The diamond market in 2010

According to De Beers, which still controls around 40% of the diamond market, the global diamond jewellery market grew 8% in 2010. The US, which accounts for 38% of demand, grew 7%.

India and China saw growth rates of 31% and 25% respectively and are expected to raise their share of global demand from 21% to about 40% by 2015. Bangladesh has also a rising demand for Diamond.
Supply is constrained. No major discoveries have been made for over 20 years, and De Beer's massive stockpiles, which it used to control the markets, were run down in 2005 (though Russia is believed to have substantial stocks).
Prices have firmed in line with demand, with Petra's recent tender prices up 6-8% up on last year. Longer term, prices depend on the health of the global economy and rising Asian demand.

Diamond plays

The big diamond producers are either unlisted (De Beers, Alrosa) or diamonds are a small part of their overall production (Rio Tinto, BHP). There is no shortage of smaller diamond miners on the London market, including Gem (LSE: GEMD), Namakwa (LSE: NAD) and Firestone (LSE: FDI), which all deserve a look.
Petra's attractions are its relative size, growth potential, and concentration in South Africa which is stable and conducive to efficient mining operations.
Downside factors are the operational and funding risks inherent in such ambitious growth, and volatility from the structural foreign exchange exposure (with costs in Rands and income on dollars).
At 174.5p its shares have nearly tripled in six months, and are trading on a forward P/E of 29. But that is based on consensus EPS for the year to June 2011 of 6.0 cents. Despite the recent dilution the forecast looks light against the half year EPS of 6.8 cents, and completion of the Finsch acquisition will transform the numbers.
A planned move to the main market will generate interest, and as a play on the diamond market the shares offer some diversification, so are well worth considering.