In the second part of a two-part interview, Forevermark CEO Stephen Lussier, a member of the De Beers executive committee, discusses the future of the world’s biggest diamond company, including diamond prices, the issue of synthetics, and why sightholders these days are even more nervous about their status than usual.
What do you see happening to prices over the next year?
I think over the last two years there has been a period of exceptional price growth in part because there had been such weakness in prices, so some of that is recovering [from the recession]. But more of that stems from extraordinary demand from the developing world matched with static supply. That created a unique situation that lead to that price growth. I don’t think anyone would expect or even want that to occur again.
In the medium or long term, China will increase its momentum and the same thing will happen with India. Those two markets are important drivers of growth. So we should continue to see price growth but let’s hope it’s gradual.
What about all the talk about diamonds as an investment?
It’s not a bad thing. In a market like we are in now people are focused on what is a true store of value. It’s good that people think of diamonds in that way. I am not a big fan of ETFs [exchange-traded funds]. I think any investment programs should be based on holding the actual diamonds, not on speculative instruments that could have a detrimental approach on the industry as a whole. We are supportive of schemes that don’t carry any risk for the industry.
There are a couple of diamond mines on the market, from both Rio Tinto and BHP. Is De Beers interested in any of them?
We are open to things that will help us grow profitably but buying mines is not the easiest opportunity for De Beers. We haven’t done any acquisitions lately but we are always open to looking, if it’s the right thing at the right price.
Are antitrust concerns a factor?
Well, it’s not easy for us. But it is not our area of focus. We are focused on how we can add value to our mines. We have a significant investment in [South African mine] Venetia and we are interested in a major investment in [Botswana mine] Jwaneng. That keeps us focused as far as new opportunities.
How does De Beers view auctions, especially now that it is auctioning off a certain percentage of its production through Diamdel?
The auctions are certainly a useful tool in a couple of ways. 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. They do provide us with a source of very timely market information around pricing and this has been valuable to us.
But I don’t see them getting into more items. We are committed to the sightholder system. We see enormous value in selling our production every five weeks.
I have heard sightholders say they feel somewhat threatened by the new “dynamic” system that allows strong Diamdel bidders to become sightholders. They feel they now have understudies in the wings.
It’s a tough competitive world. I don’t think people should be threatened but clearly it means we all have to work to maximize our gains. If it creates some creative tension, that is the real world we are all living in.
[The new system] should make pricing more dynamic even for the sights without necessarily creating more volatility. If you look at the experience of producers who are focused more fully on auctions or tenders, it doesn’t look like a positive picture.
What is the current status of the Anglo purchase of the Oppenheimer shares?
It is proceeding pretty smoothly. We have gotten most of the permissions that are required. There is just one permission remaining in South Africa, but we expect the purchase to go ahead. Anglo has been really clear about the value of what they see in De Beers.
What will change as the result of that purchase?
We have spent a lot of time with Anglo. The focus has really been on how Anglo can add value to our marketing opportunities. They provide a lot of opportunity as far as people. We expect people on the mining side to move freely between De Beers and Anglo, as we will no longer be fighting for talent. Anglo is a leader as far as technology in mining. The opportunity to harness that technology will be positive. So they’ll bring a lot of value, as well as strong financial support.
Your CEO said last week that De Beers was “close to dying” during the recession.
Well, there was no doubt when we opened three mines largely financed by debt and we were at the peak of our debt position, you couldn’t have picked a worse time to have a financial crisis. It was not a good moment. But we had big shareholders behind us. And that’s why being part of Anglo is positive in what can be a volatile world.
What do you think about the recent discovery of hundreds of undisclosed synthetic diamonds at the IGI in Antwerp?
In some ways, I am not surprised. De Beers has been well aware that this could happen for some time. For the last 20 years, we have been investing millions of dollars in equipment that would make sure synthetic diamonds could be easily detectable from the natural. We are pleased to see our equipment worked so well at the IGI.
If we have any comment, it’s just to wonder what was the point of the whole exercise and to make sure that the industry continues to be prepared.
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