MMegi Online quotes analysts who believe that the opening of Debswana’s diamond mines after a 50-day shutdown could impede the international diamond market which was beginning to show signs of recovery.

According to RBC Capital Markets analyst Des Kilalea, the resumption of production at Debswana’s diamond mines could cause diamond prices to be suppressed due to increased supply.

Kilalea told Miningmx that a major threat to recovery in rough diamond prices is the resumption of production at a number of major diamonds mines shut down earlier this year, such as De Beers' huge Jwaneng diamond operation in Botswana.

Mmegi quotes Kilalea: "At full production, Jwaneng produces 16 million carats of diamonds a year valued in a normal market at around $2 billion. If the diamond mine's production all finds its way to market, it could add some $110 million monthly to potential rough diamond supply, assuming prices have fallen 35%. That is a lot for the market to absorb even if liquidity conditions have improved.”

In 2009, Debswana will cut diamond production to less than half its usual levels in a bid to keep the company profitable through to 2010 after which it expects a recovery in diamond demand.

The decision to cut production by 60% or more was announced last month when the company resumed production at its three mines that have been closed since February in a bid to save cash by reducing production costs.

When asked last week, Debswana Group Public and Corporate Affairs Manager Esther Kanaimba refused to give exact diamond production figures for this year, but indicated that it will be in the region of under 15 million carats.

She added that if there were indications that diamond demand will improve quickly, then the company would increase production. However, she noted that DTCB have indicated that this year they might only be able to sell between 18 million carats and 20 million carats, leading to the decision to cut production to such levels as it also had some inventory left from the poor sales in November and December of 2008.

Kilalea warned: "The recent recovery in rough diamond prices may be presenting an illusion that there has been a significant recovery in demand for diamond jewelry. In fact, most retailers report quite the opposite.”