Cash-strapped cutters embrace De Beers offer

[] – AN unusual offer by De Beers, allowing sightholders
to defer up to 50% of purchases from its latest sight to March next year, had been
“welcomed’ according to Philippe Mellier, CEO of De Beers.

“We will get the results from the sight in the next few days. My assumption is that a
lot [of sightholders] will take the opportunity,’ said Mellier.

“Money available for lending has become more scarce. The amount of dollars to the
industry is quite capped,’ he added.

Mellier was speaking following the announcement of the diamond group’s first half
operating and financial figures, in which sales by De Beers’ trading arm, the
Diamond Trading Company (DTC), fell $400m to $3.1bn compared on a year-on-year

De Beers holds 10 “sights’ a year, in which it presents rough diamonds for sale to
approved buyers, polishers and cutters who borrow heavily from banks to pay for the
goods. The Eurozone economic crisis, and difficulties with the regions banks, had
reduced liquidity.

Mellier said the offer to provide deferments on rough diamonds signalled De Beers’
responsibility to sightholders. Normally, De Beers allows a deferment of purchases
from one sight to the next, but never before has it provided buyers with so much
breathing space.

Nonetheless, Mellier said the fundamental condition of the diamond market
remained intact. “There are pretty good opportunities for the diamond market to go
up,’ he said.

De Beers expected “moderate growth’ in the diamond market this year, although
demand in India and Europe remained weak.

He expected, however, that India, the Gulf region and China would constitute 40%
of all diamond sales by 2014 and therefore represented the bulk of growth in the
market in the medium term. Currently the US comprises about 48% of diamond

De Beers’ diamond production totalled 13.4 million carats in the first half of the
year, a reduction on the 15.5 million carats in the first half of the 2011 financial

Diamond supply is normally metered in line with expected buying at the cutting and
polishing centres, but this year production was additionally affected by an accident
at the Jwaneng mine, held in joint venture with Botswana’s state-owned Debswana,
in which three employees lost their lives.

Production had been interrupted for a 20-day period, but Mellier said output was set
to resume shortly. The production decline at Jwaneng would be made up by other
mines in the group’s portfolio, he said.


A $295m settlement of anti-trust litigation in the US, involving a number of class
actions, had been deemed unconditional by the authorities paving the way for De
Beers to trade unencumbered in the region, for the first time since 1948.

Mellier hailed the moment as historic, but declined to provide details on how the
group intended to extend its trading activities in North America. “Give us a bit of
time,’ he said. “We will be celebrating being able to trade in the US in the autumn.’

In the past, De Beers has been restricted to buying large operating mines owing to
anti-trust fears. However, the decisions by BHP Billiton and Rio Tinto to divest from
its diamond businesses created opportunities for De Beers to entrench its leading
position in world diamond production. This is largely held through its joint
venture with Debswana.

Mellier said that a decision by Debswana as to whether it would exercise a pro-rata
pre-emption on the sale of the Oppenheimer family’s 40% stake in De Beers was
imminent. “So far, we’ve had no news from Botswana. The process is expected to
close before the end of August,’ Mellier said.

Analysts told Miningmx last week that the Botswana government was likely
to pass on the pre-empt option, which was estimated to cost it $1.25bn.
The Botswana government already owns 50% of the De Beers’ Botswana business
via its joint venture, and effectively gets 80% of the income. Botswana also has the
right to market 10% of its own production from the joint venture while De Beers is
also relocating its sorting and marketing offices to Botswana’s Gabarone.

Mellier said the migration of the sorting office to Gabarone from London was ahead
of schedule and would be completed before the end of 2013.