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Zimbabwe Diamonds Won’t Affect De Beers, Says Mellier

Company Focuses on Retail as Carat Sales Slump

Feb 12, 2012 6:34 AM   By Avi Krawitz
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RAPAPORT... The large quantities of rough diamonds from Zimbabwe’s Marange mines currently entering the market will have little impact on demand for De Beers goods or its prices, Philippe Mellier, De Beers chief executive, told Rapaport News.

“There will be competition from Zimbabwe, but I don’t think these diamonds will have a material impact on the market,” Mellier (pictured) said. “We know the Zimbabwe stones are of a lower quality and certainly compared to the quality of diamonds that De Beers is offering, I think we can compete quite nicely.”

Companies operating four mines in the Marange fields resumed their diamond sales after the Kimberley Process  approved exports from the mines in November 2011.

The approval came in the wake of stalled  negotiations that have characterized the Kimberley Process since it enacted a ban the exports in 2008 due to evidence of human rights abuses related to  Zimbabwe’s ownership of the fields. Global Witness, a nongovernmental organization and founding member of the Kimberley Process, resigned from the organization in 2011 over the Zimbabwe decision, criticizing, among other things, the Kimberley Processes' failure to incorporate human rights abuses into its conflict diamond definition.

Mellier declined to comment on how the Kimberley Process addresses human rights issues and stressed that De Beers remains committed to the process.

''It’s very important that we have a strong Kimberley Process both for us and for the consumer,'' he said. ''As long as Zimbabwe is part of the Kimberley Process and adheres to its principles, I don’t have to comment.'' He added that De Beers cannot prevent its sightholder clients from buying Zimbabwe goods as long as the goods are compliant and that the sightholders abide by De Beers best practice principles. The U.S. and European Union governments have sanctioned trade with the owners of the Marange mines.

Since the November Kimberley Process decision, the Marange mines have ramped up production to exceed 1 million carats a month and output is expected to reach around 20 million in 2012. With sales taking place in January and February some have expressed concern that they are flooding the market with goods at a time when demand has softened.

Lower De Beers Volume

De Beers on Friday reported that group sales grew 26 percent to $7.38 billion in 2011 but noted that demand weakened in the fourth quarter as the European debt crisis ushered caution to the diamond market, which continued through January.

De Beers rough prices rose 29 percent during the year having receded slightly from the highs seen in the middle of the year. But the company maintained caution in its production levels, which fell 5 percent to 31.328 million carats during the year. Mellier told Rapaport News that the company sold just 29.29 million carats during the year, down 24 percent from the 38.63 million carats reported in 2010. 

Mellier added that De Beers has held back goods to supply to the Botswana government following the September supply agreement between the two, which enables the government to sell 10 percent of Debswana production independently of the De Beers Diamond Trading Company (DTC). Production at Debswana, the mining joint venture between De Beers and the government, rose 3 percent to 22.89 million carats in 2011, indicating that around 2.2 million carats would be supplied to the government under the agreement, which was effective retroactively on January 1, 2011.

“We have offered the 2011 allotment but the government has not taken it,” he said. “On the other hand it has not been sold either and is still available.”

The government is expected to start hosting rough auctions or tenders later in 2012.  

Shift to Retail

Mellier stressed that while DTC is in the process of moving to Botswana as part of the agreement, De Beers headquarters will remain in London, close to parent company Anglo American. He stressed that being in London also serves as an important mid-point between the two largest markets for diamonds, the U.S. and China, and will enable it to focus on growing its brands in those regions.

Having joined the company in mid-2011, Mellier explained that the business is looking to increase its rough selling business and especially its brand presence given the growing competition among jewelry brands in the global market.

“While generic advertising was once good for De Beers and the industry it is no longer the case and we see a very big push to promote branded jewelry. That’s why we are pushing our brands in the market,” he explained. “Forevermark is growing and so is De Beers Diamond Jewellery, and so are markets in China, Hong Kong and India. So we see a lot more potential in the retail side of the business.”

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Tags: Avi Krawitz, Botswana, De Beers, Debswana, diamond, Diamond Trading Company, diamonds, DTC, Marange, Philippe Mellier, Rapaport, Rough Diamonds, Zimbabwe
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