On February 2, I said:

If the VIX is rising, that means the Dow Jones should be falling, possibly breaking under 8,000 sometime in the next few weeks and head towards 7,000.

The play should be obvious. But I’m going to point it out anyways because I’m feeling saucy.

If the Dow Jones drops under 8,000 as the VIX spikes, buy a put on the Diamonds ETF (NYSE:DIA), which is an ETF that tracks the value of the Dow Jones Industrial Average.

As I write, the Dow is trading at 7,140. So if you sold puts on DIA, you’d have made 11% in about 40 days time.

Now is the time to get out of this trade (if you haven’t already).

Why?

On Feb 24, I talked about how “big round numbers” can be huge psychological turning points for the market. I said that 7,000 was one of those turning points because it market a ten-year long resistance line.

Well, 7,000 has been breached, as you can see from the chart above.

The Dow briefly flirted with 6,500 (which was also one of my targets) and then zoomed up right past 7,000 again.

This is pretty freaking bullish. Quite frankly, it gets me really agitated.

No, it’s not because I’ve shorted every stock in the world. It’s because there’s nothing to really get excited about.

It seems that the news, which is being seen as positive, really isn’t.

First, Citigroup says that for the first two months of the year, it made a profit. Man, that’s complete BS if I’ve ever heard it.

Then Bank of America said it won’t be accepting anymore TARP money.

If banks don’t have to count hundreds of billions in toxic asset write downs… of course they’d have a profit (so would most other banks).

So, why would these two banks not count write downs in their estimates?

Maybe mark-to-market accounting rules will be suspended this week. Then the banks won’t have to worry about write downs anymore.

From the Wall Street Journal…

After facing a barrage of criticism Thursday, the chairman of the Financial Accounting Standards Board told a U.S. House panel that he will work to expedite issuing guidance to companies on the application of mark-to-market rules.

The FASB said they’d have it done in three weeks.

If these rules get suspended or relaxed, this market is shooting higher on the back of the financials. Heck, it’s already shooting higher on the mere thought of these rules being relaxed.

Considering the financials were the sector that led the Dow Jones down to its recent lows, it should come as obvious that the financials will lead the Dow Jones higher in the weeks ahead.

Go long the Dow Jones by buying the Diamonds ETF (NYSE:DIA).

7,000 is your stop. But I have a feeling this market is pushing past 8,000 in the weeks ahead, if these rules are relaxed.

That means the market is only 34 points away from the low on November 20.

It seems that the market will test the previous low, and I can’t stress enough how important it is for the market to hold its ground and close above the 7552 level.

If the market breaks down below that mark and closes under 7552, look out below.

For all the technical market analysts out there, a critical support level will be broken, and that’s a big deal. Once a support level is broken, not only does the market typically fall down until the next one can be found, but the old support level can now become a resistance level if and when the market rallies back up.

Holding the line can be seen as a bullish sign that the market is fighting to hold that critical level. Of course, if it doesn’t hold, the bears will have taken over and shorting the market is the best play.

Either way, watch this critical number and make sure you are safely positioned either way. If you are bullish and the market holds, going long the Diamonds could make some short term gains, and if you are a Bear and the market drops below the 7552 level, shorting the Diamonds could prove rewarding with some quick gains.

Source: Will The Market Hold The Line?

Colossus Minerals tagged an impressive 60.5 metres grading 14.37 grams gold per tonne, 1.81 grams platinum per tonne and 2.46 grams palladium per tonne at its Serra Pelada project in Brazil. Colossus ended the day up C$0.16 at C$1.43.

Happy Creek Minerals returned 177 metres of 0.366% copper at its Rateria property in British Columbia. Happy Creek ended the day up C$0.01 at C$0.06.

Partners Motapa Diamonds and Lucara Diamond recovered 642 diamonds weighing 277.13 carats from a 7,781 tonne sample at the Mothae bulk sample project in Lesotho. Motapa ended the day flat at C$0.195, while Lucara was also unchanged at C$0.60.

Shares of NovaGold Resources (AMEX:NG) fell C$0.23 to C$1.90 after the Toronto Stock Exchange said the company is being reviewed for possible delisting. NovaGold has been granted 210 days in which to comply with listing requirements.

With earnings season about to start, investors ran for the exits in anticipation of some nasty surprises. We will see what Tuesday trading has in store.

Source: Resource Stock Roundup:Tuesday, January 13th, 2009

Recently I’ve been telling my readers about an incredible deal that had just been signed between China and the Democratic Republic of the Congo. For those of you who are new… I’ll give you a quick reminder…

Congo is one of the most mineral-rich places on earth. Africa’s biggest country is said to hold just about every mineral know to man – gold, copper, diamonds, uranium…

In April this year the Chinese sealed an agreement with the Congo government that is going to see China invest $9 billion dollars in reviving Congo’s war-ravaged infrastructure and mines.

In return they will get access to the African giant’s vast mineral wealth. About $3 billion of that is going to be invested in reviving the mines. But a massive $6 billion is going to be spent on building desperately needed infrastructure. China is going to build about 2,400 miles of new roads, 2,000 miles of railway, 32 hospitals, 145 health centres and two universities.

There are only about 3000 miles of roads in the whole Congo at the moment. So the impact on the country is going to be huge…

In return, China is going to get access to some 10.62 million tonnes of copper and 620,000 tonnes of cobalt. That could add-up to more than $42 billion in profit for the Chinese in the coming years.

The sheer size of the deal has completely blown away China’s rivals. Western mining companies and governments have been left reeling as China appears to have locked-up some of the most valuable mineral deposits in the world. And they aren’t very happy…

What are the Chinese up to?

Last week, Hong Kong’s respected South China Morning Post newspaper, carried an article on the deal. I’m going to quote it at length here, because I think it’s an excellent window into how the Chinese actually view their move into Africa:

“Poor Congo! It can never get a break from meddling westerners. But what can it expect, since it is doing a multibillion-dollar deal with China.”

“Worse, this deal, estimated to be worth US$9.25 billion, involves valuable natural resources and will entrench China, for years, in the affairs of a key African country as big as Western Europe. And, as with many similar massive investment schemes across the continent, it is pitting China investors against western institutional lending and aid bureaucrats and mining companies.”

True enough. And the simple fact is that most western companies just aren’t going to have the resources to go head-to-head with the Chinese government in the scramble for Africa. One of our current plays has done just the opposite. It’s providing the infrastructure and support-services that are going to be necessary for the multinationals and Chinese state-owned giants to get their loot out of Africa… find out more about this play here…

The article goes on…
“Sure, there is no guarantee China will deliver. But even if they deliver just half of what they promise, it will benefit the country enormously, which hitherto has been more newsworthy in the west for civil wars and exotic diseases like Ebola.”

“China is taking on enormous risks with the deal. The tonnes of resources sound good on paper, but some of Congo’s mines and concessions are underdeveloped and dangerous to operate; others remain to be explored and developed. The technical and operational challenges are great.

“No western government or corporation would commit so much capital resources in a single enterprise because, as one analyst said of western investments in the continent in general, they mistake their own ignorance and prejudice for risk assessment.

“So, here is a potentially good deal for Congo, and the International Monetary Fund is unhappy. Likewise some western mining companies, which signed dozens of contracts with the country during the last civil war. The chickens are coming home to roost for the companies in the latest sorry attempt at exploitation by the west.”

What he means by that is that many of the small mining exploration companies that entered the country during the Civil War in late 1990’s are now seeing their contracts being cancelled. A lot of these contracts were one-sided deals which left the Congo government holding the short end of the stick. With the support of their powerful new Asian friend, these small American and European companies are now being forced out. And here’s the Post’s rhetorical flourish at the end:

“China is offering real economic growth and opportunity to sub-Saharan Africa, something the west has never done. Poor countries need all the help they can get, from whatever sources they choose.”

The ONE company that can beat the Chinese at their own game…

Why am I revisiting the Congo today? Because when I first wrote about China’s investment deal with the country early last month, I mentioned that we were looking at several investment opportunities in that country…

And we have found one. In fact, if I’m right about it, it’s going to offer the sort of profits that make China’s deal with the Congo look small…

You see, earlier this year, a group of shadowy tycoons who operate in Africa struck a deal that gives them access to the Congo’s richest mines…the sort of thing that the Chinese can only dream about. They’ve got all the right connections and they’ve got the cash to pull it off. And our latest recommendation is going to put you right in the thick of it.

Source: Secret Deals, Africa’s Richest Mines

This corruption makes Russia a more speculative way to own commodities than say Australia or Canada. But it’s a speculation the market likes right now. Let’s look at Central Europe and Russia Fund (CEE). This ETF is one of the most liquid ways to buy Russian stocks. A big chunk of the fund is in Gazprom, the world’s largest natural gas company. Monster base-metal miner Norilsk Nickel also carries a large weighting.

The bull market in resources has helped the CEE gain 450% in the past five years. As you can see from today’s chart, Russia may be corrupt, but in a world of $130 oil, the market is saying, “Who cares about corruption? Just give me a good commodity play.”

Source: The Corrupt Way to Own Commodities

So it follows that as worldwide demand for electricity skyrockets – as it will – the shares of companies that provide these two key fuels also will take flight.

And they make for almost-perfect partners.

That’s because coal represents the world’s short-term solution to the problem of a rapidly climbing global demand for power. It’s plentiful, it’s cheaper than other available alternatives, and a big percentage of the world’s power plants are set up to burn this fossil fuel.

Uranium, on the other hand, represents the long-term solution to potential fuel shortages – and it offers a solution to global warming, to boot. Uranium-powered commercial nuclear plants are cheap to operate, can run a long time, and when operated correctly cause little pollution.

The New ‘Black Gold’

India, a growing economic and industrial power, relies on coal for nearly 70% of its total energy supply. And the World Coal Institute expects India’s energy consumption to rise by as much as 8% to 10% annually through 2020.

Coal also is used to satisfy the Red Dragon’s energy appetite, providing 78% of China’s total power needs. Coal demand in China jumped nearly 9% last year – meaning the Eastern power now accounts for a full quarter of the world’s annual coal consumption, The Wall Street Journal reported.

Five years ago, China exported 83 million metric tons more coal than it imported. But last year, the nation’s surplus dropped to a meager 2 million metric tons. That means more than 80 million metric tons of coal (about 12% of the internationally traded market) has been taken out of global circulation.

Vic Svec, a senior executive at Peabody Energy Corp. (BTU), the world’s largest private-sector coal producer, referred to China’s ability to influence the price of commodities as a “butterfly effect.” In other words, Svec told The Journal, “demand from Beijing can ripple back to Queensland, Australia, or Gillette, Wyoming.”

Svec’s right. China’s recent development is part of the reason the highly desirable low-sulfur coal from the coal-laden Powder River Basin in Wyoming and Montana has climbed from less than $10 a ton last year, to nearly $15 a ton – a price gain of 50%.

Central Appalachian coal, the benchmark grade widely used by power plants, jumped from $40 a ton in early 2007, to nearly $90 a ton now, according to a recent report by the Associated Press. That’s price increase of 125% in just a single year.

Meanwhile, the weekly index for power station coal prices at Australia’s Newcastle port, a benchmark for the Asian market, averaged $126.45 per metric ton in the month of April, up nearly 40% from January. The port’s weekly price index rose to $133.63 per metric ton for the week ended May 9 – an 11-week high according to the globalCOAL NEWC Index. The index is up approximately 49% this year.

According to the Energy Information Administration, world coal consumption could expand by 74% from 2004 to 2030. And that will only drive prices higher.

While demand for coal is at an all-time high, the same can’t be said for coal supplies. Harsh weather conditions and infrastructure constraints in coal-producing regions have severely crimped supplies.

In South Africa, power shortages and flooding have closed down several key mines. With such setbacks, the price of coal coming out of South Africa’s Richards Bay Coal Terminal, the world’s largest, jumped nearly 90% last year.

Xstrata PLC, the world’s biggest exporter of power-station coal, said that first-quarter coal output fell 3.6% after floods and rain delays diminished supplies from Australian mines. Monsoon rains throughout the region also impacted archrivals Rio Tinto PLC (RTP), and BHP Billiton Ltd. (BHP).

Meanwhile, China, a leading producer and consumer, was devastated just a few months ago by the worst blizzard of the past half-century. Three weeks of snowfall killed at least 60 people and cost the country approximately $7.5 billion.

China had already closed a multitude of coalmines in 2007, after they were deemed unsafe. The subsequent weather problems only exacerbated that situation, forcing the closure of a great many more mines and prompting China to restrict exports. Major roads and railways also were shut down, creating traffic congestion during the thickly traveled Chinese New Year – and making deliveries highly problematic for drivers.

As the cold of winter gave way to the higher temperatures of spring and summer, yet another weather-related challenge emerged. This time around, the double-whammy of higher-than-expected temperatures coupled with sparse rainfall are straining thermal power plants: The warm weather is boosting the use of energy-intensive air conditioning even as those same higher temperatures have dropped the water level of the rivers that spin the huge power-producing turbines at hydroelectric dams.

If you’re looking to play surging coal prices, Money Morning Investment Director Keith Fitz-Gerald suggests taking a look at Yanzhou Coal Mining Co. (YZC). The China-based Yanzhou is nicely diversified in several ways:

• First, it not only operates underground coalmines, Yanzhou also operates a railway transportation network for shipping coal.
• Second, Yanzhou’s focus on low-sulfur coal products means it finds demand from large-scale power plants and from metal-producing companies all around the world. The reason: Low-sulfur coal can be combined with coking coal in a metal-production process known as “pulverized coal injection,” or PCI. That combination gives Yanzhou a nice extra bit of industrial diversification.
• Third, investors can add geographic diversification to the profit mix as they analyze sector plays.

Provided with these positives, it should be no surprise to investors that Yanzhou’s first-quarter profit more than doubled, climbing more than 112% on surging demand for the fuel and on the higher trading prices seen in the markets around the world.

Take bananas a few years ago. One day you could walk into a store and buy them cheap. A few cyclones in Queensland later, and banana prices were through the roof. For most share investors, this wasn’t an opportunity. It just made bananas and banana bread more expensive.

But in other markets – especially resource and energy markets – a sudden change in the availability of basic resources can change everything. A commodity can go from abundant to scarce relatively quickly. Its price can go from cheap to expensive quickly as well. Naturally, the share prices of companies that produce volatile commodities can change quickly too. We’re counting on that this month.

The Leading Edge of the Energy Storm

The high cost of energy – especially coal and oil – is directly impacting resource production in two countries: South Africa and China. As energy prices grind higher – or even hold where they are – this will force the production of certain base metals to lower-cost countries. It will also change the supply-demand dynamic for these base metals, creating new investment opportunities in the process. A good example is South Africa.

You have no doubt read about the power crisis in South Africa. South Africa has a booming resource economy like Australia’s. It’s driven by gold, palladium, platinum, coal, diamonds and other resources.

The trouble is, South Africa’s economy is growing faster than its electrical industry. Contrary to all the gloomy reports, we found the place pretty positive when we visited in late February (mostly Johannesburg). Like any fast growing country starting from widespread poverty, you’re going to have a lot of chaos, crime and uncertainty.

But one of the few things you want to be able to count on is the power. You flick a light switch, the lights go on. That’s so basic that you and I take it for granted. Not so in South Africa. The folks who run South Africa’s only large power company told the government years ago that it would have to invest more in power to keep up with the economy’s growth. The government didn’t listen.

The result is what you have today: rolling blackouts and “load shedding” by the power provider. Demand for power has grown much faster than the available supply. This is not make-believe land. When demand exceeds supply something has to give, and in South Africa, that means power must be cut to someone.

Energy-Intensive Industrial Users on the Chopping Block

The government’s first response to the power crisis was to cut supply to the places that used the most of it, namely the suburban business parks where most of Johannesburg’s business community has relocated in the last yen years. That makes sense. You can only cut power to people who are using it. But cutting power during the middle of the business day unexpectedly is not exactly good for business, or for people’s state of mind.

The government decided to look at industrial users of power. And once it did that, it wasn’t going to be long before South Africa realised – like China is now realising – that there is one particular industrial process that uses much more energy than any other: aluminium.

You make aluminium in several steps. First, you have to refine bauxite ore into alumina. Then, you turn alumina into aluminium by adding generous amounts of electricity in an established process. I won’t go into the details. But the basic ingredients are what we want to focus on: bauxite and energy.

Bauxite is plentiful. You can find it all over the world. Australia happens to have plenty of the stuff. But it is not alone.

Australia is the Saudi Arabia of Bauxite

Anybody with any sense has steered well clear of Zimbabwe for the last few years. But as the election process got underway it seemed that risk hungry investors were alive and well. Stocks in mining companies operating in Zimbabwe leapt in Johannesburg, London and Sydney as news that Robert Mugabe’s days as president could be numbered. The change in leadership hasn’t materialised, but let’s look at what happened.

Where there is risk, there are bargains…

In Sydney platinum producer Zimplats rose 11%, the biggest rise in a year! Around 68% of Zimplats is owned by South Africa’s Impala Platinum (Implats) and in Joburg, Implats too saw its share price jump 3.9%.

Then in the big smoke, LonZim, the investment fund established by mining group Lonrho, rose an impressive 14.85% to close at 116.50p. LonZim wants to raise around US$140 million on London’s Alternative Investment Market (AIM) to purchase assets in Zimbabwe in the event of an economic upturn. Rumour has it that the fund has already raised $65m.

Aquarius Platinum was another gainer — its share price leapt 8.1%. And take a look at this — London’s African Consolidated Resources soared 36% in just two days! The company felt compelled to put out a statement saying it had no idea why the share had moved so dramatically. That said, speculators that didn’t then take their profits will be kicking themselves now. The share price has fallen nearly a third since!

Still, enthusiasm for Zimbabwe is not exactly new. In October, asset management and investment company Imara used its newly launched Botswana-based Zimbabwe Fund to invest $13.5 million in 17 of the 82 companies listed on the Zimbabwe Stock Exchange. They must be chuffed — the Zimbabwean stock exchange’s mainstream industrial index has gained 600% this year!

And if you’ve been reading our diaries you’ll know that the Chinese too have been actively seeking mining opportunities in Zimbabwe. They are after gold, platinum and even uranium. The Chinese have already proved their interest is real. Last year they put money into Zimasco Consolidated Enterprises, Zimbabwe’s largest ferrochrome producer.

The nightmare isn’t over

So there is some truth in the saying where there is risk there are also bargains to be had. But there are big risks, not to mention ethical considerations; the nightmare is most certainly not over. Mugabe and his ruling Zanu-PF party were never going to relinquish power easily and second round of the presidential election now seems certain. Even Zimbabwe’s opposition leader, Morgan Tsvangirai, who is said to have won the election, has left the country. And some argue that investing in Zimbabwe will only prolong Mugabe’s reign of terror.

If stability does come to Zimbabwe, which is looking increasingly unlikely, the rewards will be long overdue. For sure, companies operating here have been hanging on by a thread. It has not exactly been an easy ride.

Take ACR, for example — Mugabe’s government cancelled its title to mine the rich Marange diamond fields in eastern Zimbabwe. Rio Tinto too saw the production of diamonds from its 78% owned Murowa operation fall 40% – given economic uncertainty the mining giant simply couldn’t justify the necessary US$20m investment to keep the operation going. And Murowa is Zimbabwe’s biggest producer of rough stones.

Indeed, countless mines (more than 100 since 1998) have had to close because of skyrocketing operational costs. Then Mugabe decided to introduce a nationalisation law that forced miners to cede majority ownership to locals. Add to that foreign exchange troubles, power cuts and power struggles, and it is plain to see that the list of woes has been endless.

But if a miner can’t look on the bright side then he is in the wrong job. David Brown, chief executive of Implats, the world’s number two producer, called Zimbabwe a “big blue sky opportunity”.

Certainly many mining companies have remained committed to Zimbabwe. After all they know what is in the ground! Zimbabwe has large gold and diamond deposits. And it is has the second biggest platinum reserves in the world after South Africa.

Last month, for example, Implats said it would aim to increase platinum output from its Zimbabwe mines by 100,000 ounces to 260,000 ounces annually by 2010. That meant a commitment of $360 million to expand its Mimosa and Zimplats operations.

Then Anglo Platinum, the world’s biggest platinum producer, and Rio Tinto both said that despite the troubles, they remained committed.

A glimmer of hope

The business community would like to see Mr Tsvangirai in power, but nothing short of a miracle would be needed for this to materialise now. And even if it did, the economy will still be in tatters. Michell Gavin, an adjunct scholar on Africa at the Council of Foreign Relations, couldn’t have put it better. An “all-hands-on-deck effort” would be necessary to rescue Zimbabwe, she was reported saying in Time magazine.

Okay, so the international community which vehemently boycotted Zimbabwe is ready to step in with financial support. The Brits, it seems, are already expected to dig deep into their pockets to bring the country back from the dead. Allegedly £1bn a year emergency aid and development package is on the cards. That would triple the aid currently being supplied to Zimbabwe.

So there may be a glimmer of golden hope. Worth watching! Though it could very easily be snuffed out.

Keep mining,

Erin and Isabel

Is it true that De Beers pulled off one of the one successful pieces of social engineering ever? If they did manage it, you can’t deny that it was one of the most remunerative schemes ever hatched! For sure it persuaded all of us (with a little help from Marilyn Monroe) that love, courtship and weddings mean diamonds. From being a loss-making over-supplied product, diamonds were transformed into a product that brought in billions of dollars. So could this be done with other gemstones? Miners have at least 130 more to choose from.

There is a lot of money riding on that question. Diamonds, emeralds, rubies and sapphires are “precious” – they are the pricey classics. Few doubt that. They have “lasting appeal and distinguished history”, says the International Colored Gemstone Association in the US.

Prices give the rankings. Diamonds generally come top. Ruby and emerald are also priced higher than a top quality sapphire, due to their rarity. For a one-carat ruby stone the bill is likely to be between $250 and $10,000 per carat. Truly quality gems will cost more.

What hope of using De Beers’ tricks for any of those other 130? Miners are always on the look-out for new money raisers. Plus, given quantities are often too small for the mega miners this can be rewarding territory for the minnows.

Rising stars of gemstone jewellery are, apparently, tanzanite, tourmaline, aquamarine, imperial topaz, and tsavorite garnet. Gems in this category sell at between $50 and $1,000 per carat for an average-to-good quality one-carat stone. Larger stones go for more. For example, large examples of tsavorite – can easily reach $3,000 per carat.

There is another category – connoisseur gems. These have a more specialized market because they are rarer. Here are all sorts of marvellous names – black opal, jadeite, pink topaz, chrysoberyl cat’s-eye, fancy coloured sapphires, and even rarer stones like demantoid garnet and alexandrite. The lists give prices ranging from $250 to $5,000 per carat. Yet top quality alexandrite with a good colour change regularly command at least $10,000, even in a one-carat size.

Collector’s gems include spinel, zircon, moonstone, morganite and other beryls, and many even rarer ones. They are little-hyped as they are not many around to make marketing worthwhile. Red and hot pink spinels can command a few thousand per carat, but most of the gems in this category will sell for hundreds, not thousands.

Lastly, well inside present budgets, there are the affordable old favourites and some new gems. These are amethyst, white opal, citrine, ametrine, peridot, rhodolite garnet, blue topaz, iolite, chrome diopside, kunzite, andalusite, and many ornamental gemstones such as lapis lazuli, turquoise, onyx, chrysoprase, nephrite jade, and amber. Prices for these gemstones range between $5 and $100 per carat for a one-carat stone.

Of course, it’s questionable whether risking money on an obscure mineral as recession looms is a good idea. Better go for diamonds? Not necessarily! The trade fears a collapse after sharp rises in prices of large stones. Fuelling the market are stock-piling insiders. To them it seems the best haven, as the financial news grows ever direr, are diamonds.

A warning has come from right at the centre of the trade – from America’s maverick diamond trader Martin Rapaport. “Higher prices brought about by internal diamond industry speculation are not sustainable and may result in significant financial loss,” he says.

And added: “If a significant component of the price level is based upon internal diamond industry speculation that prices will continue to rise, then even a slight short-term decline could cause a collapse.”

So, there is nothing wrong with checking for winners among the lesser gems. That is certainly the view of one of London’s most successful investors – Dr. Graham Birch who heads BlackRock’s Merrill Lynch natural resources team.

Tucked away in his World Mining Trust portfolio is a little £50m AIM stock – Noventa. It makes up just 0.2% of his £1.2bn portfolio. It might be worth looking further into, though, given it’s been picked by a manager whose fund’s share price has risen by 421% over the last five years, 185% in the last two.

One gem Noventa produces from its Mozambique mines is morganite. This is a rare pink beryl gemstone. It’s from the same family as emerald and aquamarine. There is an exclusive joint venture with NASDAQ-quoted jewellery manufacturer LJI, whose retail jewellery chains span across China. Noventa sells its rough morganite at $1,670 a kilo to LJI, and gets 49% of any jewellery sales profits on top of that.

And as a hedge for its jewellery business Noventa also mines tantalite. Key use of this rare stone is in capacitors for electronics and mobiles. Supply/demand balance is forecast to slip into deficit. Top of the pops rating comes from the fact that the US Defence National Stockpile Centre exhausted its inventories in 2006.

Another little AIM gemstone miner is TanzaniteOne. This one mines the gloriously blue tanzanite in, of course, Tanzania, but also mines tsavorite. Fascinating company this but, by the way, the share price is heading south; it seems investors don’t like the latest news. It cannot be the figures – they show some good rises. One can only deduce that perhaps they don’t like the latest change to local management. A bit of resource nationalism going on here?

TanzaniteOne practically invented tanzanite. Discovered only forty or so years ago, it was not really marketed until the 1990s. The amazing thing about gemstones is that a number of others have equally short histories. Seems we are all suckers for a new pretty face – though the face of this brilliant blue stone has to be heated to 450 degrees to develop its colour.

The disadvantage to these new stones is that they carry no myths or magic. Key to their success is the way De Beers played diamonds – marketing. It can be done! Tanzanite became popular following marketing by legendry New York jeweller Tiffany. In 2002 the stone was added to its lists by Jewellers of America as one of the December birthstones.

Erin Hamilton and Isabel Turner
For The Daily Reckoning

For sure it persuaded all of us (with a little help from Marilyn Monroe) that love, courtship and weddings mean diamonds. From being a loss-making over-supplied product, diamonds were transformed into a product that brought in billions of dollars. So could this be done with other gemstones? Miners have at least 130 more to choose from.

There is a lot of money riding on that question. Diamonds, emeralds, rubies and sapphires are “precious” – they are the pricey classics. Few doubt that. They have “lasting appeal and distinguished history”, says the International Colored Gemstone Association in the US.

Prices give the rankings. Diamonds generally come top. Ruby and emerald are also priced higher than a top quality sapphire, due to their rarity. For a one-carat ruby stone the bill is likely to be between $250 and $10,000 per carat. Truly quality gems will cost more.

De Beers knew all the tricks

What hope of using De Beers’ tricks for any of those other 130? Miners are always on the look-out for new money raisers. Plus, given quantities are often too small for the mega miners this can be rewarding territory for the minnows.

Rising stars of gemstone jewellery are, apparently, tanzanite, tourmaline, aquamarine, imperial topaz, and tsavorite garnet. Gems in this category sell at between $50 and $1,000 per carat for an average-to-good quality one-carat stone. Larger stones go for more. For example, large examples of tsavorite – can easily reach $3,000 per carat.

There is another category – connoisseur gems. These have a more specialized market because they are rarer. Here are all sorts of marvellous names – black opal, jadeite, pink topaz, chrysoberyl cat’s-eye, fancy coloured sapphires, and even rarer stones like demantoid garnet and alexandrite. The lists give prices ranging from $250 to $5,000 per carat. Yet top quality alexandrite with a good color change regularly command at least $10,000, even in a one-carat size.

Collector’s gems include spinel, zircon, moonstone, morganite and other beryls, and many even rarer ones. They are little-hyped as they are not many around to make marketing worthwhile. Red and hot pink spinels can command a few thousand per carat, but most of the gems in this category will sell for hundreds, not thousands.

Continues below

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How much will you make?

…yet diamonds may not be best

Of course, it’s questionable whether risking money on an obscure mineral as recession looms is a good idea. Better go for diamonds? Not necessarily! The trade fears a collapse after sharp rises in prices of large stones. Fuelling the market are stock-piling insiders. To them it seems the best haven, as the financial news grows ever more dire, are diamonds.

A warning has come from right at the centre of the trade – from America’s maverick diamond trader Martin Rapaport. “Higher prices brought about by internal diamond industry speculation are not sustainable and may result in significant financial loss,” he says.

And added: “If a significant component of the price level is based upon internal diamond industry speculation that prices will continue to rise, then even a slight short-term decline could cause a collapse.”

So, there is nothing wrong with checking for winners among the lesser gems. That is certainly the view of one of London’s most successful investors – Dr. Graham Birch who heads BlackRock’s Merrill Lynch natural resources team.

Tucked away in his World Mining Trust portfolio is a little £50m AIM stock – Noventa. It makes up just 0.2% of his £1.2bn portfolio. It’s worth looking further into, though, when it’s been picked by a manager whose fund’s share price has risen by 421% over the last five years, 185% in the last two.

One gem Noventa produces from its Mozambique mines is morganite. This is a rare pink beryl gemstone. It’s from the same family as emerald and aquamarine. There is an exclusive joint venture with NASDAQ-quoted jewellery manufacturer LJI, whose retail jewellery chains span across China. Noventa sells its rough morganite at $1,670 a kilo to LJI, and gets 49% of any jewellery sales profits on top of that.

And as a hedge for its jewellery business Noventa also mines tantalite. Key use of this rare stone is in capacitors for electronics and mobiles. Supply/demand balance is forecast to slip into deficit. Top of the pops rating comes from the fact that the US Defence National Stockpile Centre exhausted its inventories in 2006.

Tiffany’s made tanzanite a winner

Another little AIM gemstone miner is TanzaniteOne. This one mines the gloriously blue tanzanite in, of course, Tanzania, but also mines tsavorite. Fascinating company this but, by the way, the share price is heading south; it seems investors don’t like the latest news. It cannot be the figures – they show some good rises. One can only deduce that perhaps they don’t like the latest change to local management. A bit of resource nationalism going on here?

TanzaniteOne practically invented tanzanite. Discovered only forty or so years ago, it was not really marketed until the 1990s. The amazing thing about gemstones is that a number of others have equally short histories. Seems we are all suckers for a new pretty face – though the face of this brilliant blue stone has to be heated to 450 degrees to develop its colour.

The disadvantage to these new stones is that they carry no myths or magic. Key to their success is the way De Beers played diamonds – marketing. It can be done! Tanzanite became popular following marketing by legendry New York jeweller Tiffany. In 2002 the stone was added to its lists by Jewelers of America as one of the December birthstones.

So, keep searching!

Erin and Isabel

P.S. We’ve just heard the first excited whisperings of a new daily email that will pool Fleet Street’s collective genius, keeping you up to date with the sharpest opinions on the very latest financial news. Stay tuned, there’ll be more on this soon!