Is De Beers about to enter a new era following the stepping down of CEO Philippe Mellier after five years and the promotion to the top job of Bruce Cleaver? With the new man taking over on July 1, a month or so after De Beers made the announcement, the industry was quickly awash with discussions about what the changeover would mean.
Mellier was a surprise choice when he was appointed: an industry outsider but with great experience in managing large organizations. His relationship with the trade was not always an easy one, however. Known for the importance it stores by its long-standing relationships and where a person's handshake is their bond, Mellier was a different animal altogether in the diamond world.
And when parent company Anglo American, starting to struggle financially, demanding that each of its mining units produce a 15 percent return on investment, Mellier stepped up to the plate with gusto – and was seen as being rather too vigorous in ensuring that De Beers achieved its target. Despite polished prices being largely static, the miner continually raised rough diamond prices through 2014 and the first half of 2015 with apparent disregard for the effect it was having on its clients and manufacturers who had to keep their operations running even if doing so meant taking a loss. De Beers was content, however, and Anglo American all the more so as the diamond miner announced profits of $570 million for 2015.
Meanwhile, at meeting after meeting, and conference after conference, Mellier told his often frustrated listeners from the manufacturing segment of the diamond pipeline that they would have to make changes to their operations in order to make a profit, and that it was not for De Beers to be concerned about the state of their businesses. Find a niche market, he told diamantaires who had been working in niche markets for many years.
"It's difficult to avoid the conclusion that although he may have been a good manager of a large organization, he didn't understand our business or the way we operate," said one former sightholder. "I am well connected with sightholders, and I know that many were unhappy with the way he spoke and acted. You cannot tell committed and loyal clients of many years standing who are struggling to make a profit because rough prices were rising and were too close to polished prices that they, essentially, don't know what they are doing. Frankly, his people skills were terrible."
Mellier was regarded as a centralizer, unwilling to rely on his executives to explain strategy, says an industry journalist. "I attended several of the De Beers briefings that are held in the different diamond centers, and I was shocked at the way Mellier publicly spoke about members of his senior team," he said. "They were very close to being humiliated in public. It was pretty clear that he didn't trust their ability to explain De Beers' positions."
Mellier was not afraid to take strong steps, though whether they were right will only be revealed with time. De Beers closed the Snap Lake mine in Canada which some observers said should not have been developed when it was since the figures never looked promising. The firm also opened a grading lab and service for buying secondhand diamonds. Should a diamond miner be grading diamonds or buying used goods, even if it said it was doing so in order to measure the scale of used diamond buying-selling? The moves left a strange taste.
Ironically, some sightholders may be uncomfortable with Mellier's departure. Following a terrible 2015, some feel that the outgoing CEO had started at last to understand their needs – and that of the diamond business at large. Will there now be another learning process with the new man at the helm?
That is probably unlikely since Bruce Cleaver has been involved with the diamond business for more than a decade. He joined De Beers in 2005 as general counsel before becoming co-acting chief executive in 2010. He was appointed to his current position as head of strategy and business development at Anglo just a year ago. As the industry attempts to recover, Cleaver faces a range of challenges after a torrid 2015 when sales were battered by low demand as sightholders lined up to leave goods on the table.
He will undoubtedly be under heavy pressure to keep sales – and earnings – high. With parent company Anglo American struggling, still turgid European, Russian and Japanese markets, Asian markets seeing demand slumping, a stable or perhaps slightly growing American market at best, and banks increasingly unwilling to lend to manufacturers, Cleaver faces no shortage of challenges.
Most immediately, Cleaver knows that although sales were robust in the first four sales cycles of this year, the beginning of the year is traditionally the strongest. The trick is to keep the momentum going through the seasonally quiet second and third quarters. However, at least he understands the business inside out and has been at the heart of the various storms the industry has weathered over the past decade.
By our Israel correspondent Abraham Dayan
