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Odious Comparisons

06 march 2012

Several people have sent me a copy of Chaim Even Zohar’s piece in his DIB entitled ‘Reflecting on the De Beers 2011 Performance,’ says Charles Wyndham of PolishedPrices in his article posted on

As you may have guessed, I do not go out of my way to read anything by Chaim and indeed it is only when something of his is pushed under my nose, like one of those ghastly hard boiled eggs with a pale lemon coloured yolk with a black rim and a rubberised white, all of which testifies to the egg being a stale battery hen egg that has been boiled till all the water evaporated.

The advantage of the egg is that as soon as I have viewed the content I simply bin it, in Chaim’s piece I had to read it several times to try and understand what he was trying to say, or rather why he was saying what he was trying to say.

The purpose of the piece seems to be switching his allegiance from the Oppenheimer’s to become a favoured sycophant for Anglo American.

Firstly, he seems to be arguing that De Beers is a “nice business to buy”, on the grounds that it, De Beers “is still one of the most profitable diamond-mining companies in the world”.

He ends his piece by suggesting that there are probably “serious mining problems at some of its mines” and as such “the change of ownership and management control of De Beers may well have come at the right moment.”

To push forward the claim that De Beers is such a treasure trove of wealth, Chaim goes to great lengths to compare De Beers to Alrosa.

I personally found this piece by Chaim to be one of the most extraordinary flights of hyperbole, worthy of the now defunct ‘News of the World’.


I could go into some detail about the past performance of De Beers, indeed I have already done so in previous articles and there is no point in pulling out all the skeletons; so I will limit myself to those bibs and bobs that strike my fancy.

Chaim starts with a discussion of DTC rough prices.

He points out that DTC’s prices were 29% higher at the end of 2011, compared to the beginning of the year which follows on from a figure of 27% higher for 2010.

Firstly, measuring the increase in prices between two fixed dates does not constitute an actual average price for that period, the actual average could be higher or lower, a simple understanding of numbers that seems to be conveniently bypassing Chaim.

I have written often of the total incompetence by DTC at pricing its diamonds.

Instead of the 27% increase mentioned for 2010, we (WWW International Diamond Consultants on saw prices increase by roughly 50%.

For the last quarter of last year Chaim refers to his estimate that prices fell back by around 7-8%, our estimate is much closer to 25%.

It is probable that DTC did not lower its prices anything like as much as the actual sharp fall in the market at the end of last year, which is presumably why at the sight in progress at the moment there still is a general problem of prices being too high.

All that is clear is that Chaim knows as little about the pricing of diamonds as DTC has so amply demonstrated for ages.

Chaim correctly points out that Alrosa uses a different cut off, a lower cut off; but, he is incorrect about the De Beers cut off, as Venetia always used to use 1.00 mm cut off, Namdeb uses cut offs from 1 to 3 mm.

Debswana uses 1.65 mm, which begs the question that maybe they could learn from the Russians and go for a lower cut and get another 10 to 20% more caratage.

The underlying assumption from Chaim appears to be that the Russians are a bunch of nincompoops, a trait that always used to suffuse De Beers thinking about the Russians, which consistently was proved calamitously wrong.

Alrosa mines are all situated in the unforgiving frozen north, the costs of mining are inevitably going to be much higher than in Southern Africa.

In addition, Alrosa is mining some very old mines and in addition to doing so in extraordinarily inclement conditions.

De Beers’ foray into mining in the frozen north at Snap Lake has been one long miserable tale of incompetence, outrageous costs and losses.

Perhaps Chaim would like to compare the performance of De Beers to BHP at Ekati and Rio Tinto /Harry Winston at Diavik?

Indeed, turning to the point already mentioned about the “serious mining problems” being encountered by De Beers, about which it is interesting that he should choose to mention now and not ages ago when it was becoming crystal clear that there was a cataclysmic management failure on the mining side, be at the ‘Voorspoed aka the Go Well mine’, Venetia, Snap Lake and now particularly Jwaneng.

The list would be longer, but De Beers has been selling off many of its worst performing assets, for example Koffiefontein, Cullinan and Williamson. The only problem is that those that purchased these assets have been able to make a success of them unlike De Beers.

The comparison that Chaim tries to draw is simply intellectually incoherent and would appear to me to be deliberately misleading.

Chaim argues that on a straight take of the De Beers last financial results the profit was only 17%, but according to his own "back of the envelope" calculations that true figure is somewhere between 35 to 40%, as an aside he argues that at 17% “the Oppenheimers would have gotten out of the business years ago.”

Maybe it is because of the Oppenheimers that the profit is "only’ "17%”, and who else but a current shareholder, namely Anglo, would buy it?

Without even going into how he gets to his numbers, the fact of the matter is that as he says himself his 35 to 40% is based on there being no partners.

But there are, whether the company is under its current shareholding or under the proposed new shareholding; what is the logic in basing your case, as Chaim does, to provide a profit figure based on a situation which simple does not and will not exist?

Not only that the share that the partners are taking has and is only likely to increase one way or another, it is De Beers who is beholden to its partners now, and not as he would be implying the other way around.

His argument is totally disingenuous, as is in a matter of passing is the choice of the photograph said to depict diamonds from Debswana mines.

This photo is of a highly selective parcel of diamonds.

It seems to be being used to enhance the credibility of the production. I could not find this photo on the De Beers website, the closest was a photo of De Beers’ South African production. At least he should have chosen a picture of run of mine diamonds and compared it to a similar picture for Alrosa goods.

However, such a comparison might not look so good in my experience.

Why Chaim should be going out of his way to spuriously rubbish Alrosa is beyond me, maybe he simply gets some malicious pleasure. His inevitable toadying up to the new masters of De Beers has substance from his point of view, in so far as they might (and I hope) at least sort out the turmoil that the current failed management have achieved.

As I have written before, the purchase by Anglo of the Oppenheimer stake has crystallised the extraordinary wealth destruction that Nicky and his team have achieved by taking a company valued at $19 odd billion (but considered to have been grossly undervalued at the time of privatisation) to one being valued in $12.7 billion, all within just over a decade.

No one could accuse Alrosa of such a remarkable achievement, that is, apparently, apart from Chaim Even Zohar, who attempts to make an odious comparison.