Conference in India Addresses Diamond Industry Issues

Government officials from Africa to India headlined  the recent 2007 Mines-to-Market International Diamond Conference in Mumbai, India, as the industry debated topics ranging from rough diamond inventory problems to the rising wholesale liquidity crisis.

The conference was developed and hosted by the Gem and Jewellery Export Promotion Council of India

Steve Hodgson, the new managing director for Rio Tinto’s diamond division, spoke about the tough year diamond producers had and how the immediate future is not bright in terms of delivery of goods or profitability. Although profits fell 27 percent for Rio Tinto Diamonds last year, he said: “The decline has not reduced Rio Tinto’s commitment to diamonds and we are spending over $1 Billion to bring more of Argyle online in the next ten years.”

Yuri K. Okoemov, director general, USO of Alrosa, delivering an address on behalf of Sergei Vybornov, president of Alrosa Co., echoed Hodgson’s pessimistic comments and said that the mines were beginning to accumulate inventory rather than release product at too low a price to justify mining expenses. 

In an afternoon panel on “Dilemmas Before Manufacturing Centers,” Shmuel Schnitzer, honorary life president of the World Federation of Diamond Bourses, said there was a need to rebalance discrepancy between the profitability of the rough producers and the veritable lack of profit available at the manufacturing level.  He stated in no uncertain terms, “The immediate need for a significant reduction in the length of credit terms being extended to retailers and the rising amount of consigned goods being ‘required’ while at the same time manufacturers are required to pay cash at the time of delivery of rough from the producers.”

The conference illustrated the sea change in the diamond pipeline as production from mines continues to become more geographically diverse. Governments are clearly becoming more active in the management of diamond mining operations as they seek to control the flow of illicit diamonds and use mining to generate new jobs and revenue.

While most everyone at the conference agreed the Kimberley Process was working, there was much speculation and criticism that some countries were only paying lip service to its covenants. Commentator and price sheet publisher Martin Rapaport said, “The spirit of the law is being endorsed, but the countries lack of action on the intent is lacking and ‘KP’ does not go far enough in addressing the issues of child and slave labor violations.”

Day Two focused on the African countries’ renewed insistence of genuine “beneficiation” projects by the mining companies and the diamond polishing/manufacturing companies. From direct foreign investment to joint ventures, countries like Angola and Botswana made it clear that if Indian companies want more rough, they are going to have to help rebuild the infrastructure and businesses of African mining countries.

To illustrate the point, Botswana’s Minister of Minerals, Energy & Water Resources, P.H.K. Kedikilwe. cited his country’s development of its own diamond cutting and polishing factory and said it would get first pick of not only of his countries’ rough, but also their sister African nations. He insisted, upon strident questioning that “This is not the first step in creating an African diamond OPEC.”

When pressed about Angola’s reneging on its contracts with De Beers, Aguinaldo Jaime, head of Angola’s economic team, shrugged his shoulders and said, “State intervention is done for the ‘benefit’ of the country. It does not prevent free market forces, but rather tries to create opportunity for the basic infrastructure to take hold. Unfortunately, the sanctity of contracts has been difficult in Angola due to the devastation wrought by the civil war. The De Beers ‘situation’ was the exception, not the rule …Witness by the long term contracts Angola has maintained with the oil companies.”

Beryl Raff of JCPenney noted that retailers make the greatest percentage of profit on diamond sales of all the players in the pipeline. Unfortunately, the cost of inventory, retail space, salaries, diamond branding, promotion marketing expenses, and retail overhead costs brings the real profit level down to the low-to-middle single digit range, depending on the retailer. She advised the audience not to look at retail for salvation. 

Hemant Shah, principal of Gold Star, ended the meetings with an urgent call for greater funding and promotion for the marketing of diamonds now that De Beers has relinquished its apex-marketing role. He called on India, Africa and the U.S. to form a new diamond marketing council on the lines of the World Gold Council and challenged the audience to add value to the diamond distribution chain and not focus on squeezing the last Rupee out of the stones as they pass through from mines-to-market.