Firestone recovers 46 carat white diamond from Lesotho mine

Firestone Diamond said it has recovered a 46 carat white, makeable diamond from its Liqhobong Mine, in Lesotho.

Today

Russia’s Ministry of Natural Resources and Environment warns of a possible shortage of diamonds in the country

The Ministry of Natural Resources and Environment of the Russian Federation notifies of a future shortage of diamonds in the country and plans to make up for it by mining diamonds in Karelia, Dmitry Kobylkin, the head of the ministry said.

14 december 2018

De Beers to partially lift its source-disclosure ban – report

De Beers is set to relax its source-disclosure restrictions for diamond buyers known as sightholders as calls for transparency grow to a crescendo, according to Rapaport News.

14 december 2018

AGD Diamonds commissioned yet another facility to improve ecology at the Grib mine

In mid-December, AGD Diamonds’ Mining and Processing Unit at the Grib diamond mine launched a car wash to clean rock haulers and auxiliary mining equipment, the company’s press service said.

14 december 2018

Trans Hex returns to profitability

Trans Hex, which has operations in Angola and South Africa, said it recorded a net profit of R52-million ($3.7 million) for the six months ended September 30, compared to a loss of R199-million ($14 million), a year earlier.

14 december 2018

The downturn should stop by the middle of next year - Maxim Shkadov

16 november 2015

maxim_shkadov_xx2.jpgThe Production Corporation of Kristall operating in Smolensk is the major diamond cutting enterprise in Russia established in 1963 and included in the Kristall Amalgamation, which at that time consisted of seven such factories. It was here, at the Smolensk-based Kristall, that a diamond cutting technique now known worldwide under the brand of Russian Cut was born, when this country introduced a processing standard for cutting and polishing diamonds in 1977 with extremely stringent requirements. As a rule, in order to save raw materials classical brilliant-cut diamonds are almost never given a mathematically calculated perfect shape, which provides the maximum degree of light performance or sparkle in stones. The aim of the Russian Cut is precisely the icy mathematical ideal, setting fire and brilliance free in a diamond. This kind of experience accumulated over half a century makes Smolensk’s Kristall feel confident in the top segment of the global diamond market in spite of the difficulties currently experienced by the industry. In his interview to Rough&Polished Maxim Shkadov, CEO of Kristall tells about his company’s performance and comments on the situation in the diamond market.

What kind of diamonds are offered by Kristall to the market? And what is your "bottom edge" in terms of diamond assortment compared with goods sold by India?

The whole diamond market is divided into a low-end segment, commercial segment and high-end segment. Our specialization is the top quality segment, where we are present for a long time and we are trying hard to maintain these positions. As compared with India, our "bottom edge" is probably at the level of commercial goods, which are now being manufactured there as well on a very large scale, though the same being true of high quality diamonds. India is currently producing 80% of all polished diamonds in the world, while Russia accounts unfortunately for about two percent of the global polished production, although it supplies more than 25% of rough diamonds to the world market.

A very large proportion in the production of Smolensk’s Kristall is occupied by diamonds belonging to the top quality ‘Triple Excellent’ category, which includes three ‘Excellent” grades at once. Such stones also produce a visual pattern called "Hearts and Arrows" that speaks of their perfect proportions, symmetry and polish, the things to which gemological labs attach so much importance. All this is achieved through very competent and subtle computations made by our process engineers, who then turn this job to our diamond cutters. We believe that it is a distinguishing feature of Kristall and our marketing strategy is focused on the stones of this range. It is a niche in which we feel ourselves confident and where we are represented in a serious and solid volume on the global market.

What is the proportion of the high-end segment in your production?

The high-end segment accounts for about 80% in our output, while the rest is represented by commercial stones, because we have some clients who want to see such goods as well. But we have never produced low-end goods and we shall never go in for them.

Have you had any stones in your high-end segment, which left their footprint in the history of diamond manufacturing?

Yes, sure. The largest stone, which we made in the modern history, was a diamond weighing 107 carats of a pear-shape cut - it was a few years ago. At that time, black diamonds were quite trendy, and we produced such a black diamond. It was very difficult to cut it, because a black diamond is a mix of different diamonds that have been compressed by nature. It is very hard to cut such a diamond, so it took about four months for our cutter to complete this job.

Did you give it some name?

Provisionally, it was called Czarevich [which is Prince in Russian]. It was manufactured on the order of one of our Belgian clients and was sold there. One of the most expensive stones in the history of Kristall was made to the 45th anniversary of our factory. And it so happened that this gem turned out to be 45.45 carats in size. It was luck to have this kind of coincidence. It was an outstanding diamond in terms of value because it was worth more than three million dollars.

Was it sold?

Yes, we sell all our diamonds. And this stone was sold in the Russian market.

It is often said that your goods are mainly sold abroad. And how do you feel yourself in the Russian market?

It can be said that the Russian market is not yet ready for our products. If, for example, buyers in America or South-East Asia are well aware of the characteristics a diamond should have, for buyers in Russia the main thing about diamonds is unfortunately their price. You may as well come across the so called “grey goods” here, which are infiltrating the market in mysterious ways due to imperfect legislation, and this makes our customers vulnerable in terms of immaculacy of such goods, allowing various unscrupulous sellers to juggle with diamond characteristics. Add to this the absence of laboratory certification of jewelry sold in jewelry stores. In general, much still needs to be changed and there are many things to be tackled, and Kristall is contributing to help this process. We have the only website in Russia selling certified diamonds to anyone, be it a jeweler or just a private person. Starting from September, this website launched an online service that makes it possible for any buyer to create a piece of diamond jewelry she or he likes. In team with the Russian Jewelers Guild, we are pro-active in dealing with the issues related to the Russian market, and I think that everything will be put in order on it in the near future.

Speaking about advertising, it could be noted that, for example, some dandruff remedy commercials may be seen on the TV here every five minutes, but there are virtually no ads promoting diamonds. Why? And again, one can hardly say that consumers in the Russian market do not have money, judging by their other expenses.

The lack of generic diamond marketing extends to the Russian market as well. Jewelry companies are extremely reluctant to spend money on TV advertising, which is quite expensive, although profit margins in the jewelry trade permit to do it. On the other hand, being a diamond manufacturer it makes no sense for us to advertise on the retail level, because our segment is slightly different - we do not produce diamonds for retail, but mainly for wholesale consumption, and our goods are distributed through diamond dealer networks reaching various jewelry companies. The market is set up so that it is extremely difficult for manufacturers working with rough diamonds to reach out to the retail market due to the fact that they are mainly focused on getting top profit out of the rough diamonds supplied in standard sets (boxes or lots), whose composition is "patchy". Whereas the retail market, for example in Russia, needs a very small part of all this, which may not exceed five percent. Therefore, the diamond sales system is built on a multi-layer principle taking into account the diversity of assortment, which is virtually present in all parts of the globe based on a very wide specialization - from South-East to the United States, and any particular region may be trading completely different goods. To fill and maintain such a sales framework you have to be present in all markets. If we talk specifically about the Russian market, there is, unfortunately, very little advertising of diamonds in general, and very little educational advertising about diamonds. All this is due to the fact that diamonds are expensive products and any payback on advertising is rather tenuous. This is why we are now reverting to generic marketing. I think that Russia will be covered by it as well because ALROSA is an important participant in this process within the Diamond Producers Association (DPA). The marketing plan will be developed, perhaps, taking into account the Russian market as well. Then we shall see diamond advertising and promotion. In the specific case of our company, I want to say that we are represented in the Internet quite well, investing more in online advertising to promote Kristall’s online store.

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Where do you ship the major part of Kristall’s production? What are the markets you sell your diamonds on?

Our goods are mainly distributed through dealerships, which move them on further across all countries. The world’s major diamond centers include Antwerp (Belgium), Tel Aviv (Israel), Hong Kong (China), the recently established and growing Dubai (UAE) and New York (USA). If we talk about the future distribution of our goods, we should mention, of course, the United States and South-East Asia, between which they are divided roughly in half, with a small portion remaining in Europe.

There has been much talk recently that Russia’s legislation on precious metals and precious stones needs to be amended. What are the changes, for example, your company would like to see and what prevents them from being introduced into laws?

To date, it has been done quite a lot, and the situation has now turned to be more favorable for manufacturers due to the general policy pursued by this country. Diamond circulation is now more liberalized after the cancellation of export licenses for rough diamonds found loss-making to produce polished goods. It was a very big problem, and we have tried to achieve its solution since as far back as 2007. It was extremely difficult. We were told that instead of producing polished diamonds we started to trade in rough diamonds turning into an intermediary of ALROSA. For our part, we explained that the amount of polished goods we produced and sold did not change, but taking into account that there were certain rules of the game in the market we had to be competitive and play by these rules. That is, the entire footprint of ALROSA’s output is not suitable for the kind of goods we are producing. Therefore, we buy what is offered in terms of rough, but have to sell what is not used in the secondary market.

Speaking about business environment in Russia, it should be said that it is changing, and changing in a very serious way. In terms of diamond manufacturing, the tax system remains most questioned - we have a very complex way to administer the VAT levied on diamonds within the country. One of the important questions concerns the export duty of 6.5%, which today protects Russian manufacturers. In essence, ALROSA sells rough diamonds at one and the same price to foreign and domestic customers. However, foreign customers taking rough out of Russia have to pay additionally a 6.5% duty, while customers based in Russia do not pay it. Thus, we are in a privileged position because of this duty, whereas the government has some budget revenue. It is normal practice. So, the mentioned 6.5% has a serious bearing on the entire economics of diamond processing. And we are now pro-active in advocating that this duty should not be canceled, because this provision was stipulated when this country joined the WTO, though not as a compulsory, but a possible step. I think that common sense will prevail, and this duty will be left intact.

Among other things, it was said that a new law came into force starting from October 31, 2015 saying that synthetic diamonds in Russia are not considered precious stones anymore. What is your take on this issue?

This problem is twofold. The fact that Russia has banned synthetics to be considered gems does not mean that such stones will not be sold. It would be better to start normalizing the turnover of goods in the retail network here. What, for example, are now the International Diamond Manufacturers Association (IDMA) and the World Federation of Diamond Bourses (WFDB) engaged in? They are engaged in the struggle for complete disclosure of information on synthetics, for declaring it. It's a different market. There are jewelry stores the world over, which offer synthetics, but they explicitly state that what they sell is synthetic diamonds. And customers are free to make their choice. We see what a breakthrough has occurred in the past five years in the field of growing synthetic diamonds, and I believe that this technology will improve and it will win its niche in the market. Frankly, I don’t see a big problem here, because on the one hand it is wrong to resist progress and on the other hand, given the fact that the known diamond reserves will last for 30-40 years, synthetics will find its own place. It seems that competent marketing bringing together synthetics manufacturers and a correct way to offer their goods to the market may do the trick. So, if now the Diamond Producers Association will not start aggressive promotion of the natural diamond as an eternal value - what De Beers was doing during the last one hundred years, - then the natural diamond will begin losing its positions.

It is often said lately that rough prices lost their connection with polished prices. Do you see any way to restore this connection?

Here we need to give an in-depth look into this issue. The system, which began to take shape in 2000, when De Beers shifted away from monopolism and ceased to configure the diamond pipeline, resulted in a certain skew. On the one hand, our industry is driven by market forces, but on the other hand, it is not quite so, because the diamond distribution system has remained essentially of a cartel type, that is regulated by the amount of supply offered to a limited number of customers. There are about 120 customers in the world buying diamonds directly from mining companies, and apart from them there are about 2,000 customers more queuing up for rough. It is this disproportion that creates commotion. Diamond mining companies benefit from this commotion.

I believe that this system is contrary to the market, because a customer is a valuable asset for a company operating in the market. Unfortunately, this relationship has been turned upside down in diamond business. Within it, a customer is just a tool for the supply of money - in this case, by way of diamonds. Some time ago, India, having understood this system and having expertly helped forward the interests of its industry, which received unlimited credits, turned this system into total absurdity. We see today that mining companies are at a loss because they do not know what to do. It's a fact. On the eve of the November Sight De Beers told its customers that they were free not to buy anything. However, if diamond boxes rejected by sightholders will be deferred to the end of the year, the company will have to put on sale more than $ 1 billion worth of rough by the end of December. It is obvious that the market will not absorb it, because it has not that kind of money right now. The same thing is going on with ALROSA. This system forced diamond mining companies to start re-thinking their customer policy. They begin to understand that the client must be fought for, the client needs to be supported and paid attention to. In this sense, ALROSA should be credited for its more flexible behavior.

We have appealed to the entire market through the International Diamond Manufacturers Association, saying that prices diverged so much that diamond production was unprofitable and that the market should not work that way. This will lead to a global disaster in the diamond market to which the situation is, in fact, nearing. If now the diamond community will not take any measures, it can get another 2008 all of a sudden, when the market stopped dead. This problem has now cropped out. Currently, the amount of polished diamonds produced from the rough, which during the past two years had been supplied in quantities exceeding the ability of the market to digest it, exerts significant pressure on prices. At the same time, there is a natural decrease in the supply of rough to the market due to the fact that starting from June customers began to reject the allocations offered by De Beers and ALROSA. The situation in the market is vague and therefore everybody takes a cautious position. There is only one solution - it is necessary to reduce the amount of diamonds supplied to the market.

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Let's talk about polished prices, which do not grow being guided by the Rapaport Price List, which many in the industry call a "glass ceiling." May it be that the reason is this? What if the industry will start to raise prices for polished diamonds?

It is hardly possible, because a single company will never be able to solve this issue. Yes, many people blame Rapaport and say that it is necessary to raise polished prices to catch up with rough prices. Disputes abound about whether to change the system, but the problem is that there is no one to offer another system. The Price List of Rapaport is the benchmark for the entire market, although there are IDEX and various other agencies that offer information on diamond prices. Besides, prices are uploaded on the Web, including the sites of Blue Nile and Amazon. And if you will want to raise your price, say, from $ 5,000 to $ 6,000, nobody will buy your goods. Lately, due to the market glut with many players trying to lowball to get at least some money, there unfortunately emerged a downward price trend having a history of one year and a half. Such a segment of polished goods like one-carat diamonds has never been falling in price for such a long time. Rapaport is just trying to act like an exchange and offers data based on the analysis of closed transactions. This is why it is extremely difficult to offer an alternative that would satisfy everyone.

However, sometimes you hear about some new apostle who convinced people to sell their apartments, get rid of money and go to a forest hermitage. That is, people can be convinced of anything. Only it is impossible to persuade them to buy diamonds. May it be that diamond advertising is taken as hackneyed?

The problem is there. And this is really a global problem. Nobody has been taking care of generic advertising for the past fifteen years. This is a long period.

Do you believe that if you start generic marketing, the business will get rolling? And is the industry able to find the $ 200 million, which De Beers used to invest in advertising?

The industry is able to find that kind of money. And the task of the Diamond Producers Association is to show what they are going to do and how they are going to do this. And then, in fact, they should create a program to attract everyone wishing to take part. Right now, for example, there is a program of the World Diamond Mark, which is promoted by the World Federation of Diamond Bourses, but so far it does not have global sway because its budget is extremely limited. The World Diamond Mark is advocating a program promoting generic diamond marketing and based on the concept of Authorized Diamond Dealers. However, the important thing is in which direction this generic marketing will be turned. In the past, De Beers put a lot of efforts to make a diamond be viewed as a store of value. And to make it be associated with human emotions - and this is the most important thing – we are to have absolutely ingenious advertising that will revive interest in diamonds. I am convinced that this can be done. And we need to expand sales niches in the market, winning customers back. Only in that way it will be possible to move the market forward.

You proposed to create a Territory of Priority Development (TPD) for processing diamonds in Smolensk. What is your vision of this project and how is it moving on?

Let's start with that the need for such Territories of Priority Development was stated by the government. And when the authorities started to talk about the development of Russia’s Far East, including Yakutia, which is mining and processing diamonds, we could not stay aloof and asked our regional administration, which is now working on this issue, to put forward an initiative to create a TPD focused on diamond processing in Smolensk. Why there? Because Smolensk has everything for this kind of business, which can be developed there without any additional capital investments. As it is, the TPD will fundamentally get nowhere, if the government or such a diamond mining company as ALROSA or Gokhran will not make a clearly formulated offer regarding the sales policy in the domestic market, taking into account the protective customs duty of 6.5%. Accordingly, investors will realize that they can buy rough from ALROSA or Gokhran, that they can buy polished diamonds from Gokhran or from manufacturers in the area and thus build their jewelry frameworks. In addition, they will be able to bring missing polished goods from overseas, make their jewelry without diverting funds to pay the VAT every time their goods in the making travel between manufacturing units and instead pay this tax at the level of retail. Financing is also a very important issue here. Banks need to specialize in financing rough diamond production and polished diamond manufacturing. Only in this case we shall have sufficient conditions to conduct this business. And currently, in team with the Ministry of Finance, ALROSA and Diamond Manufacturers Association, we are trying to create appropriate rules of operation in the Russian market. These rules will give an opportunity to attract investors to our business.

What are your company’s results at the year-end?

This can be viewed in different ways. The devaluation of the ruble has corrected our financial metrics in a big way. In terms of our economics, the company is exceeding targets in all fields. But we have to treat this sensibly. Given what is happening in the market and the assistance from the state, which was provided in the form of purchases of our goods by Gokhran this year, we were able to come to such results. However, in dollar terms, our sales dropped by almost 40%, and the amount of processed rough and manufactured goods also fell. Still, our aim is to work for the market and not for the warehouse. Therefore, in this situation we are exposed to absolutely the same impact as any other company. So, on the one hand, our ruble-denominated key figures look good, but our dollar-denominated figures decreased, and I think that the year of 2016 will be anything but simple. The downturn should stop by the middle of next year, and I hope the situation will stabilize and we shall see some growth. However, stabilization may occur in the first quarter of 2016. It will be seen by the results of sales in the period from late November to mid-February. Certainly, the shelves in jewelry stores will be thinned out to some extent, and this coupled with reduced supply of rough from mining companies will, of course, take its effect. We are completing this year fairly well, but the concern regarding the state of things in the market is present. So, taking into account all these factors, we are trying to find the golden mean.

Vladimir Malakhov, Rough&Polished