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Gem Diamonds divides heavyweight opinion

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Heavyweight brokers Goldman Sachs and Citi are split on prospects for Gem Diamonds (LON:GEMD).

In the blue corner is Goldman, which is upbeat on Gem after the record output last year from the Letseng mine in Lesotho.

Production in 2011 rose by 24 per cent to 112,367 carats while recovered grades improved 35 per cent to 1.62 carats per hundred tonnes. 

The seven percent price increase reported by Gem on its higher quality rough diamonds was in line with Goldman Sachs’ expectations.

The broker also said improved American consumer confidence, Chinese policies to push a consumer driven economy, greater liquidity in the Indian economy and increasing wealth in the Gulf States would keep diamond prices high.

Goldman is also a buyer on the back of what it says is an increasing willingness of investors to factor in higher diamond prices after strong growth in global luxury spending. The broker upped its price target to 360 pence from 350 pence.

In the red corner is Citi analyst Jon H Bergtheil who said:  “We are concerned that investment demand for these top-end quality diamonds is dissipating, closely following the trend in the gold price since sovereign debt concern have been easing,” he said.

Gem’s share price has climbed 56 percent since the start of the year, which Citi said meant it had  now outstripped both its previous and increased target price of 283 pence.

Now, Citi believes Gem is overvalued and recommends a ‘sell’ stance.

Investors are currently leaning toward Citi’s bearish stance as the share price dipped 4.8 percent to 295.6 pence.

Quick facts: Gem Diamonds Limited

Price: 26.35 GBX

LSE:GEMD
Market: LSE
Market Cap: £36.71 m
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