This industry’s ‘ripe for consolidation’

Pierre Lassonde built his remarkably successful career on gold, as cofounder and chairman of gold royalty powerhouse Franco-Nevada, a former CEO of Newmont Mining, a past chairman of the World Gold Council and a frequent speaker on gold.

He also literally wrote the book on gold, The Gold Book (1990).

Lassonde is therefore most often sought after for his insights on the yellow metal. But I’ve always been intrigued by his history in investing in Canada’s diamond potential — starting with Aber Diamond in 1998.

I knew it was time to get his views on the subject, and to my delight, he agreed.

In an interview at his Toronto home office in September, Lassonde didn’t disappoint with his frank views on the current state of the industry.

Like gold, diamonds are a hard asset and Lassonde recognizes that we’re in a bull market for hard assets.

However, the diamond industry is in a state of flux, with two of the world’s biggest diversified miners, Rio Tinto and BHP Billiton, withdrawing from diamonds, and slumping diamond prices battering small producers.

Lassonde says the uncertainty will have the industry remembering the past with nostalgia.

“I think a lot of people will pine to go back to the old De Beers days,” he said. “They used to show that beautiful graph, you know diamond prices up 2-3% a year forever and investors really bought into this. And you know what? No more.”

While in those days, De Beers had the dominance and power to keep prices stable as the industry’s “bank of last resort,” Lassonde says that each producer must deal, on their own, with the relatively new volatility in diamond prices.

That’s something that not all producers will be able to do. “The market is ripe for consolidation,” Lassonde says.

But even though BHP and Rio’s diamond assets have  been up for sale for one year and eight months, respectively, none of their producing mines have yet found a buyer.

Harry Winston Diamonds, 40% owner of the Diavik mine in the Northwest Territories, has expressed interest in Rio Tinto’s 60% stake and in fact has a right of first refusal on its partner’s interest.

But when the dust settles, Lassonde wouldn’t be surprised if the diamond landscape is entirely changed, with a Chinese or Indian company stepping up to claim a spot in the diamond industry.

“We’re in a very, very changing period right now and I don’t think anybody knows where we’re going to end up in two or three years’ time.”

Find out more about what Lassonde has to say on Page 6.

Also in this issue, read about Lucara Diamond CEO William Lamb’s Yoda-like philosophy of business and life, De Beers testing the waters at Peregrine Diamonds’ Chidliak project in Nunavut, India’s influence on the diamond market, and lots more.

And on a closing note, congratulations to Pierre Lassonde and Ekati co-discoverer Chuck Fipke, who will both be inducted into the Canadian Mining Hall of Fame in January. We’ll cover the event in our next issue, in May.

See you then.