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Sightholders in search of new options

17 september 2012

In anticipation of the September website DTC sightholders hope there will be some price correction for De Beers goods to reflect market realities. If not, they will be left to count for De Beers to at least reduce its offering to stimulate demand in the market. The sightholders’ discontent and uncertainty about the diamond giant's policies continue to grow. For some of them, the DTC September sight may become the last straw.

De Beers is confident that sightholders have nowhere to go from the "submarine." Launching the new diamond aggregation center in Gaborone, De Beers CEO Philippe Mellier said he had no doubt that all the 76 sightholders would continue to buy unpolished goods from DTC Botswana. “At the end of the day what we have to sell is important to the diamantaires,” Miningmx quoted him saying.

In his interview to JCK Online in June, Forevermark CEO and De Beers Group Executive Committee Member Stephen Lussier, replying to the question, whether the new “dynamic” system might threaten the existing sightholders allowing strong Diamdel bidders to become sightholders even within the current contracts, expressed a view a la “But, then, who has it easy these days?” “If it creates some creative tension, that is the real world we are all living in”, Lussier said.

According to the Kimberley Process, diamond production fell by 3.4% in 2011, but prices went up by 26.5%. This jump was not reflected in polished prices, which rose by 17% in the same year, as IDEX Online reported.

Who was to compensate the difference of almost 10% between the increase in rough and polished prices? It was once again cushioned by the participants of the diamond pipeline starting from traders who were forced to resell their rough at double-digit discounts to retailers who so far do not find it easy to sell their expensive polished goods.

De Beers and the sightholders are dependent on each other and disadvantage of each of these parties have a negative impact on the other. If the sightholders will continue to reject diamond goods at prices higher than the market, De Beers will either have to stockpile diamonds taking a financial diet due to reduced cash inflows or sell its rough through other channels, thus compromising the decades-long relationship with its sightholders.

One of such channel may be auctions run by De Beers. They are not a replacement for the sightholder system, but an alternative backup plan for sales. In addition, as it was noted by Stephen Lussier, “they are useful in providing access to a wider group than just our sightholders. That is useful both in terms of maximizing the price and developing a batch of potential clients.”

It is clear that sightholders in obscurity and economic instability feel persistent uncertainty about the future, and then there are rumors that they may be replaced by diamantaires involved in auctions and that Anglo American, the new owner of De Beers, is itself on the verge of management crisis and may be any moment attacked in a new absorption attempt.

Some sightholders intensified their efforts to find new solutions to reduce dependence on De Beers, as well as to expand business and develop new opportunities.

DTC sightholder Mahendra Brothers partnered with Rio Tinto in cutting diamonds coming from the new Bunder diamond project in the Indian state of Madhya Pradesh. The project reserves are estimated at 27.4 million carats.

In late August, another sightholder, Taché Company NV, received a batch of rough from Shear Minerals totally weighing about 22,300 carats, according to Rapaport.

The rough came from the explorer's Jericho Diamond Mine located in Nunavut in northern Canada.

Another sightholder, EZ Diamonds, is mulling to sell some part of its business to U.S.-based Goldenwest Diamond, which owns a network of 16 stores in the United States.

And Pluczenik Diamond Company, which has been a DTC sightholder for 60 years, started an active search for an "aggressive candidate" to develop its business in Hong Kong, according to information from internal sources.

New York based DTC sightholder Premier Gem and Mouawad announced the creation of an alliance, whose business will be focused on the markets of the Middle East.

In late August, one of the most successful sightholders, Gitanjali Gems, completed the acquisition of a 15.3% stake in Verite Co. Ltd, a Japanese jewellery retail chain, continuing its expansion in the Asian markets.

Earlier, Gitanjali Gems announced an increase in net profit, which amounted to 21% for the quarter ended June 30, 2012. In his interview to CNBC-TV18, an Indian financial TV channel, the company’s President Abhishek Gupta noted that the success of Gitanjali Gems is associated with a strategically correct decision to carry out the expansion of stores in tier II and tier III towns, as well as abroad - in Japan, China and the Far East.

Gupta also said that the revenue growth was contributed by the introduction of new categories, including gold jewelry and jewelry with semiprecious stones. According to him, the products that they manufactured in the last quarter were more of gold sales. His opinion is worth considering, because maybe that's a strategy key to survival. Especially today, when a diamond ring is 3 times more expensive than an iPad, but the iPad can do much more interesting things (in the opinion of a jewelry wholesaler from San Diego).

The sightholders and other trade participants still have a radical option - to reject diamond goods switching to gold and other stones rather than lose their money. Let's hope the situation will not come to an extreme, but it is clear that the time has come for sightholders to leave their comfort zone and find new ways to develop business, even if it means reducing the diamond trade.

Olga Patseva, Editor in Chief of the American Bureau, Rough&Polished