De Beers: Diamond Prices Will Keep Rising

Diamond prices should continue to rise in the second half of
the year, De Beers’ chief commercial officer Bruce Cleaver tells JCK in an exclusive interview.

However, he does not expect them to increase as much as in
the first half, when DTC’s rough prices grew 35 percent.

“We expect positive growth through the year but not at the
same level as the first six months,” says Cleaver, who until July 18 served as
the company’s interim co-CEO.

Cleaver notes the price gains have been fueled by increased
demand for polished.

“We have seen very strong growth in polished prices­—more so
than any period in the last 30 years,” he says.

Some of that increase has stemmed from better gem sales in
the United States, he says.

“We have been surprised by the demand in the U.S. in the first
half,” he says. “We were expecting growth of maybe 3, 4 percent, but now
we expect 6, 7 percent.”

However, a bigger part of the growth has been fueled by huge
increases in the markets in China and India, where sales rose in 2010 by 25 and
31 percent, respectively. Cleaver sees the gains continuing “in that ballpark,”
but says that the United States remains the company’s most important market.

“We constantly stress we would be crazy to take our eye off
the ball in the U.S.,” he says. “Even though China and India have shown
spectacular growth, we don’t think it will be until 2015 that China and India
combined equal the U.S.”

On other topics:

• Cleaver says a new contract with the Botswana should be
announced “soon.” Regarding rumors the new deal will have the Diamond Trading
Company move just about all its operations to Botswana, Cleaver says, “We are
in the process of negotiating our sales agreement with Botswana. We are under
confidentiality agreements and it would be premature to say anything.”

• Cleaver doesn’t expect a big shake-out stemming from the
upcoming sightholder review. “In broad terms, we would be surprised if there were any
less sightholders,” he says. “Maybe one or two. But that is up to the people
running the process.”

• He says the Forevermark is “doing very well and on track
to meet its 2011 targets, which are quite aggressive.” He notes the brand is now sold in 440 stores across seven
countries, which is a 53 percent gain from last year.

• The De Beers stores are also improving, he says. “Sales have done very well, but to be fair that’s coming off
a low base,” he says. “Every single store is up from 2010.”

Cleaver’s comments come on the heels of record sales
results at De Beers. Sales of rough diamonds through the DTC in the first half
were $3.5 billion, a 33 percent increase over 2010. That marks the company’s
highest ever sales for the first half of the year.

The company also achieved record EBITDA of $1.2 billion—a 55
percent increase over 2010.

“We are very positive and encouraged about the second half
of the year,” Cleaver says.