Archive for De Beers
DTC Sights have Tripled – Significant News?
Posted by: | CommentsFrom JCKOnline:
Rob Bates, blogger at JCK Online, claims that De Beers’ tripling of their May and June sights compared with December and January is a “striking statistic.” I respectfully disagree.
Considering that January’s sight was about $100 million compared to the usual January sight of $600 million, tripling that would only get you to $300 million, which is still half of normal production.
I met a former colleague of mine who’s still in the business a few weeks ago. He made a similar comment to me when I asked him how business was. He said, “Things are improving. You could say that right now we’re at 40, whereas in January we were at 10. But last year, we were at 120.”
Everything is relative.
“A Diamond is Forever” Burden Taken off De Beers’ Shoulders
Posted by: | CommentsFrom JCK Online:
Quick historical overview: De Beers created the diamond as a retail product. They represented a syndicate of all the diamond mine owners, and so they had to figure out a way to sell their product. So they invented the idea of a passage of rite Engagement Ring and sold it with clever advertising and their unforgettable slogan “A Diamond is Forever.” Through the 20th century, De Beers continued their marketing onslaughts with the same style of advertising. Each new generation had to be educated that they needed a diamond to become engaged, and that a diamond was the best was to tell your wife that you loved her.
That’s the history. Now, De Beers controls less than half of the world’s diamond supply. By right, they shouldn’t have to foot the bill to create diamond demand around the world when they only represent about 40% of the market. I always wondered about this fact. Why did the Russians and Canadians get a free ride and get to ride De Beers coattails?
Well, it seems they won’t any longer. De Beers has given up being the leader in diamond marketing. A new organization has formed, called the “International Diamond Board.”
The International Diamond Board will be incorporated in the UK. The overarching mission of the International Diamond Board is to create and sustain strong consumer demand for diamonds worldwide through effective category marketing. Its role will include implementing communication and public relations activities aimed at sustaining consumer confidence.
I wonder if they’ll continue with as much success as De Beers has enjoyed over the years.
Nicholas White Predicts Diamond Prices will Decrease over the next Five Years
Posted by: | CommentsFrom Gerson Lehrman Group:
Nicholas White, whom I hold to be one of the premier analysts of the diamond industry, has written an interesting new analysis of De Beers and how they’re losing control of prices. He claims that due to slumping demand, and with the old external forces no longer available to tighten the vice on the supply line, prices are most likely headed south.
In effect, there are more economic reasons to expect diamond prices will materially decline over the next half decade, than significantly increase in price. If true, that should have the jewelry industry worried. As much as 70% of the jewelry product sold by mid market jewelers contains diamonds. For near 60 years diamond products have been the segment of the jewelry business that has driven the industries profitability.
Deflation is problematic for any industry, but for the diamond industry, it’s positively lethal. The production process from mine to retail transaction can easily take a year in the most common cases. In that time, someone is financing that inventory. If the inventory is constantly declining in value, the loan becomes ever more risky. Inventory that was previously financed to make a profit, will now be financed to perhaps only break-even.
If this does indeed happen, and the price drops are significant, you can be certain there will be many more bankruptcies throughout the industry in the years ahead.
Kim Kardashian: De Beer’s Ace in the Hole?
Posted by: | CommentsFrom JCK Online:
In what is perhaps the latest and greatest sign of just how much things have changed in the diamond business, De Beers has chosen reality TV star Kim Kardashian to help promote diamonds from Botswana. Just to remind those who might have forgotten, De Beer’s previous “icon of style” was Iman, the freakishly beautiful African princess married to eternal rock star David Bowie. The same Iman who looks a year younger for every year she ages. The same Iman who fights for important worthwhile issues of starvation and childhood AIDS in Africa. Maybe it’s just me, but Kardashian, the star of Keeping up with the Kardashians on E! and of her very own sex-tape, seems like a bit of a step down. On the one hand, you have a true artistocrat of a celebrity, using her beauty and clout to try and make a difference in the world, and on the other hand, you have a celebutant who’s just famous enough to be asked to participate in Dancing with the Stars.
De Beers, I ask you openly, could you not find anybody to agree to be your spokesperson on the spectrum of celebrity between A-list and D-list? Is it a matter of money? Is this one of the ways you have decided to cut costs in order to show a profit this year?
DeBeers Expects Positive Fiscal Year Profits
Posted by: | CommentsFrom Israel Diamond Industry Portal:
I can’t wait to see this happen in reality. Keep in mind, DeBeers reduced mining output in the first quarter by ninety percent and it’s not like they expect Q3 and Q4 to make up for Q1. They claim themselves that while they feel a recovery is underway, it will be a muted recovery nonetheless, and “regular” diamond trading levels will only return sometime in mid- to late 2010. So how do they still expect to have a profitable year with such a massive decline in production? Cost cutting, of course!
The De Beers diamond company said it plans to cut $1.5 billion in operating and capital expenditures in 2009, Reuters reported.
The diamond exploration company said it will achieve a positive interim and full year bottom line despite slashing diamond output by 90% in the first quarter, according to the Reuters report.
Cutting $1.5 billion in expenses is a massive amount. I would love to know how they intend to accomplish that number.
A Sign of Better Times to Come?
Posted by: | CommentsFrom Bloomberg:
In a sign of possible better times to come, Debswana, the joint venture between DeBeers and the government of Botswana, has hinted they might open their Orapa 2 mine sometime in the near future. The Orapa 1 mine was opened in April after an extended shut down since december. Debswana commended on June 12th that there has been some improvements in the sale of rough diamonds, and that this might lead to the opening of the Orapa 2 mine soon.
The Debt Story
Posted by: | CommentsFrom The Province:
This is the best article to date that I have seen that discusses the issue of indebtedness in the diamond industry.
As the article notes:
The global industry’s debt, which peaked at $14 billion to $15 billion US in mid-2008 according to banks and industry groups, plays a crucial role in financing some $50 billion to $60 billion of trade in cut and rough stones.
A positive sign?
Debt has tailed off and Rosy Blue’s Mehta believes it will drop to some $10 billion with a smaller, leaner market.
But a brilliant fellow by the name of Charles Wyndham of PolishedPrices.com makes it clear that this only tells half the story:
However, Charles Wyndham, diamond consultant and founder of industry website www.polishedprices.com, said turnover had fallen by much more than had the debt used to finance it, meaning the relative level of debt had risen.
And this really is the crux of the problem. No serious players in the diamond industry saw this coming. Everyone was milking the debt bubble for all it was worth. My former employer, for example, took the “roaring 2000s” as an opportunity to significantly increase the company’s rough allotment (and therefore its debt load). So even if these firms begin reducing inventory and debt levels now, after the fact, they will never be able to do it fast enough because there’s nobody around to buy their goods. Had they had any sense, they would have never gotten so far over their heads to begin with.
I tend to think that a sightholder CEO should have a bit more economic sense than your average housing bubble sucker. But the fact is they, generally speaking, have far less sense. The reason is simple: being a sightholder CEO is the ultimate example of having “all of your eggs in one basket.” If everything you are and represent is dependent on constantly rising consumer spending, then you are going to always believe the good news and never believe the bad news. Until, of course, the news is so bad it can no longer be ignored.
