurred in the second half of the year, as the ruble fell to a record low against the dollar.

Simultaneous implementation of dividend programs throughout the country can be considered a fundamental change in the acceptability of diamond mining companies for investment - an industry that, in the opinion of some, has a reputation for being unable to create the cost of equity. It is well known that the diamond mining business is difficult, taking into account the high execution risk and capital intensity.

In recent years, the industry has benefited from increased efficiency, which has led to the formation of more sustainable cash flows. Most companies in this space are relatively new operators that started production only in the last decade - in the years after the restructuring of De Beers. The experience gained by these new diamond mining companies during this time has led to the improvement of production and recovery processes.

Strengthening the dollar also benefited mining companies operating in Africa, Canada and Russia, where labor costs and other operating costs became cheaper relative to the price of diamonds sold by these companies in US dollars.

While improving economic performance indicators has provided companies with the funds needed to return cash to shareholders, the emergence of dividend payment programs is significant because of the fundamental changes taking place in the mining industry as a whole (not just diamond mining), aimed more at returning cash to investors, rather than Accumulation of resource stocks.

In the second half of the last decade, in the middle of the raw "super cycle", the global investment community encouraged mining executives to accumulate and store reserves, even through expensive acquisitions, as investors assessed mining companies for resources and reserves on the site, rather than So much on production cash flow and profitability.

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