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Rapaport TradeWire March 23, 2012

Mar 22, 2012 6:00 PM   By Rapaport
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  Rapaport TradeWire  
Rapaport TradeWire
RAPAPORT NEWS SERVICE | March 23, 2012   www.rapaport.com | news@rapaport.com
 
 
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Rapaport Weekly Market Comment March 23, 2012

Rough premiums rise as market sentiment improves. Polished trading advancing on steady Far East and U.S. demand. India's polished trade slumps in Feb. with exports -54% to $1.4B, imports -80% to $476M, rough imports +21% to $1.3B. Indian domestic market cautious as jewelers strike against tax hike on precious metals imports. U.S. retail demand stable: Tiffany & Co.'s 4Q revenue +8% to $1.2B, net earnings -2% to $178M. Signet Jewelers 4Q revenue +7% to $1.4B, net income +49% to $157M. Gem Diamonds 2011 revenue +49% to $396M, net profit +235% to $68M. Blue Nile appoints Harvey Kanter as president and CEO. EU extends sanctions on Zimbabwe’s Marange diamonds to February 2013.

RapNet Data: Mar. 22
     
Diamonds   867,084
Value $5,729,947,012
Carats   909,591
Average Discount -26.38%

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RAPAPORT ANNOUNCEMENTS
March
19-29
Mon-Thu
Rapaport
Rapaport Melee Auction
New York & Belgium

email: auctions@rapaport.com
March
20-28
Tue-Wed
Rapaport
Rapaport Single Stone Auction 
Israel & Belgium  

email: auctions@rapaport.com

  QUOTE OF THE WEEK
  [The year] 2011 saw several exceptional diamond discoveries at Letšeng, including the 550 carat Letšeng Star and we continue to see strong demand for our high-quality diamonds from both developed and emerging markets, despite the backdrop of challenging times for the global economy.

Clifford Elphick | Gem Diamonds

Careers@Rapaport  
 
The Rapaport Group is growing rapidly. If you wish to work with the best and brightest, join us. We have great opportunities for trading managers, gemologists, sales assistants, and entry level positions for our offices in New York, Antwerp, Mumbai, Dubai, and Shanghai. To get on the fast track, email your resume to careers@rapaport.com.


INDUSTRY  
 
Debswana Production to Increase Slightly

Debswana is targeting production of around 24 million carats in 2012, up about 4% from 2011, but the Botswana diamond company is currently mining at diminished levels as global economic uncertainties continue to impact its operations. While the volume of production has been lower in this first quarter, prices have held steady and this trend should continue through the first half of the year. Debswana’s life of mine plan enables production of up to 30 million carats, but the current price level for rough would not support such a quantity.

Debswana has lowered its price forecasts for 2012 and is working according to an average production value of around $150 to $160 per carat, compared with an average of about $170 per carat in 2011. Debswana, which is a joint venture between Botswana and De Beers, has four diamond mining operations, including its Jwaneng, Orapa, Letlhakane and Daamtshaa mines. Total production rose 3% year on year to 22.89 million carats in 2011 and accounted for 73% of De Beers Group output.




 
Botswana's Bourse Building Nears Completion

WATCH NOW: Botswana’s diamond bourse development is on track for completion by May 2012 as this new building is in the works to accommodate demand for office space at the Diamond Technology Park (DTP), according to Rutang Moses, the chief executive of the DTP and SAFDICO Botswana. In this video, Moses explains where the project stands and how it has attracted local and international producers who want to market their diamonds in Botswana.



RETAIL & WHOLESALE  
 
Jewelry Inflation +6%

U.S. consumer price inflation (CPI) in February for the jewelry sector jumped 6.4% year on year to 182 points. The reading was below the record high of 185 points set in January and the lowest measure since November. Nonetheless, the CPI for jewelry has now remained above 170 points for fourteen consecutive months, reflecting higher prices for precious metals, diamonds and gemstones.



 
Tiffany's 4Q Profit -2%

Tiffany & Co.'s fourth-quarter revenue rose 7.8% year on year to $1.2 billion while cost of sales rose 9.3% to $470.5 million for the three months that ended on January 31. Comparable-store sales during the quarter rose 8% worldwide, but by only 5% in the Americas. Same-store sales surged 19% across the Asia-Pacific and by 12% in Japan. Europe's same-store sales rose 3%. Net earnings fell 1.7% to $178.4 million.

At the close of its fiscal-year, Tiffany's cash and cash equivalents were $442 million, down from $741 million, and debt equaled $712 million, which was up from $688 million one year ago. Net inventory jumped 28% year on year to $2.1 billion as of January 31. Tiffany spent $239 million on capital expenses during the year, nearly double the amount from the previous period.




 
Signet's 4Q Profit +49%

Signet's sales during its fourth-fiscal quarter, which included Christmas season and ended on January 28, rose 6.5% year on year to $1.35 billion while cost of sales increased 5.1% to $790.6 million. U.S. division same-store sales rose 8.3% and U.K. comparable-store sales improved 1.2% in local currency. Gross margin increased 80 basis points to 41.6% in large part due to an improved U.S. debt ratio and price hikes due to higher commodity prices. Net earnings for the quarter jumped 48.6% to $156.6 million, or $1.79 per diluted share.

In review of Signet's fiscal-year, the company observed that branded jewelry and exclusive products drove sales. In particular, the retailer stated that Neil Lane Bridal, Charmed Memories and Tolkowsky Diamond brands performed very well. U.S. division sales were also higher due to "compelling merchandising initiatives" as well as higher prices. Furthermore, its U.S. net bad debt to sales ratio fell to 3.4% from 4.2% in fiscal-year 2011. Signet's retail brands also increased customer financing to 56.1% from 54.2% in 2011. Signet closed 24 stores in the U.S. during the year and opened 25 new locations.



 
Bidz's Loss Grows

Bidz.com reported merchandise sales fell 19% year on year to $79.1 million, while wholesale sales rose almost 9% to $6.8 million for the fiscal-year that ended on December 31. The online retailer reported a net loss of $7 million for the year, compared with a loss of only $1.4 million in fiscal-year 2010. Bidz.com closed the fourth-quarter with $1.2 million in cash, $22.2 million in working capital and no debt.



 
Faberge to Launch New Site in April

Fabergé created a new online boutique to launch on April 16. The iconic jewelry brand invites clients to discover the world of Fabergé online, explore its rich history and browse fine jewelry collections. The website will complement Fabergé’s existing network of retail stores and conduct transactions in multiple currencies. The website also features an interactive area where clients can engage the brand and experience social projects such as the Mir Fabergé art initiative. The site is also available through an iPad application.



 
RBI Tightens Lending Rules

The Reserve Bank of India (RBI) tightened rules for how non-banking financial companies (NBFCs) lend funds using gold and jewelry as collateral given such rapid growth of this activity. NBFCs  have recorded significant growth in recent years and this has led to their increased dependence on public funds, including bank finance and non-convertible debentures issued to retail investors, RBI said in a notification on Wednesday. 

The central bank stated that NBFCs cannot lend more than 60% of the value of gold jewelry and they have to disclose the percentage of such loans to their total assets in their balance sheet. It added that companies whose loans comprise 50% or more of their financial assets should have a minimum tier 1 capital, or equity capital, of 12% by April 1, 2014. RBI also prohibited NBFCs from lending against bullion, primary gold and gold coins.




 
New Taxes Roil Jewelers in India

India's Union Budget proposed a customs duty of 2% on cut and polished colored gemstones to prevent round-tripping, which would match a 2% import tax already imposed on polished diamond imports since January.  The budget extended an excise duty of 1% on branded jewelry to now include unbranded jewelry, and it doubled the tax on gold bars and coins and platinum  to 4%. The duty on refined gold would double to 3%,  non-standard gold would be slapped with a 10% duty and that is up from the current rate of 5%. Tens of thousands of jewelry and bullion stores  across the country shut their shops in protest of these measures this week.

Separately, the Surat Municipal Corporation decided to collect professional tax from diamond manufacturers and workers, which prompted widespread angst across Surat's businesses.



GENERAL  
 
HRD Inquiry Underway

Rumors from Antwerp allege that a bribery claim was being investigated at the HRD and that four employees were asked to resign. It was further alleged that five Indian companies and one Antwerp-based firm were involved. Sources claim that a police investigation was ongoing, but there has not yet been an official statement from the HRD.



 
Rough Diamond Trading Reports Due

The U.S. State Department requires that rough diamond importers and exporters file an annual report with the Office of the Special Advisor for Conflict Diamonds each calendar year on April 2. The Jewelers Vigilance Committee reminded the trade that the report must state the total carats of rough diamond imports and exports and any stockpiles remaining at the end of the year. Once completed, the report should be submitted by email to USKimberleyProcess-at-state.gov. The Jewelers Vigilance Committee offers a form to assist diamond dealers with this obligation.



 
Blue Nile Names New Chief

Blue Nile appointed Harvey Kanter as its new president and chief executive, effective March 30, following the resignation of Diane Irvine from the post in November 2011. Kanter previously served as president of Moosejaw Mountaineering and Backcountry Travel Inc., a multichannel retailer of premium outdoor apparel and gear. Prior to that he was executive vice president and managing director of Michaels Stores, a large craft-store chain in the United States and Canada.



 
Zimbabwe Fosters Indian Partnerships

Zimbabwe invited Indian companies to explore new business opportunities in the country’s diverse sectors such as mining, diamond cutting and polishing, power generation, telecom and tourism as part of its ''Medium Term Plan'' launched in 2011. Many business sectors will offer attractive investment opportunities, Joice Mujuru, the vice president of Zimbabwe, said in her address at the eighth CII-EXIM Bank Conclave on India-Africa Project Partnership in New Delhi on Sunday. Mujuru emphasized value-added business activities and made a special reference to the diamond polishing and cutting industry, which would greatly benefit from closer business engagements with Indian companies.



 
Milovanovic to Speak at WDC Plenary

Gillian A. Milovanovic, the U.S. chair of the Kimberley Process, will address the eight annual meeting of the World Diamond Council (WDC), which will take place in Vicenza, Italy, May 13 and 14. She will join senior government officials from a number of countries who will be attending the event as well. Milovanovic was also in India this week to check on Kimberley Process practices and to learn local trading operations in Surat.



MINING  
 
Gem Diamonds' Profit Soars

Gem Diamonds reported revenues grew 49% year on year to $395.6 million in 2011 and attributable net profit more than tripled to $67.7 million. Revenues include about $67.4 million worth of diamonds from the company’s downstream activities. Cost of sales increased 11% to $196.8 million. Gem Diamonds noted that rough diamond prices rose sharply in the first half of 2011 but fell by about 30% in the third quarter due to the deepening Eurozone financial crisis and tightened bank liquidity, before stabilizing in the fourth quarter. Prices for rough diamonds overall ended the year approximately 16% higher than at the end of 2010, the company reported.



 
Namakwa, Batla Legal Issue Continues

Namakwa Diamonds informed shareholders that it is still involved in litigation with Batla Minerals. The next hearing is scheduled for April 27 at which time Batla Minerals seeks an appeal against a decision of the High Court of Lesotho to dismiss its original claim against, inter alia, Namakwa to a 50% interest in Namakwa's 62.5% shareholding in Storm Mountain Diamonds. Namakwa considers Batla Minerals' claim to be without merit.



 
Rockwell, AVR Reach Agreement

Rockwell Diamonds reached an agreement with Africa Vanguard Resources (AVR) with respect to acquiring the Jasper diamond mine property, which is contiguous to Rockwell's Saxendrift mine and has the potential to extend the life of Saxendrift with only limited investment. As required by South Africa's beneficiation laws, Rockwell allowed AVR to purchase a 26% interest in subsidiaries of the company and has been in discussions regarding the replacement of the vendor funding.

The restructuring agreement states that Rockwell will pay AVR $1.9 million in the form of Rockwell shares, listed on the JSE Limited. AVR has undertaken not to trade these shares for a period of one year. Incorporated into the settlement arrangements is Rockwell's acquisition of the Jasper mine, subject to various conditions and regulatory approvals. Preliminary estimates indicate that the Jasper mine, which is a brownfield opportunity, has remaining diamond-bearing deposits that are easily accessible to the infrastructure at the Saxendrift mine and could extend the life of Saxendrift past its current three-year expectation.




 
Botswana Diamonds Begins Sample Programs

Botswana Diamonds began sampling operations on its Mobilong license in Cameroon. The junior explorer is gathering two 100 to 150 tonne samples from areas that were identified as potentially diamond-bearing. Results of the sample will follow in the second quarter. Secondly, in Zimbabwe, a small bulk sample is ongoing on diamond claims in the Masvingo area. Rio Tinto discovered diamond indicator minerals and kimberlites on those claims. Botswana Diamonds owns 49 percent of the Zimbabwe project while locals own 51 percent.



 
Shear Raises $3M

Shear Diamonds Ltd. closed a private placement that resulted in approximately $2.8 million. Shear issued 2,787,446 conventional units at 36 cents per unit and 4,640,600 flow-through units at 40 cents per unit. The securities are subject to a hold period that expires July 22, 2012. Proceeds will be used primarily for equipment and other expenses related to company's efforts to bring its Jericho diamond mine back into production.


STATS  
 
India

  Feb. $Mil. %Chng. YTD $Mil. %Chng.
Polished exports $1,443 -54% $3,216 -39%
Polished imports $476 -80% $1,421 -69%
Net exports $967 31% $1,795 -42%
         
Rough imports $1,331 21% $2,425 15%
Rough exports $108 -16% $261 12%
Net imports $1,224 26% $2,164 11%
         
Net diamond account ($257)   ($370)  


 
Russia

  Mil. 2011 %Chng.
Carat production 35.140 1%
Value $2,675 12%


ECONWATCH  
 
Diamond Industry Stock Report

Industry-related retail shares were largely lower this week on profit taking and weaker than expected results. There were only a few exceptions: Tiffany (+5%), Damiani (+2%), Asian Star (+8%), Michael Hill (+2%), Harry Winston (+7%). Mining companies performed better with Gem Diamonds (+23%) leading the way.
Read the extended industry stock report for this past week.

  Mar. 22 Mar. 15 Chng.  
$1 = Euro 0.758 0.760 -0.002  
$1 = Rupee 51.22 50.28 0.9  
$1 = Israel Shekel 3.75 3.77 -0.02  
$1 = Rand 7.71 7.63 0.08  
$1 = Canadian Dollar 1.00 0.99 0.01  
         
Precious Metals        
Gold $1,643.60 $1,656.40 -$12.80  
Platinum $1,617.00 $1,680.00 -$63.00  
         
Stock Indexes       Chng.
BSE 17,196.47 17,675.85 -479.38 -2.7%
Dow Jones 13,046.14 13,252.76 -206.62 -1.6%
FTSE 5,845.65 5,940.72 -95.07 -1.6%
Hang Seng 20,901.56 21,353.53 -451.97 -2.1%
S&P 500 1,392.78 1,402.60 -9.82 -0.7%
Yahoo! Jewelry 975.89 1,197.66 -221.77 -18.5%


INDIA MARKET REPORT  
 
Polished and rough trading activity

Local polished trading is steady with some shortages for SI goods; rough trading weakens with little to no compromise on buying/selling prices.  Read the full report.



 




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