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Colorless diamonds as an investment class are evolving beyond their traditional ability to preserve, relocate and pass on wealth

15 april 2019

antonio_cerere_xx.pngAntonio Cecere, the Founder & VP of Monaco Diamond Exchange dons many caps simultaneously. Currently, he is the President of Geneva Diamond Exchange, the President of Diamond Investment Club and the Principal of the Cecere Group.

Antonio’s ability to advise is strong due to his substantial experience in the luxury goods sector, with a track record in creating commercial success in international markets including North America, Europe, Middle East, Asia, China and Japan.

From re-positioning the jewellery category at Montblanc, to leading the Swarovski Group team to achieve the fastest turnaround of a company ever recorded, Antonio was even awarded by HRH The Princess Royal with the UK Fashion Export Award for services rendered to the industry.

Here, in an interview with Rough & Polished, Antonio Cerere walks us through his Exchanges and their activities, but not before offering a generous dose of his ‘advice’ as well…

Some excerpts:

Was it the background expertise in jewellery business that finally prompted you to enter the Diamond Exchange field or you foresaw an opportunity in this field?

I believe that having a vertical experience in the supply chain is a necessity in order to best perform and advise. I have a direct relationship with mineral resources ministry cabinets as well as owners of artisanal mines and aggregators across Africa, traders, cutters and polishers in India, Antwerp and Israel; I advise institutional investors in the main financial markets and educate students in universities; I consult major retailers and jewellery brands. This very vertical exposure to the industry gives me a unique perspective of the diamond sector; I learn every day and try to transfer information across the supply chain which at times can be otherwise very fragmented.

But though diamond was considered an investment vehicle for ages, the current scenario had many other investment vehicles to compete? Your take?

Diamonds are traditionally a consumer product for retail consumption and an alternative investment that retains and passes-on wealth tax-efficiently. The financial sector attempted in the past decade to speculate on this commodity in different ways. Banks repackaged diamonds as investment for savers; this has proven to be unsuccessful due to their lack of knowledge and expertise; on the other hand, selected financial institutions embraced the idea of using diamonds as collateral to be leveraged, which was the right approach that enabled them to secure financing that could be reinvested in the financial markets. Furthermore, I am Senior Advisor to the Board of the most technologically advanced blockchain in the world and fourth largest cryptocurrency, Locus Chain; we analyze the development of one of its applications, cryptocurrencies, in order to anticipate market trends. It became apparent to us that to have collateral behind a digital currency ensures longevity and wins the confidence of investors over demand-driven currencies. Diamonds can be used as collateral for cryptocurrencies both in their rough and polished state. If Monaco Diamond Exchange or Geneva Diamond Exchange are involved in the process by controlling that the diamonds are sourced ethically, it delivers confidence to investors that the diamond-backed digital currency in which they invest in does not finance conflicts, creates political instability or causes civil unrest.

Please give us a brief history of the Monaco Diamond Exchange as well as the Geneva Diamond Exchange right from inception; services offered, etc. What is the current membership in both the Exchanges; and what are the requirements for an overseas company to become members of both the Exchanges?

Monaco Diamond Exchange (MDE) was founded in 2016 and Geneva Diamond Exchange (GDE) in 2018. They both act as market regulators that aim at controlling the afflux of conflict diamonds into the mainstream market. As non-profit associations, they are set up to advise and inform its members on diamonds and ensure that trade is achieved in respect of the Kimberley Process Certification Scheme. The associations act as the central point of communication to ensure compliance with the regulatory and voluntary systems in order to prevent the trade of conflict diamonds and commerce with countries embargoed by the United Nations.

With not much being highlighted about Diamond Exchanges worldwide, do you think diamond exchanges (trading floors) still relevant to the diamond business? Most businesses seem to happen in the privacy of the traders' offices. Your thoughts?

I agree that traditional exchanges in the diamond sector are challenged by the reality of closed-doors trading. This is the reality of an industry that is evolving. This is the reason why both MDE and GDE act as a regulator in closed doors transactions rather than creating a trading platform or issuing a spot price on diamonds. We would rather maintain a vigilant eye on compliance than not being involved in a trade altogether. This is to bridge the gap between finance and the diamond trade by building confidence in the investors in the attempt to commoditize this asset class.

Please tell us more about your Diamond Investment Club and Cecere Group on the whole. Can you please walk us through their activities right from inception till date?

The sole focus of Diamond Investment Club is to offer its members the opportunity to finance spot trades in rough diamonds. The funds are held and managed by licensed, regulated and insured European asset management company which is part of a larger group of companies and that is responsible for the auditing of all investment activities, management of the bank accounts and due diligence on the receivables to meet banking compliance.

The exporter who receives the investment as a loan, is a licensed and insured diamond trading company that purchases and resells the asset to a pre-selected end-buyer under the supervision of Monaco Diamond Exchange or Geneva Diamond Exchange.

The risk is very moderate and thoroughly managed; the funds are released as loan and secured by physical collateral that is insured at the point of purchase.

Cecere Group operates in different areas of the diamonds, jewellery and watches sector; from consultancy services to mediations, from the resale of physical assets to agency for brands. We put our understanding of the trade and access to the supply chain at service of investors, trading companies as well as brands in the luxury sector. A good example of how skill sets transfer across borders is the fact that we consulted both Bentley and Lamborghini for the retail experience that they offer to their clients.

Diamond per se as an investment vehicle is not completely understood by a potential investor, especially due to the many qualities, price aspect, etc. How does one go about it? Now with fancy coloured making a splash on the scene as an investment vehicle and also overtaking whites, the scenario is become more difficult to decide for a first-time investor in diamonds. Any advice?

Colorless diamonds as an investment class are evolving beyond their traditional ability to preserve, relocate and pass on wealth. This is due to macroeconomics, a supply/demand gap set to widen and the evolution of the sector. Price complexities render this sector historically impermeable from outsiders’ speculations; diamonds specialists need to be involved from the outset in order to access supply chain at a level that renders the investment profitable; the portfolio can have both a static or active management where the assets can be held for the entire duration of the investment or traded based on demand and appreciation.

What precautions should an investor take and how should he go about building his portfolio. In your opinion, are whites losing out on the rarer coloured diamonds in recent times as potential investment vehicle? Or, are flawless whites still the favourites, followed by colour diamonds?

According to historical appreciation, CAGR of colourless diamonds is 3-4% yearly in the last 70 years. Pinks, yellows and blues, have increased in value by 167% on average between 2005 and 2015, outperforming other leading asset indices in a similar period, for example, the Dow Jones Industrial Average increased 58%, and Standard & Poor’s 500 increased 63% and London house prices have increased 82.1%. Pink diamonds above 3 carats have shown the greatest growth in value, up by 360% during this period, with blues showing less dramatic but equally consistent growth of a 161% value increase. Crucially, diamonds have no correlation to the stock market, however, retail demand is a catalyzer for appreciation for the colourless diamonds.

As price volatility is a major concern now, according to you how has diamond price stood up in the last decade, and what is the percentage price rise during that period?

Between 2000 and 2010, colourless diamonds experienced unprecedented growth and nearly tripled; according to a Bain & co-research, although there has been a significant contraction since 2010, the price in 2015 nearly doubled compared to 2000. What we have witnessed in the last few years is a natural price readjustment which made appreciation appear stagnant. In future, mid to long term, we will go back to a more organic growth driven by a widening gap between supply and demand where diamond production will contract by 1-2% yearly and growth will go back to 3-4%.  

Wrapping up, the global diamond industry is supposedly under duress right now with numerous problems like slowdown in demand, liquidity, millennials leaning towards other luxury genres and experiences etc. With this scenario in mind, where do you see the global diamond industry, say… in another 10 years?

Surely, the lack of a coordinated effort in advertising from the top seven diamond producers that count for over 72% of the yearly production has had its effects on the market, compared to the DTC monopoly period where the advertising spending was much greater. The recent incorporation of the Diamond Producers Association, bringing De Beers and Alrosa together with Rio Tinto Group, Dominion Diamond Corp., Lucara Diamond Corp., Petra Diamonds Ltd. and Gem Diamonds Ltd., seeks to revive the kind of industry wide advertising seen during the monopoly years.

With regards to millenials consumer behaviour, recent polls show that across major markets, US/Europe/India/China, they still rank jewellery/watches as one of the top three gifts they wish to receive. The data is promising, and the industry will overcome current contraction to grow to new heights in the near future.

Aruna Gaitonde, Editor in Chief of the Asian Bureau, Rough & Polished