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Seeking a Better Diamond Future
Q&A with Jean-Marc Lieberherr, Managing Director of Rio Tinto Diamonds
Jul 17, 2015 12:00 PM
By Ronen Shnidman
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RAPAPORT... Jean-Marc Lieberherr has worked at Rio Tinto’s diamond division for the last decade and has served as its managing director since 2013. Before joining Rio Tinto he worked in a variety of sales, marketing and management roles in Europe and Asia for LVMH and Unilever. Rio Tinto sold its 78 percent stake in Murowa to local partner RioZim. RioZim, previously a subsidiary of Rio Tinto plc, separated from its parent company in 2004 and became a wholly owned Zimbabwean company.
Rapaport News: How do you see is the diamond market now?
 JML: Currently, there is clearly a lack of profitability in the trade, especially in the manufacturing sector. This is worrying because the industry requires a manufacturing sector capable of offering competitive wages and working conditions. Margins and return on capital need to improve and reach sustainable levels. It will take some time for the flow of goods to normalize and will, of course, be in part a function of the mining companies’ production and approach to supplying manufacturers.
There’s no room for free riders in the diamond market but serious, efficient players must make a fair return. There is less ability and willingness across the whole value chain to finance high inventory levels. Everyone is trying to reduce working capital, from mine to retail. At the same time, retail sales have slowed, so it’s not surprising that the pipeline is congested when viewed from the macro level.
RN: What’s your sense of specific consumer markets?
JML: The U.S. has been remarkably resilient and continues to be the cornerstone of the diamond business. It will however require constant stimulation if it is to continue in this role.
The Greater China and India consumer markets are slow for the time being, after a few years of sustained growth and a distribution build-up. There is still great potential for increased penetration of diamond jewelry in these markets as their middle classes grow and urbanization continues. It will just take a bit longer than what was anticipated a few years ago and it will require focused efforts from all partners in the diamond value chain.
RN: What led Rio Tinto to sell its Murowa diamond mine in Zimbabwe?
JML: Murowa is a small asset that doesn’t really fit in our portfolio and will be better positioned under existing local interests. As far as Zimbabwe is concerned, we have enjoyed an excellent partnership with the government for 60 years and intend to keep a close eye on opportunities that may arise in the future. Taxes were not a consideration.
RN: Rio Tinto’s diamond division is scattered across several continents, how does that influence management and operations?
JML: I manage the business in an integrated way from mine to market with a small team. The rest of my leadership team is comprised of about 10 senior operations and marketing personnel. We talk every month and meet face to face for several days three times a year.
I wish we could move our mines to be in the same hemisphere and less than 9,000 miles apart, but I am afraid we have no choice. I accumulate a large number of frequent flyer miles and live on planes between Antwerp, London, Canada, Australia and India.
RN: What’s the long-term plan for your diamond mines portfolio after reserves at Argyle and Diavik run out?
JML: Our Bunder project in India looks promising and the country displays the potential to have more diamond deposits. Production sampled there to date has a high concentration of nice white gems and a significant proportion of brown-color (champagne and cognacs) diamonds. The project must still clear many hurdles but we are excited by the great variety of diamonds there, which offer great opportunities for product differentiation based on color and origin.
We also maintain a targeted diamond resource exploration program in India and Canada but finding and developing new diamond deposits is a long and uncertain path. Overall, we remain very positive about the industry and its fundamentals. As far as Rio Tinto’s production is concerned, we operate two underground mines that require the constant processing of ore. This makes moderating production based on market demand very difficult and costly.
The reality in the industry is that all players in the value chain depend on each other, and a mature dialogue is needed to restore confidence. We have a great industry with great potential if we can unlock it together.
RN: What are the largest markets for Argyle’s colored diamonds?
JML: When Argyle opened there was no market for either the large volume of brown diamonds or the tiny volume of rare pink diamonds produced by the mine. The market had to be developed from scratch, which was done very successfully with the introduction of champagne and cognac-color diamonds.
Today, the largest market for champagne diamonds is still the U.S. but India, China and the Gulf have been catching up. The work we have done with Chow Tai Fook to develop the fashion jewelry category has provided a new sales channel for champagne diamonds but it is still in its early days.
The strategy we implemented with the Argyle pink diamond production is in line with that of top luxury brands: total control over the product – its manufacture, distribution and branding. Our operation in Perth keeps full control over every aspect by staying close to the source. It also maintains a sense of our heritage. Argyle pink diamonds have long been very well established in Australia, Japan and Europe. Interest in Argyle pink diamonds is also starting to grow in the U.S. market.
We sell the best of a year’s production of pink diamonds, some 50 to 65 diamonds, through the annual Argyle Pink Diamonds Tender. At their best, these can exceed $2 million per carat, making them the most expensive substance on earth by weight.
This year’s tender of 65 diamonds includes four rare red diamonds. We just launched the tender in Sydney and it will travel to Hong Kong and New York before bids close on October 21.
RN: What’s the philosophy behind your branding efforts with the Nazraana brand in India and “Diamonds with a Story” campaign?
JML: Our philosophy behind our retail brand activities is to open more channels in new or existing markets for our products. This could be through our own jewelry brand, such as Nazraana brand in India, our partnerships with retail jewelers, such as the Colours of Australia collection we created with Chow Tai Fook in China.
“Diamonds with a Story” is continuation our efforts to collaborate with the trade on innovative concepts and brands built around our diamond production. The combined, coordinated efforts of miners, diamantaires, jewelry manufacturers, designers and retailers are key to the success of this formula.
We’ve been very satisfied with the way new markets, including in China, and sales channels have opened for the mainstream Argyle production to date. A partnership approach is key to the development of the successful innovative concepts needed to expand the diamond market.
RN: What are your expectations for the Diamond Producers Association?
JML: The launch of the Diamond Producer Association is a long overdue initiative and I am delighted that seven top diamond producers are working on this initiative.
The primary task of the DPA is to develop and execute plans to maintain and enhance consumer demand for and confidence in diamonds.
Our initial budget commitment will kick-start the effort, including needed market research and implementing a few, simple but effective public relations and digital marketing initiatives. From little efforts, bigger things can grow.
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Tags:
Argyle Diavik, champagne, cognac, Jean Marc Lieberherr, Jean-Marc Lieberherr, Lieberherr, Murowa, pink, red, Rio Tinto, Ronen Shnidman
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