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Antwerp
By Marc Goldstein
Looking ahead to the future, investments that started in 2001 — over a decade ago — are slowly but surely coming to fruition. The Renard Diamond Project, located about 500 miles north of Montreal, Canada, is about to become Quebec’s first diamond mine. Currently under construction, Renard is 100 percent owned by Stornoway Diamond Corporation, a Canadian diamond development company that owns 2 percent of the world’s supply of rough and prides itself on becoming the sixth largest diamond producer by value.
According to Stornoway, production for the fully financed and approved project is scheduled to begin in the second half of 2016, with actual sales expected to take place in Antwerp in 2017. Orin Baranowsky, a Chartered Financial Analyst® (CFA) and director of Investors Relations at Stornoway, provided updated information. “Sales should start in the second quarter of 2017, instead of the second half, and the average diamond price will be at $190 per carat, $10 more than initially assessed,” he said.
With an assessed mineral reserve of some 18 million carats, the mine life expectancy, which was initially determined to be 11 years, is now likely to increase due to the discovery and confirmation of new ore in the Renard 2 mine, at a depth of approximately 1,300 feet below the initial mineral reserve.
It is easy to understand why Canadian companies are opting for Antwerp as a commercialization hub, building on already existing ties. According to a release from the Antwerp World Diamond Centre (AWDC), “As a trade center and diamond producer, Antwerp and Canada have always maintained a close relationship because of the quality of demands that both implement with regard to transparency, ethical values and observance of national and international standards. The Renard mine is expected to yield 1.6 million carats of diamonds annually, with a value of $304 million. If the Renard production is marketed in Antwerp, the share of rough diamonds from Canada on the Antwerp market could increase by 64 percent.”
Christopher Gemerchak, on behalf of the AWDC, added, “It goes without saying that AWDC would welcome such a development, and is working with Stornoway to see this through to completion. Given that the rough production of Ekati, owned by Dominion Diamonds, and Diavik, co-owned by Rio Tinto and Dominion Diamonds, is entirely commercialized on the Antwerp market, the trade channels are already well established, so bringing the Renard production to Antwerp seems like a natural fit.”
Antwerp also offers a competitive advantage in its ability to act as a magnet for diamond miners seeking transparency. In the past, when the Oppenheimers ran De Beers as a monopoly operation, the diamond business was essentially a family matter in the broadest sense, since De Beers and all major diamantaires were indeed a big family. But today, mining is in the hands of financiers and companies listed on the major stock exchanges. Consequently, mining companies owe their shareholders the highest possible degree of transparency. Antwerp, with its strict fiscal, legal and administrative oversight, offers the optimum environment for these companies to achieve transparency.
The flip side of the coin, however, is that the price to be paid for strong adherence to enforcing the law falls on the Antwerp-based manufacturers and traders, further accentuating the existing imbalance between the revenues and profits of miners and manufacturers. There already is a need to find a solution to help smaller and medium companies alleviate their financial burden to access rough and recover acceptable profit margins, or the only remaining option — the most likely one, apparently — will consist either of further bankruptcies or mergers into larger companies.
Frank Fensie, of the Belgian Polished Diamond Dealers Association (BVGD), elaborated, “The decision to market the rough through Antwerp appears to be an obvious choice in view of the preeminent position occupied by our city on the global diamond map. Moreover, the soon-to-be-implemented Carat Tax will undoubtedly contribute to the reinforcement of their conviction to do so, helping the new mine to commercialize their goods with a maximized efficiency. There remains the issue of the access to rough for the small and medium companies (SMC), which is a real problem. The trend is indeed for producers to go for more tenders, but this means automatically less rough for the SMC, unless those tenders are to be combined with other sales methods. If a portion of their output could be sold via rough dealers, or through mid-term delivery contracts with manufacturers, it could become viable to all. The dealers are really needed, because they help to create a kind of buffer in the market, a role that was once filled by De Beers during their glory years. In other sectors, for instance in the automotive or the computer industries, they’re coming back to the same kind of buffer systems, after having abandoned them in the 1970s and 1980s.”Article from the Rapaport Magazine - September 2015. To subscribe click here.
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