Professional Jeweler Archive: Supply Changes Dominate Headlines

February 2005


Supply Changes Dominate Headlines

De Beers, Botswana, Russia, Canada and conflict diamonds in the news this month

Botswana & De Beers Renew Partnership

The Government of the Republic of Botswana and De Beers renewed their diamond mining and marketing partnership for 25 years.

“The renewal of the Jwaneng mining license and the extensions of the Orapa, Damtshaa and Letlhakane mining licenses mark the long-term continuation of the unique and important partnership between the government of the Republic of Botswana and De Beers,” the partners said in a statement released Dec. 20, 2004.

Botswana is a key supplier for De Beers. Before the announcement, there had been speculation the longtime partnership was shaky.

De Beers to Scale Back Purchases from Alrosa

De Beers will phase down the amount of diamond rough it buys from Alrosa, the Russian state-owned diamond company. De Beers will buy $700 million in rough diamonds in 2005, $625 million in 2006, $550 million in 2007, $475 million in 2008, $400 million in 2009 and $275 million in each succeeding year.

The two companies notified the European Commission of the change, which was spurred by an EC investigation concerning a 2002 agreement in which De Beers said it would buy $800 million in rough diamonds in each of five years from Alrosa. The EC objected, saying that agreement appreciably restricted competition in rough diamonds and constituted “an abuse of De Beers’ monopoly power.”

“We believe these [new] proposals address the concerns the commission identified on the agreement and look forward to having these formally accepted early in 2005,” says De Beers.

Meanwhile, De Beers and Alrosa continue to trade on a willing buyer, willing seller basis, the companies say in a joint statement.

India Receives Kimberley Process Review

A six-member delegation from the Kimberley Process visited India in December to review its implementation of the process, according to Rapaport News. India requested the review, according to the Gem & Jewellery Export Promotion Council, to allow Kimberley Process officials to see India making sincere efforts to implement the process.

The delegation included two Canadian government officials; one official each from the U.S. State Department and the European Commission; Eli Izhakoff, chairman and chief executive of the World Diamond Council; and Alex Yearsley of non-government organization Global Witness.

The delegation visited Mumbai, Surat and the Santacruz Electronic Export Processing Zone, where diamond export processing units are located. The delegation also held talks with government officials during a visit to New Delhi.

Russia Largest Producer by Volume

Russia released diamond production figures under pressure from the Kimberley Process Certification Scheme. Kimberley officials said the formerly secret information is necessary to monitor diamond imports and exports, a key requirement for any country that wants to trade rough diamonds. The information reveals Russia is the largest diamond producer in the world by volume with 33 million carats, while Botswana comes in second with 29 million carats (2003 figures), according to the Russian Finance Ministry.

U.N. Renews Liberia Diamond Ban

The United Nations Security Council renewed sanctions Dec. 21 against Liberia’s diamond and timber industries and reimposed bans on weapons importing and travel by certain former officials, according to the U.N. News Service. The action follows a report citing failures in Liberia’s management of its major natural resources and speculating that proceeds from the resources might still be fueling conflicts. The council imposed the export bans as well as an arms embargo between 2001 and 2003 after accusing then-President Charles Taylor of fueling conflict in the region through an illicit guns-for-diamonds trade.

Liberia’s finances remain in shambles, and the authorities cannot ensure that revenue from resumed trade in diamonds and timber would be used to benefit the lives of ordinary Liberians, say the report’s authors. The new government in the impoverished West African nation of 3.2 million people pushed hard for the U.N. sanctions to be lifted so it can resume diamond and timber exports to help rebuild its economy after 14 years of on-and-off civil war.

Diamond sanctions were renewed for six months but will be reviewed after three months because the country had made some progress toward implementing the Kimberley Certificate of Origin regime for its rough diamonds, the council said.

Antwerp Court Convicts in Conflict Diamond Case

A Belgian court sentenced eight people to up to six years in prison for smuggling conflict diamonds from Africa into Antwerp, according to Reuters. They also were fined $81.77 million for failing to declare the diamonds to customs officials.

Ringleaders Samih Ossaily and Aziz Nassour were sentenced to three and six years in jail, respectively, for importing diamonds from conflict areas of Sierra Leone and the Democratic Republic of Congo. The court sentenced six other members of the ring to up to 30 months.

In November 2001, The Washington Post reported that Ossaily and Nassour bought smuggled diamonds from Sierra Leone and also worked with terrorist group al Qaeda. At the time, Ossaily, a naturalized Belgian originally from Sierra Leone, denied the allegations, saying he had no connection to al Qaeda leader Osama bin Laden or his network and that he never smuggled diamonds through Antwerp.

Tiffany Sells Stake in Aber, Pays Market Price for Diavik Diamonds

Tiffany & Co. sold its 13.9% holding in Aber Diamond Corp. of Toronto for $268 million. Tiffany paid $71 million for the stake in July 1999 as part of the financing of Aber’s 40% share of the Diavik diamond mine in Canada’s Northwest Territories. Tiffany sold the shares to financial institutions in a deal brokered by Merrill Lynch.

The companies also made changes to their diamond supply agreement. Tiffany will pay market value for Aber’s rough diamonds instead of receiving a discount. Under the agreement, Tiffany is obligated to buy at least $50 million worth of rough diamonds from Aber each year, subject to Tiffany’s quality standards. The agreement is due to expire in 2013. Aber also bought 51% of diamond retailer Harry Winston, New York City, this year. Aber said it will now sell its entire 40% share of the diamond production from Diavik at full market prices.

Diavik to Expand

Construction of a new dike at Canada’s Diavik diamond mine has been approved by the mine’s owners, according to Rapaport News. Diavik Diamond Mine, a subsidiary of Rio Tinto, owns 60% of the mine and Aber Diamond Corp. owns the rest. Construction of the $190 million dike is expected to start this summer. First production from the A418 pit is expected in early 2008. Diavik produced 3.8 million carats in 2003 and expects production to surpass 7 million in 2004, 8.5 million in 2005 and then 7 million to 9 million annually until at least 2010.

Other Diamond News

Central Africa to Coordinate Oversight of Diamond Trade

Mining ministers from central Africa’s diamond-producing countries have agreed to set up a committee to oversee the trade in diamonds and other precious gems in the region, according to Agency France Presse.

The mining ministers of Angola, the Central African Republic, Democratic Republic of Congo, Congo Republic and Gabon signed the declaration after two days of talks in Brazzaville. The group will set up an organization to “efficiently monitor the trade in rough diamonds in central Africa in order to end smuggling and cross-border fraud.” The oversight board will be “the first step toward the creation of an African diamond organization,” the ministers say.

They also vow to “apply the recommendations made by experts” just before their meeting, including a promise to “better follow the movement of diamonds, to improve border checks and fight against corruption and the potential implosion of the (diamond) sector.”

The Congo Republic organized the two-day meeting of mining ministers in a bid to crack down on the illegal trade in diamonds in the region. Earlier in 2004, Congo was excluded from the Kimberley Process, which regulates the worldwide rough diamond trade, after its huge neighbor, Democratic Republic of Congo, said the smaller of the two Congos could not account for the vast bulk of its exports, estimated at between 3 million and 5 million carats a year.

Members of the Kimberley Process have agreed to a certification system designed to enable the purchaser of a rough diamond to know where it came from and to guarantee it was exported legally.

Copyright © 2005 by Bond Communications