7148 4 CORNERS OF THE GLOBE 7151 DIGGING THE DIRT7154 OFF THE SHELF 7156 BRIEFLY NOTED

DIAMOND INTELLIGENCE BRIEFS

A Confidential Service for

Executives in the Diamond and Diamond

Jewelry Business

15 March 2012 | Vol.27 No.700

2011: Chasing Paper ProfitsRecycled Diamonds Integral Part of Supply Chain

“Last year was an excellent year for us,” said the outgoing De Beers chairman Nicky Oppenheimer at a party with clients. “If you didn’t make money, then you are obviously in the wrong business,” he semi-quipped before a stunned audience. Looking at the macroeconomics of the diamond pipeline from rough production to wholesale sales of polished, the trading and manufacturing sectors as a whole did not make money on their trading activity, though they earned on inventory appreciation.

Those who restocked rough in the first eight months of 2011 saw DTC rough selling prices rise by some 44 percent, just to witness a steep fall of some 16 percent in the last part of the year. The DTC clearly abandoned its time-honored policy of only raising prices to so-called “sustainable” levels. Looking at the composite price index, for all qualities and sizes, we saw a doubling of rough prices in the past two years again outpacing the increases in polished, only to end at lower levels.

A Good Year?If we take an average 15-20 percent in inventory

appreciation over the year (including polished), the industry did make US$2-US$3 billion overall, though this would be because of higher prices – and through no efforts by the players themselves. The euphoria expressed by Nicky Oppenheimer was, in a sense, not

“out of place”; but it was a “good year” for the wrong reasons. Also, a large part

By Chaim Even-Zohar

TACY'S ANNUAL 2011

DIAMOND PIPELINE ISSUE

Diamond manufacturing in Botswana.According to the Tacy Ltd. 2011

Diamond Pipeline, 125-130 million carats of rough diamonds produced last year moved through the pipeline resulting in US$22.6 billion worth of polished sales.

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Direct Costsof RoughProduction

7.7

18.0

18.3

19.1

22.6

1.0

23.6

70.8

RoughProductionValue

Mines Salesto Industry

Rough Sales to CuttingCenters

Net Rough Used for LocalProduction

Value of Polished Sales from LocalProduction

Value of RecycledPolished

Value of Diamond Content inRetail Sales

Retail Sales of DiamondJewelry

Tacy’s 2011 Diamond Pipeline (provisional)*

in US$ Billion

Direct Mining Cost of Production

Increased Inventory Overhang: 1.3 Billion

Value of Recycled Diamonds (Consumers Sell Backs) Re-Entering Pipeline

Independent Producers 11.5(excluding sales to Gokhran)

Australia0.42

DRC0.7

Angola1.4

DTC Contracted Producers6.47

USA38%8.96

USA26.90

China11%2.56

China7.79

India12%2.83

India8.50

Japan8%

1.89

Japan5.66

HK2%0.5

HK1.42

Taiwan2%

0.47

Taiwan1.42

Gulf7%

1.65

Gulf4.96

Turkey2%

0.47

Turkey1.42

Others18%4.25

Others12.74

Belgium0.9

Belgium1.1

Israel1.0

Israel1.2

India11.9

India12.75

USA0.5

USA0.7

Southern Africa**1.7

Southern Africa**2.04

Thailand+Others1.0

China1.8

Thailand+Others1.4

China2.52

Russia0.7

Russia0.9

Namibia0.5

Botswana3.16

S.Africa1.3

Canada3.0

Russia3.5

Lesotho0.45

Others0.3

Zimbabwe0.5

Manufacturers and Rough Dealers

Dealers and Manufacturing Sightholders 4.8

Producer Benefication Countries 1.2

Diamdel0.4

15.2

* Some figures are still subject to final verification.** Southern Africa includes South Africa, Botswana and Namibia

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of the (potential) paper earnings remain in inventory until they materialize, thus, actually, representing “future music.” So, last year was excellent if you were a rough producer or a jewelry retailer. That is where the real profits were, and, of course, these are the core businesses that the Oppenheimer family has now sold to Anglo American.

Looking at the PipelineAs it takes about a year and a half for a diamond to move

through the value chain from rough acquisition to polished sales (at polished wholesale prices), the price volatility has made it far more challenging to present an accurate picture for the year that was. Even producer countries vary in their reporting methodologies of mining output values.

Just look at the volatility in the reported average values of world (rune of mine) output, which totaled about US$95 per carat in 2008, plunging to US$72 per carat in 2009, recovering to US$98 per carat in 2010, and then climbing to US$121 per carat in 2011. This shows an enormous (and unsustainable) jump. For 2012, we expect the average world output to decline to US$108 per carat, also because of the expected stepped-up production from the (cheap goods) Argyle mine and growing Marange output.

Last year, natural diamond production came to some 125-130 million carats valued at US$15.2 billion. This output moved through the pipeline resulting in US$22.6 billion worth of polished. The overhang in the 2011 pipeline is an estimated US$1.3 billion of rough and polished expressed in polished wholesale prices at year end. It is this overhang that will also impact the rough demand for 2012.

Worldwide diamond-jewelry retail sales came to US$70.8 billion. The market share of America in diamond consumption was reduced to 38 percent. The other major traditional market, Japan, declined further to merely an 8 percent share. In a neck-to-neck race to be the second-largest diamond-consuming nation is India, with 12 percent market share, followed by China (the mainland) with 11 percent. Hong Kong is accounting for 2 percent.

The Recycling FactorThe value of the diamond content in retail sales in 2011 came

to US$23.6 billion. The vast majority of this amount (US$22.6 billion) comes, of course, from either recently mined rough or inventories. The new reality is, however, that some of the polished comes from recycled diamonds – diamonds that consumers have held for many years or even for generations but now felt the need to sell in order to pay mortgages, medical care, children’s education or even to supplement pensions or to pay debts.

We want to be very careful here – this is definitely not a new phenomenon. Anyone who has followed the trade of pawn shops or is familiar with high-street family-owned jewelry businesses knows that there has always been an element of selling off

“old” estate jewelry. Many New York diamond manufacturers have built quite a reputation for their “re-cutting skills,” turning old shapes into more fashionable goods. However, since the advent of the last economic crisis, the volumes of diamonds held by consumers coming back into the pipeline have skyrocketed. Literally hundreds of diamond businesses have developed special

Consumer Markets Shift Eastwards:China and India Rise; USA Declines

[as estimated by De Beers*]

2010

2011

2016

*Tacy's 2011 Diamond Pipeline has different estimates for some markets.

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niche expertise in this area. Those recycled diamonds are mostly sent to India or other cutting centers for re-cutting.

A large part of the diamond-recycling supply side takes place in invisible parallel markets, defying effective monitoring. It’s easier to measure gold recycling, as there, the jewelry needs to be refined through a limited number of known refineries. When, in early 2009, jewelry scrap fabrication exceeded new mining supplies, one got a further indication of the intensity of this movement of goods back into the pipeline.

We have estimated that recycled diamonds sold again to the jewelry sector came to about US$1 billion in 2011, which represents 4.4 percent of all polished diamonds sold at polished wholesale prices. This is quite significant, and it has definitely become a supply factor that requires serious thought by pipeline participants, especially producers, when estimating supply-and-demand trends. They do tend to soften polished retail prices, as retailers’ huge profits on recycled goods allow them more breathing space in selling polished.

The 'Global Household Mine'Just as one is very conscious about the depleting diamond

reserves of existing mines, it is worthwhile to take a look at what the so-called "Global Household Mine" has in stock. What are its potential reserves? Unfortunately, diamonds last forever… they don’t just disappear, nor are they being thrown away together with old furniture, books or other junk piling up in people’s attics. The supply of recycled diamonds is driven by various functions

– not only by economic necessities but also by the high prices. One tends to assume, or one likes to believe, that diamond

possession is solely a very emotional phenomenon, but this is not universally true. In India, for example, diamonds and gold in the hands of consumers are often viewed as assets. In parts of the Arab world, this holds true as well. So what are the Global Household Mine reserves?

Since ancient days, diamond mines have produced some 5.2 billion carats, which at 2011 rough production values (US$121

per carat), would amount to some US$625 billion worth of rough. The historically adjusted gem-quality polished output would be between 1.3-1.6 billion carats. (Traditionally, no more than 15-20 percent of output was considered cuttable; that changed in the 1960s with the emergence of the near-gems.) The worldwide average polished sale price (at polished wholesale prices) is US$625 per carat. Therefore, the Global Household Mine probably holds US$0.7-US$1 trillion worth of polished diamonds at current prices. About 40-50 percent of these diamonds would be held in America. This is a staggering amount.

In 2011, about a minimum of US$1 billion of recycled polished came back into the market – which, by value, represents 4.4 percent of polished retail demand. (It could be more but it won’t be less.) The really amazing, if not frightening, figure is the “stock withdrawal” of the Global Household Mine: the US$1 billion figure represents merely 0.1 percent of stocks by value. Indeed, theoretically, the Global Household Mine could meet the consumers’ requirements, at current levels, for about 35-45 years! As most women will not likely depart from their diamonds that easily, it is certainly not an immediate concern. But it must be part of a proper pipeline analysis.

There is an additional “recycling” market in the making: investment diamonds. So far, a dozen or so new companies or structures purchase polished for investment purposes. These diamonds will come back in at some point, but now there are mostly buyers and not sellers.

A Closer Look at Retail EnvironmentEverything is relative. Though mining costs in absolute terms

may not have increased so much since 2008, the higher price levels of the output have dramatically doubled, and in some instances, even tripled mining profits. This is quite evident in the evolution of profit sharing in the value chain (see 13-year chart next page.)

There are other pipeline parameters that have gradually changed over time, making them less valid for comparison. The total retail value of diamond jewelry pieces is one of these. An analysis of the diamond content in the final jewelry product shows that the ratio between diamond and other used materials/costs has changed. A decade or so ago, diamond content (at wholesale polished prices) would represent about 20 percent of the jewelry piece’s total retail price. In some countries, like England for example, it was even less, more like 18 percent.

On the other extreme, there were markets (such as Indonesia) where diamond content might have been at an average 60 percent of the total diamond jewelry piece. This has to do with overheads, retail structure, taxes, etc. So, worldwide, diamond content might have been at averages of some 21 to 22 percent. This has gradually changed.

Our research indicates that, worldwide, the share of diamond content in jewelry pieces has increased to some 32 percent. There

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are many reasons for this. One factor is the shift of markets from the United States (the so-called “junk market”) to the far more value-conscious Far Eastern market. The higher gold price has also contributed to containing more diamonds and less gold in an industry that is at pains to meet certain price points. Also less expensive materials are increasingly being used in the final product.

So, our global diamond retail sales figure of US$70.8 billion actually holds more diamonds (by value) than this figure would have contained a decade ago. (Or, to say it differently, taking the US$23.6 billion of diamond content sold in 2011 (which we consider a hard figure), and if one would hypothetically assume only 22 percent wholesale diamond content in the final retail piece, worldwide diamond retail consumption would have been calculated at US$100 billion.)

But this clearly isn’t the case; it is merely pointed out, as some analysts may also arrive at higher diamond jewelry retail values for a variety of reasons. This often has more to do with methodology and data collection than with anything else. Tacy Ltd. has done its pipeline for 23 consecutive years, and we believe our figures closely represent the reality. We recognize, however, that some researchers base figures on telephone surveys of consumers, on feedback from jewelers, on financial reports from large retailers, or statistics, etc. For the diamond industry, there is only one figure that really counts: how many diamonds were sold in 2011. That figure is US$23.6 billion at polished wholesale prices.

The 2011 Pipeline in PerspectiveIn the pipeline, each and every diamond is only counted

once, and every stone is basically cut and polished only in one principal location. Looking by value, we see now that close to 70 percent of all diamonds by value are manufactured in China and India, with some 13 percent in the southern African and Russian beneficiation countries. The role of Belgium, Israel and the United States as traditional cutting centers has gradually been diminished to close to insignificant figures. In terms of manpower, these latter countries’ cutting labor force can be measured in the hundreds rather than in the thousands. In terms of “number of stones,” we certainly can say that 14 out of 15 diamonds are cut and polished in India and China.

It is important to neutralize “double accounting,” which is difficult as every stone may move many times through multiple jurisdictions. If one looks at Belgium, for example, its 2011 polished exports are close to US$15 billion, well over 30 percent higher than the previous year. But in terms of added value produced through manufacturing, there wasn’t more than US$200 million, and only US$1.1 billion (7.5 percent of total polished export value) can be attributed to domestic manufacturing. Like the Israelis and Americans, Belgians do most of their manufacturing in China, southern Africa, Asia and elsewhere. The 2011 pipeline likes to capture the added value generated between the various phases of activity.

Evolution of Profit Sharing in Value Chain

Polishing Value AddRough Production Value Add

Pipeline Value Addition (%)

Rough Trading Value AddRough Production Costs

Mining Sales Value AddDiamond Content in Retail

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The traditional conventional wisdom that trading centers also require domestic manufacturing has valid marketing purposes as it adds to the illusion that one can find “freshly cut and polished diamonds” in that market. That

“wisdom” definitely belongs in the past.

In the Aftermath of the Crisis

In terms of numbers, global retail demand in 2011 increased by 10.3 percent compared to the previous year. However, it is still slightly below the 2007 pre-crisis level. In 2012, our models, developed jointly with my colleague Pranay Narvekar of Mumbai-based Pharos Beam Consulting, show that global retail demand is set to increase by 8.3 percent. This definitely takes us well above the pre-crisis levels. The total polished wholesale demand in 2011 of US$23.6 billion is about 19.4 percent above the previous year. That sounds like a lot, but given the price movements it doesn’t point to an increase in volume terms. One of the reasons for the year to have been challenging is that in 2010, polished demand from the cutting centers was 38 percent above the previous year. So, the growth sentiment in 2011 was only half of that experienced in 2010. This is not the time to discuss the ripple effect, which clearly validates those figures.

On the rough demand side, 2011 saw a 35.2 percent increase over the previous year. This trend will not continue, and our models suggest that rough demand will actually decline slightly in 2012. The same counts for the cutting centers. Though in 2011 we saw a growth of polished demand of 19.4 percent, this will slow down to 6.2 percent in 2012. So, while 2011 was quite a trying year for the downstream industry in which profits mostly came from higher diamond values, 2012, if anything, will be more difficult.

There is also concern about the producers’ pricing of rough. There is strengthened fixation on their bottom lines, which triggers considerable rough price volatility. As mentioned earlier, the historical commitment to sustainable rough prices is something of the past. BHP Billiton pioneered the linkage of its long-term

contract prices to the behavior of spot-market auctions. It seems that De Beers is following in their footsteps and that the prices secured by the Diamdel auctions may well guide the pricing of DTC sight boxes under the new three-year contract. Expect in 2012 continued volatility of 5-10 percent in both directions – with the overall price levels going sideways.

The cutting and trading centers may be in for quite a squeeze in 2012. Earnings need to come from activity rather than from stock value appreciation. Actually, such a squeeze shouldn’t bother the downstream players too much – they have grown used to it. ♦

Diamond Industry's Recovery Driven by Pipeline Sentiments rather than Consumer Demand

[in percentage + US$ billion]

Composite Diamond Price Index for All Qualities and Sizes Based on Quarterly Averages

[End 2007 = 100]

Rosy Blue Price Indices

Polished PricesRough Prices

Pharos Beam

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Botswana Government Forms New Diamond Trading Company

Botswana’s government has created a new private diamond trading company that will purchase, market and sell the portion of Debswana’s rough production that the state

is entitled to through the marketing agreement signed with De Beers last September, reports MmegiOnline.

The 10-year deal stipulates that the government of Botswana will buy 10 percent of Debswana run-of-mine production, which will rise to 15 percent over a four-year period, and sell it independently through open tenders outside the traditional DTC framework.

The government’s new wholly owned company, Okavango Diamond Trading Company, is expected to independently auction an estimated US$300-US$350 million worth of rough diamonds on the open market per annum from Debswana’s average US$3 billion-a-year supply, according to the news source.

Citing a speech to Parliament last week, Mmegi Online reports that Botswana’s Minister of Minerals, Energy and Water Resources, Ponatshego Kedikilwe, said his ministry had completed the incorporation of the private company and that its interim board of directors has been appointed. The news source adds that the appointment of Chief Executive Officer is to follow suit “immediately,” since the potential candidate has already been identified.

Last month, De Beers said it was still holding 2.2 million carats of rough supply out of Debswana’s 22 million carats production in 2011 that belongs to the government of Botswana.

Click here to read De Beers’ September 2011 announcement of its marketing agreement with Botswana: http://tinyurl.com/7vdf4a2

Botswana’s January Exports Drop 69% in Value

Botswana’s diamond exports for January 2012, which include both rough and polished, totaled US$109 million, signifying a year-year-year

decrease of 69 percent in value, compared to US$354.3 million worth of exports in January 2011, according to preliminary data released by the Bank of Botswana.

In 2011, Botswana exported US$4.6 billion worth of diamonds, an increase of 44 percent in value compared to 2010, whose exports totaled US$3.2 billion.

The bank’s figures are sourced from the Central Statistics Office, the Diamond Trading Company Botswana, Leo Schachter Botswana and Teemane Manufacturing in Gaborone.

Israel Diamond Institute Unveils New 2012 Campaign“We believe that now is the ideal time to do business with the Israeli Diamond Industry – the one trading center that offers

stability in a time of volatility and uncertainty,” said Israel Diamond Institute (IDI) Managing Director Eli Avidar, while speaking at the IDI’s annual press lunch last week at the Baselworld Watch & Jewellery Show in Basel, Switzerland, where he unveiled the IDI’s new strategic campaign for 2012.

According to Avidar, IDI has expanded upon its existing campaign of “Welcome to Israel,” by adding “where stability reigns.” The campaign will be the theme for all marketing efforts in Israel and abroad for the remainder of the year.

Israel’s diamond industry is “an island of stability, resting on strong foundations,” demonstrated by the industry’s recovery from the world economic crisis, with polished exports in 2011 totaling US$7.2 billion and exceeding pre-crisis polished exports, Avidar said in his address. He also noted that while other diamond centers had operated under an expansive credit policy, the Israeli sector had reduced its bank debt from US$2.2 billion in 2006 to US$1.7 billion, testifying to its health and resilience.

The IDI press lunch also featured guest speaker Prof. David Passig, world-renowned futurist, author of “The Future Code” and “2048,” and Head of the Graduate Program in Information & Communication Technology at Bar-Ilan University in Israel.

In his presentation Prof. Passig spoke about the mega trends that will shape the 21st century, specifically, the world’s changing demographics and how a decline in world’s population will shape industries and services.

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Sorting Debswana Rough at DTC Botswana

Eli Avidar, speaking in Basel

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Civil Society Groups Have Mixed Conclusions of Marange Tour

Representatives of the Kimberley Process (KP) Civil Society Coalition who toured mining operations in Zimbabwe’s Marange diamond fields last week, have acknowledged improved security at the mines but also expressed the need for more transparency and

accountability regarding production data, revenues generated and allocation of mining rights, according to media reports.

The NGOs composing the Civil Society Coalition were granted government approval to visit the region’s four mines that are KP-certified and licensed to operate there on March 7-8 , the first time since 2008,when Zimbabwe soldiers and police participated in a violent government takeover of the area. Their state-organized tour follows Prime Minister Morgan Tsvangirai’s visit last month.

FindingsWhile acknowledging the mines’ improved security, the

Kimberly Process Civil Society Coalition representatives voiced that their trip only observed technical matters related to production, and that they were not able to assess the human rights situation or get a sense of where the diamond revenue is going, reports

SW Radio Africa.Addressing a press conference in Harare

on Friday, after their tour concluded, the Civil Society Coalition representatives said there was need for the government to allow its members based in Mutare to visit the mining fields any time they wanted, reports the state-run Herald. They added that they would be negotiating with the government to get free access to the mining fields, which would help them come up with an objective report on Marange mining activities.

At the core of most criticism is that most mining ventures in the Marange area are owned and run by key Mugabe loyalists in the military and state security agencies, sources say. Just last week Marange Resources, which is owned by the government parastatal Zimbabwe Mining Development Corporation, announced the appointment of Retired Colonel Tshinga Dube, a senior ZANU-PF politician and member of the party’s supreme decision-making body, as its new chairperson.

A joint statement by the groups said because of time limitations they were not able to meet the relocated families “in order to obtain first hand information regarding the living conditions. This will be pursued in the near future,” notes SW Radio Africa.

Diamdel: Dubai Branch Fully Operational

De Beers’ Diamdel NV has announced that its Dubai branch, established in August 2011, is now fully operational, providing businesses based in the United

Arab Emirates (UAE) and India with the opportunity to purchase rough diamonds regularly via online auctions from its location at Dubai’s Almas Tower.

“Since September 2011, we have witnessed a significant amount of new registrations from UAE and Indian based diamond companies to view goods and participate at our Diamdel Days E-Auctions,” says Rhyzard Bilimoria, Diamdel’s Auction Sales Manager based in Dubai. “Our brand new team in Dubai have welcomed a significant amount of customers to our offices in the Almas Tower and to be already making regular sales to a good number of those customers is very encouraging.”

First Cycle of AuctionsIn other company news, Diamdel NV recently offered 323

lots of rough diamonds spanning Large, +2 caraters, Grainers, Smalls and Near Gem Diamdel Days product categories during its most recent auctions, the first cycle of 2012, held last month.

A total of 165 different businesses bid at the auctions, which resulted in 300 lots being sold to 76 different buyers. No buyer won more than 26 (8.6 percent) of the lots sold, with 58 percent of lots being won by Non-DTC sightholders in value terms.

According to Diamdel, while demand improved further during the period for all Diamdel Days product categories, growth in buyer requirements for Near Gem and Smalls products were most pronounced.

From a geographic perspective, Diamdel says that all major markets showed improved demand for rough, with the greatest pick up in demand displayed by India-based businesses. The company also says it witnessed a

“substantially” improved demand among Israel- and Belgium-based businesses, while demand from Asia Pacific-based buyers “held steady.”

‘‘The first sales of 2012 met with solid improvements in demand across all product categories and geographies. All our indicators point towards a continued, broad based strengthening in demand in the coming weeks and into early Q2,” says Neil Ventura, Diamdel Chief Executive Officer.

Almas Tower, where Diamdel Dubai is located

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Report: SA Govt. Approves State Mining Company

South Africa’s government has approved establishing a subsidiary of the country’s Central Energy Fund to serve as a standalone state mining company through which the state will become more involved in the

mining industry, reports mining.com. The new entity, called the African

Exploration Mining & Finance Company, is to receive an audit of all the state’s mining assets, and will be responsible for increasing the volumes of mine output beneficiated locally, adds the news source. It will reportedly focus on diamonds, iron ore, chromium, manganese, vanadium, nickel, titanium, coal, uranium, gold and platinum, most of which is exported in its raw form at the moment.

South Africa’s Cabinet, the most senior level of the executive branch of the government, said partnerships with private firms will be sought by the new organization, which has long-term ambitions to operate in southern Africa and in Africa as a whole, notes mining.com citing a Mining Weekly report.

According to the report, the decision for a state mining company is seen as placating those factions within South Africa’s ruling ANC party that have been calling for nationalization of the country’s mines. Last month, the ANC issued a draft report rejecting nationalization of the mining sector but outlining a greater government participation in it. The ANC report concluded that nationalization would be unaffordable, as the government would need to raise R1 trillion (US$125 billion) to buy out listed mining companies, a sum that exceeds the entire government budget.

To read more about the ANC report, click here: http://tinyurl.com/7wygffs

Zimbabwe Defends Increased Mining FeesThe increased registration, rental and license fees for Zimbabwe’s mining

sector, which the government recently announced, are consistent with the economy’s projected growth, according to Secretary for Mines and Mining Development Prince Mupazviriho.

Govt. PolicyThe minister said that in expanding upon these fees, the ministry had considered

the role the mining sector is expected to play in turning around the economy, reports the state-run Herald.

“We came up with a strategic plan after we had gone through a series of consultation,” Mupazviriho said, as quoted by the news source. “We are looking at a situation where there is release of ground that is not being utilized.” He added that the mining fees will go a long way in the release of unexploited claims that people have been holding on to for speculative reasons. This, he said, was part of “cocktail of measures” that the Ministry took to achieve economic targets with the Ministry of Mines expected to contribute 15 percent of revenue to the fiscus, reports the news source.

New FeesIn January, the government hiked registration fees for diamond and platinum

claims to US$5 million and US2.5 million, respectively. Miners now must also pay annual ground rentals ranging from $500 per hectare for chrome to $3,000 per hectare for diamonds, according to sources. The Herald also previously reported that the license to cut and polish diamonds will reportedly rise to US$100,000 from US$20,000, while a gold buying license will double from US$2,500 to US$5,000.

Stakeholders that include small-scale miners have publicly expressed concern over the fees, which they say had the effect of driving out indigenous miners from business.

Ghana Inaugurates Diamond Cutting, Processing Plant

Ghana’s state-run Precious Minerals Marketing Company (PMMC) recently inaugurated a diamond cutting and processing plant as part of an effort to promote added value in the downstream development of the country’s mineral

resource sector. The new US$480,000 plant, which has a start-up capacity of 1,750 carats of rough diamonds, will initially provide employment to some 40 people, to be expanded to 400 as production progresses, reports the government’s Information Services Department (ISD).

New PlantIn his welcoming address at the plant’s recent inauguration in Accra, PMCC

Board Chairman Kwabena Kyere said that the plant signifies the first phase in linking Ghana to other diamond-producing countries in Africa, reports ISD.

The plant is also intended to position Ghana as the polishing hub of the West African sub-region, which would create thousands of local jobs and generate millions of dollars to support the economy, the news source reported PMCC Board Member Seth Klaye as saying.

The acquisition and installation of the plant, procured with technical and financial support from India-based Ramani and Imperialdiam Company, is reportedly part of a government-backed initiative to secure the continued development of and investment in a mining and processing industry that will contribute to sustainable local economic development.

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Mining operations at De Beers' Venetia Mine in South Africa, where the government wants more involvement in the mining sector.

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Stornoway Announces Bought-Deal Equity Financing

Stornoway Diamond Corporation reports that it has entered into an agreement with Canada-based Scotiabank for a bought-deal financing of 15 million units. According to the Canadian diamond exploration and development company, each unit will be priced at C$1.00 and will be exercisable for one common share in the share capital of Stornoway for no additional consideration plus one-half of a common share purchase warrant. Moreover, each whole warrant shall entitle the holder thereof to acquire one share at a price of C$1.20 for a period of 24 months following closing of the offering.

Aggregate gross proceeds of the offering will be C$15 mill ion, and the net proceeds will be used for pre-development capital expenditures of the company’s wholly owned Renard Diamond Project in the James Bay region of North-Central Quebec and for general corporate purposes.

Closing of the offering is anticipated to occur on or about March 28, 2012, and is subject to regulatory approvals, including approval of the Toronto Stock Exchange, notes Stornoway.

The units issuable under the offering may also be concurrently offered in the United States on a private placement basis pursuant to applicable exemptions from registration requirements, adds the firm.

The company says it has granted Scotiabank an over-allotment option to purchase up to an additional 2.25million units at the offering price, exercisable in whole or in part at any time up to 30 days following closing of the offering. In the event that this over-allotment option is exercised in its entirety, the aggregate gross proceeds of the offering will be $17.25 million.

Stornoway says it is currently negotiating and anticipates concluding in the coming weeks a private placement of up to 10 million units, comprised of shares and common share purchase warrants, which the company says it currently intends to issue on substantially the same terms as the units issued pursuant to the offering.

For more details on Stornoway’s development of Renard, as well as other Canadian mining companies, read Chaim Even-Zohar’s previous editorial: http://tinyurl.com/6n6v2jr

Koidu Holdings to Quadruple Rough Output;

CEO Comments on Possible IPOSierra Leone diamond miner Koidu Holdings, which is said

to be mulling a possible flotation, aims to quadruple its rough output in July. The miner’s Chief Executive Officer, Jan Joubert, recently told Reuters that a US$200 million expansion of its existing facility would push output from a current 10,000 carats a month to 35,000 in May and to 45,000 carats in July.

Of the US$200 million expansion plan, Joubert said Standard Chartered Bank had provided US$135 million in funding, while Tiffany & Co, which purchases around 60 percent of Koidu’s output, is also contributing, notes the news source.

“We entered into a formal agreement in 2011 whereby we loaned Koidu $50 million to help them expand production of the mine, and increase its sale of high quality rough diamond output to us,” Tiffany’s spokeswoman Linda Buckley said, as quoted by Reuters.

Possible IPOAs DIB previously reported in January, citing a Financial Times

article, the Geneva-based natural resources company Beny Steinmetz Group (BSG) is considering an initial public offering (IPO) of its Koidu diamond mine on the Hong Kong stock exchange through a spinoff company called Octea, which serves as the holding company for the mine. The IPO may occur in the second half of this year. According to the news report, the aim is to raise US$400-US$600 million and achieve a valuation of US$2-US$3 billion.

The proceeds from any IPO would go towards developing the company’s separate Tongo diamond concession south of the Koidu project, Reuters discloses. Koidu Holdings acquired a concession at Tongo in 2004, and has invested US$15 million in exploration there.

Joubert told Reuters that the quality of the diamonds from Tongo is high, with 90 percent fitting the Tiffany profile, as opposed to 60 percent of those mined in Koidu. However, he also said it was too early to give production estimates.

To read the initial news report of Koidu Diamonds’ consideration of a Hong Kong IPO, as well as the Koidu Kimberlite project’s impact on Sierra Leone, click here: http://tinyurl.com/6sy4yaw

Aerial View of Koidu

Matt Manson, Stornoway's CEO,

President and Director

DIAMOND INTELLIGENCE BRIEFS 7152

DIGGING THE DIRT

Severalmaz Profit Falls 98% in 2011Alrosa subsidiary Severalmaz, which holds the license

to the Lomonosov diamond field in Russia’s Arkhangelsk region, posted a net profit of US$1.54 million (44.92 million rubles) in 2011, down 98 percent from US$71.13 million (2.095 billion rubles) in 2010, reports Interfax. The mining subsidiary, whose deposit is estimated to hold 20 percent of Russia’s diamond reserves, attributes the sharp drop in profit to its halt in selling diamonds on the market in the fourth quarter of 2011, reports Interfax.

Severalmaz used to sell diamonds mostly at auctions, but Alrosa abandoned this practice in the fourth quarter of last year due to deteriorating market conditions. As DIB previously reported, Alrosa bought 137,100 carats of rough diamonds from Severalmaz in the fourth quarter of 2011 for US$14.7 million.

Alrosa is aiming to keep Severalmaz at break-even level until the second stage of the Lomonosov mine goes into service in 2015, reports Interfax. Severalmaz told the news source that its sales revenue grew 40 percent last year to US$57.9 million (1.705 billion rubles).

Alrosa reportedly planned to sell 50 percent of the company to an investor in 2010. While interest was expressed by three parties, including Rio Tinto, Alrosa eventually decided against selling after its subsidiary’s finances stabilized and the diamond price situation improved, according to the news source.

Alrosa is said to be investing US$800 million in Severalmaz, which is preparing to commission the second stage of the Lomonosov mine, which has a capacity of 3 million tonnes of ore per year. Work is due to begin early this year, according to Interfax, which adds that full capacity of 5.6 million tonnes should be achieved by the end of 2015.

Report: Yakutia, Russia Ready to Sell 7% Stakes in Alrosa

The leadership of Yakutia and the government of Russia are prepared to each sell 7 percent of their respective shares in Russian diamond conglomerate Alrosa, Interfax reports, citing Russian Economic Development Ministry’s Property Relations Department Director Alexei Uvarov. The minister did not confirm when the sale might take place.

Currently, the Russian Federal Property Agency (Rosimuschestvo) holds 50.9256 percent of Alrosa’s shares; Yakutia’s Property Relations Ministry owns 32.0002 percent; eight districts of Yakutia own 8.0003 percent; and individuals and corporate bodies own the remaining 9.0739 percent.

Russian government officials had earlier said that the privatization of Alrosa would require the company’s shares to be removed from the Kremlin’s list of strategic companies, a process that takes at least a year as it requires the endorsement of the security agencies, Interfax notes.

According to Uvarov, the list of the Kremlin’s strategic companies only includes 38 percent of shares in Alrosa - the Russian government’s stake in the company before it was increased in 2006 to 50.9256 percent. Therefore, the shares that Russia plans to privatize are not technically classified as strategic, and the federal government could sell up to a 12 percent stake from its actual state stake, reports Interfax, citing Minister Uvarov.

As discussed at Alrosa’s supervisory board meeting last month, the Russian Federal Property Agency (Rosimuschestvo) and the Yakutia Property Ministry could each sell 7 percent of Alrosa’s shares on the MICEX-RTS exchange in the autumn of this year or spring of next year. Russian media sources have reported that consultants JP Morgan, Goldman Sachs and VTB Capital have advised that selling at least $1.4 billion worth of stock would be

“ideal” to keep the shares liquid. The federal and Yakutia governments would then retain 44 percent and 25 percent of the shares, respectively, if they each sell 7 percent.

In its financial report for the first nine months of 2011, Alrosa wrote that its

“production guidance” for 2011 is 34.5 million carats

Lomonosov Diamond Deposit

Alrosa's Mir Pipe

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DIGGING THE DIRT

Mountain Province Diamonds Discloses Details of Proposed Kennady

Diamonds Spin-outMountain Province Diamonds Inc. has disclosed further details

about the proposed spin-out of the company’s wholly controlled Kennady North diamond project in Canada’s Northwest Territories into a newly incorporated company called Kennady Diamonds Inc. (Kennady Diamonds).

DetailsThe proposed spin-out will occur through a plan of

arrangement and will be subject to regulatory and court approval, as well as shareholder approval at a special meeting currently planned for April 25, 2012. The Canadian diamond exploration and development company says it has taken steps, subject to court approval, to set the record date for notice of and voting at the special meeting as March 23, 2012.

Upon completion of the transfer of the Kennady North property and working capital in the amount of C$3 million (US$3.03 million) to Kennady Diamonds, Mountain Province says it intends to distribute 100 percent of the shares of Kennady Diamonds to Mountain Province shareholders on the basis of one Kennady Diamond share for every five shares of Mountain Province held by shareholders.

Intent“The proposed

spin-out of Kennady North is intended to deliver greater value to Mountain Province sha reho lde r s by unlocking the value of this highly prospective diamond project,” says Patrick Evans, President and Chief Executive Officer.

“The transaction will also enable Mountain Province to focus on its flagship Gahcho Kué JV with De Beers while Kennady Diamonds focuses on advancing the 123 square-kilometer Kennady North Project.”

Mountain Province is a 49 percent participant with De Beers Canada in the Gahcho Kué joint venture at Kennady Lake in Canada’s Northwest Territories. The Gahcho Kué project consists of a cluster of four diamondiferous kimberlites, three of which have a probable mineral reserve of 31.3 million tonnes grading 1.57 carats per tonne for total diamond content of 49 million carats.

The Kennady North project comprises 13 leases and claims located to the west and north of the four leases controlled by the Gahcho Kué joint venture.

Petra Diamonds Issues Exploration Update for Botswana Kimberlite KX36

Petra Diamonds Limited has issued an update in respect of the exploration work program at kimberlite KX36 (KX36) situated in Petra’s Kukama East project area in central Botswana.

A drilling and microdiamond sampling campaign was carried out at KX36 in 2011 and microdiamond results from samples taken from delineation/evaluation drill core have now been

received and analyzed. According to Petra, a total of 1,373 meters were

drilled in five holes. The deepest borehole was drilled to a vertical depth of 516 meters below surface, with the borehole ending in kimberlite at that depth. A total of 250 diamonds, collectively weighing 0.756 carats, were recovered from 403.88 kilograms of kimberlite. Nine commercial-sized diamonds were recovered, and the largest stone was a white, transparent dodecahedron, weighing 0.393 carats.

“These initial drilling and microdiamond analysis results indicate that kimberlite KX36 has significant potential, in terms of its possible size, diamond grade and potential coarse diamond size frequency distribution,” says Johan Dippenaar, Petra Chief Executive Officer.

“The next step is a large diameter bulk sampling drilling programme, commencing in April 2012, in order to obtain further information with regards to grade and an indication of diamond value.”

According to Jim Davidson, Petra’s Technical Director, “Our exploration programme in Botswana has led to the discovery of five new kimberlites so far and the strong micro diamond results and the favourable coarser diamond size indications for kimberlite KX36 are most encouraging.”

The Kukama East project area is in the south east extremity of the Central Kalahari Game Reserve. According to Davidson, KX36 kimberlite is approximately 60 kilometers from the nearest known kimberlite, meaning there is the potential for KX36 to be part of a new kimberlite field.

Patrick Evans, Mountain Province Diamonds Inc. President and CEO

Johan Dippenaar, Petra Diamonds' CEO

DIAMOND INTELLIGENCE BRIEFS 7154

OFF THE SHELF

Hublot Unveils $5 Million WatchSwiss luxury watch brand Hublot introduced a diamond-

covered timepiece last week at Baselworld, the world’s largest watch and jewelry fair, in Basel, Switzerland. The watch is covered with 1,282 diamonds, in total weighing more than 100 carats, including six square emerald-cut stones, each weighing more than three carats, all set in white gold according to a company statement. The diamonds cover the watch’s entire face as well as the band.

Describing the “completely different approach” used for designing this Big Bang timepiece, Hublot said in a statement that “the diamond cutters started with a design and then found

the diamonds which best matched the complex construction of the case, dial and bracelet. Cutters and setters then employed all of their expertise to resize them to ensure a perfect fit.”

Continued Hublot: “Once the technical design was finalized, then the diamonds had to be found and combined. It took one year for the largest stones which came from all four corners of the world, and then same fo the 1276 others. Every stone was

individually selected to ensure that all were of a consistent quality and color. They then had to be resized, one by one, to make them a perfect fit for the watch.”

According to the company, 17 people designed and constructed the watch during a 14-month process.

Hublot is a wholly owned subsidiary of French luxury group LVMH.

Gitanjali Acquires Japanese Jewelry Firm

Mumbai-based integrated diamond firm Gitanjali Gems Limited has announced that its wholly owned subsidiary, Aston Luxury Group Limited, has acquired entire stake in Leading Jewels of Japan K K with a view to expand its business in Japan and adjoining region, reports Reuters.

The main activity of Leading Jewels of Japan K K is production, sales, purchase, import and export of diamonds, precious stones, jewels and jewelry, according to a Gitanjali Gems filing to the stock exchanges.

Financial terms of the transaction have yet to be disclosed.

Tiffany Files $590 Million Counter-Claim against Swatch

U.S.-based jewelry retailer Tiffany & Co. has filed a US$590 million (542 million Swiss francs) counter-claim against its former business partner, Swiss watchmaker Swatch Group SA, over a contract dispute.

Tiffany’s claim in a Dutch arbitration court comes three months after Swatch sued it for lost profits it estimated at US$4.2 billion (3.8 billion francs), according to Reuters. Swatch says Tiffany’s claim

“has no factual or legal basis” and it will contest it “vigorously,” reports the news source, citing a Swatch statement.

In December 2007, the two companies entered into long-term joint venture to design, manufacture and distribute Tiffany & Co. branded watches worldwide. Based on the long-term commitments of Tiffany & Co., Swatch Group says it invested millions to develop, distribute and sell Tiffany & Co. watches through its own stores, its worldwide network of independent retailers and through Tiffany & Co. stores. However, sources say the venture didn’t turn into big business for either company.

Swatch has accused its former partner of systematically trying to block and delay development of the business and not giving the watches, marketed under the Tiffany brand, enough prominence in its stores, notes Reuters.

Tiffany in turn has said that Swatch did not honor the terms of the agreement, including providing adequate distribution, and was unwilling to work cooperatively with the jeweler.

The companies ended their joint venture cooperation in September 2011.

For more on this subject, click here: http://tinyurl.com/7zdouf7

AGTA GemJammin’ Raises $5000 for Jewelers for Children

The American Gem Trade Association’s (AGTA) annual GemJammin’ event, held in Tucson, Arizona, last month, raised US$5,000 for the Jewelers For Children charity. Over 250 people from the jewelry and gemstone industry attended the music jam, featuring players and singers from within the industry, notes AGTA.

“GemJammin’ is a great event for a wonderful cause,” states AGTA CEO Douglas K. Hucker. “It is a night dedicated to good music, camaraderie and helping the kids. Thank you to the sponsors and attendees for making it a rousing success.”

GemJammin’ contributing sponsors included: 100% Natural, Gemfields, Instore Magazine, Jewelers Mutual Insurance Company, Jewelers Refining Group, Manning International, MarmoFusion, Southern Jewelry News, Stuller, Swarovski Gems, True North Gems and the World Gem Society.

The event planning committee was comprised of Jack Malinowski, Marty Hurwitz, Gerry Manning and Adam Graham.

DIAMOND INTELLIGENCE BRIEFS 7155

OFF THE SHELF

Christie's NY to Offer Jewelry Collection of American Heiress

Christie’s has announced that it has been entrusted with the sale of a collection of jewelry from the Estate of Huguette M. Clark, one of the last great heiresses of America’s Gilded Age. Clark’s jewelry collection, which is believed to have been stored in a bank vault since the 1940s, includes signed Art Deco jewels by Cartier, Dreicer & Co., and Tiffany & Co., including an extremely rare 9-carat pink diamond ring and a 20-carat D-color diamond ring.

The complete collection of 17 jewels is expected to fetch between US$9 and US$12 million at auction on April 17, 2012, at Christie’s New York.

“In the world of fine jewelry, this is truly a fairytale collection,” says Rahul Kadakia, Head of Jewelry for Christie’s Americas. “Opening the vault to find this treasure trove of period jewels from the best French houses of the early 1900s has certainly been one of the most extraordinary moments of my 15-year career here at Christie’s. The iconic Art Deco design and exceptional craftsmanship of these meticulously preserved jewels are emblematic of the great Gilded Age in American history.”

Collection Highlights According to Christie’s, the star of the collection is a cushion-

cut fancy vivid purplish pink diamond of 9.00 carats, mounted in a Belle Époque setting by the French jeweler Dreicer & Co., which is estimated to achieve US$6-US$8 million. Based on the date of the stone’s setting - circa 1910 - the ring is believed to have originally belonged to Clark’s mother, the former Anna Eugenia La Chapelle, and was handed down to Huguette.

The Huguette Clark collection also features an exceptional colorless diamond ring of 19.86 carats, by Cartier, whose pre-sale price estimate is US$2-US$3 million. Certified by the Gemological Institute of America (GIA) as D color and with potentially internally flawless clarity, this stone was discovered in its original Cartier box from the 1920s.

Among the other pieces that the Huguette Clark collection includes are: a diamond bracelet by Cartier circa 1925, estimated to sale for US$300,000-US$500,000; a diamond and multi-gem charm bracelet by Cartier, also circa 1925, and estimated to sell for US$20,000-US$30,000; and a ruby, sapphire, emerald and gold bracelet possibly designed by Louis Comfort Tiffany, of Tiffany & Co. circa 1915, whose pre-sale price estimate is US$30,000-US$50,000.

Gemesis Launches E-Commerce Site to Market Full Line

of Lab-Created DiamondsGemisis Diamond Company, producer of gem-quality

lab-created diamonds and jewelry, has launched an e-commerce website through which to offer its full line of colorless and fancy yellow color diamonds and fine jewelry directly to consumers.

In addition to selling products via its website (www.gemesis.com), which features a Create Your Own jewelry component, the Florida-based company says it will also offer

parallel sales through limited retailers that subscribe to the company program – including education, approach and pricing philosophy.

“Being at the forefront of this industry breakthrough is exhilarating. We are so pleased to be able to make available our lab-created diamonds and jewelry selections,” says Gemesis Diamond Company President and Chief Executive Officer Stephen Lux. “The value proposition to consumers is tangible. It’s not only about price, but about getting the purest and highest-quality

diamonds. Add to that environmental responsibility and the ability to unequivocally know your diamond’s origin and we have a very special product offering.”

To prepare for its e-commerce launch, Gemesis retained French/West/Vaughan (FWV), one of the United States’ largest independent public relations, public affairs and brand communications agencies, in June 2010 for full-scale integrated marketing services, including research and discovery, brand identity development, banner advertising, pay per click (PPC) management, search engine optimization (SEO), email marketing, and public relations, as well as the design and launch of the company’s e-commerce site and web analytics oversight.

“In light of the entire customer movement toward environmental sustainability, this is the perfect time to bring Gemesis lab-created diamonds direct to consumers,” says FWV President and Chief Executive Officer Rick French.

“We feel fortunate to have been given the opportunity to help launch this exceptional choice in fine jewelry and look forward to continuing to educate consumers on its beauty,

quality and value.”Gemesis lab-created diamonds

are accompanied by grading certificates from the

International Gemological Institute (IGI).

The pink cushion-cut diamond (l) is estimated at $6-$8 million. The rectangular-cut ring is valued at $2-$3 million.

Gemesis Diamond Jewelry

DIAMOND INTELLIGENCE BRIEFS 7156

BRIEFLY NOTED

GIA Hosts First Graduate Gemologist Ceremony in Shanghai

The Gemological Institute of America (GIA) recently hosted its first Graduate Gemologist (GG) graduation ceremony in Shanghai, China, for 10 students who completed the program. The event was held at the School of Media Design at Shanghai Jiao Tong University, where classes were also conducted.

Ceremony attendees included university officials, business leaders, local media members, and GIA Vice President and Chief Marketing Officer Kathryn Kimmel, who presented the diplomas to the graduates.

The GG program in Shanghai was introduced in August 2011. The curriculum provides the opportunity to learn the 4Cs (Color, Cut, Clarity and Carat weight) related to the value of diamonds; grading diamonds in the D-Z color range; using equipment to grade and identify gemstones and colored stones; and detecting synthetics, treatments, simulants and fracture-filled diamonds and colored stones.

“We congratulate the graduates for this fine achievement,” said Seung-Hae Moon, managing director of GIA Asia Pacific Education. “The Institute is honored to serve the Shanghai community through gemological education and we look forward to continually guiding students to a rewarding career path in gems and jewelry.”

The majority of the graduates were from Shanghai with others being from Northern China, Japan and Singapore, according to Moon.

The second GG program and a Jewelry Design class in Shanghai will begin on Feb. 27.

Industry Players Make Forbes' 2012 List of Billionaires

Forbes Magazine released its annual list of the world’s billionaires for 2012, which includes an all-time high of 1,226 billionaires, with a combined wealth of a record US$4.6 trillion. In 2011, the list included 1,210 billionaires with a combined wealth of US$4.5 trillion.

Following Carlos Slim, Bill Gates and Warren Buffet as the list’s three wealthiest men, respectively, is Bernard Arnault, Chairman of French luxury goods group Louis Vuitton Moet Hennessy (LVMH). Under, Arnault, whose wealth totals US$41 billion, LVMH profits grew 22 percent in 2011, thanks to the successful integration of Italian jewelry firm Bulgari and record sales at Louis Vuitton, reports Forbes.

De Beers’ Nicky Oppenheimer, whose family sold De Beers to Anglo American for US$5.1 billion in November, is ranked number 139 on Forbes' list, down from a ranking of 136 a year ago, with US$6.8 billion. Other industry leaders on the Forbes list

of billionaires include: Israeli diamantaire Beny Steinmetz, worth US$5.1 bi l l ion and ranked as number 169, down from 162 last year; Johann Rupert of Swiss luxury group Richemont, worth US$5.1 billion and ranked as 199, rising higher on the list from 219 last year; English

jeweler Laurence Graff, worth US$2.6 billion and ranked number 464, falling from 459 last year; and Israeli diamantaire Lev Leviev, worth US$1.7 billion and ranked as 764, rising on the list from US$1.6 billion and a ranking of 782 last year.

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LVMH's Bernard Arnault,

ranked 4th on Forbes' list of the

world's bilionaires

in 2012.