When the Oppenheimer family sold its 40-percent stake in De Beers to Anglo American for $ 5.3 billion in 2013, thereby terminating their almost century-old ownership of diamond business, this event brought about significant changes to the structure and organization of the world diamond market.
Anglo American, having obtained the control over De Beers and taking account of the situation in commodity markets, gained an opportunity to be more flexible and mobile while redistributing its proceeds among more profit-making operations and thus maintain stability in times of crisis.
In October 2013, ALROSA made its initial public offering of shares, of which more than 60% went to investors from the United States, 24% to investors from Europe and 14% to Russian investors. Given the deepening economic crisis in Russia, we can say that the IPO of ALROSA was well timed and carried out at a high enough price. The total value of the miner’s floated stock reached $ 1,286 million, of which the Russian Federation and Yakutia received $562 million each, while the company earned $162 million.
Diamond mining remains to be a leading industry in the Republic of Sakha (Yakutia). In 2013, diamonds were mined by four companies belonging to ALROSA Group with their sales reaching a total of $ 4.7 billion (Table 1).
Table 1
The table is based on the annual reports of companies for 2010-2013.
In 2013, ALROSA Group retained its global leadership attained in the period of economic downturn of 2008-2009 in terms of diamond output in carats. It should be noted that before this ALROSA Group acquired a 100-percent stake in Nizhne-Lenskoye, OAO through its subsidiary, Almazy Anabara, OAO, which allowed the Group to increase its mineral resources by 26.4 million carats and additionally produce nearly 2 million carats per year.
Taking into account the amount of rough produced by Catoca, ALROSA Group produced over 43.5 million carats of diamonds in 2013. Diamond sales carried out by ALROSA Group taken together with Catoca are comparable with those of De Beers (Tab. 2).
Table 2
Diamond output by the world's largest miners in 2010-2013
The table is based on annual and quarterly reports of De Beers, BHP Billiton, Rio Tinto, Harry Winston Diamond Corporation, Petra Diamonds (up to 2012), Dominion Diamond Corporation (since 2012), ALROSA and Catoca for 2010-2013.
* Diamond output / diamond sales.
** Prior to 2012 - Harry Winston Diamond Corporation.
Composition of ALROSA Group and ownership interest in its companies are shown in Fig. 1.
Fig. 1. Composition of ALROSA Diamond Mining Group.
In 2014, the value of diamonds in the world market went up by an average of 7%. Given that ALROSA Group will maintain its output at the same level, it can be assumed that its diamond sales will reach $ 5 billion.
In 2013, the world's largest diamond mining companies accounted for 73.8% of diamond output by carat and 81.9% by value. Proceeding from these proportions, it is possible to give an approximate estimate of the world’s diamond output for 2014 based on the assessments of business segments in the diamond pipeline (Tab. 3).
Table 3
Global diamond pipeline in 2006-2014, $ billion.
1 - Kimberley Process data.
2 - According to Chaim Even-Zohar, Diamond Pipeline 2003-2013.
3 – 2014, Evaluation of the author.
Diamond sales by the world's major diamond mining companies in 2013-14 prove there is a favorable market for rough diamonds.
A ternary diagram was used to analyze the state of the global diamond pipeline in 2006-2014 (Fig. 2).
Fig. 2. Transformations in the structure of the diamond pipeline in 2006-2014
The diagram reflects the growth of diamond mining on the backdrop of diamond cutting almost reduced since 2011. Diamond jewelry sales in this period have a share reaching almost 35%. The global financial crisis in 2009 changed the proportions in the diamond pipeline dramatically due to a sharp decline in performance on the part of the first two segments of the diamond market. It is obvious that the diamond cutting industry is dependent both on the cost of mined rough and demand for diamond jewelry, therefore being most vulnerable to crisis manifestations.
With the help of the ternary diagram it was possible to make a more exact outlook regarding future changes in the global diamond segments up to 2030 (Table 4), taking into account the crisis in the Russian economy and the political situation in the world.
Table 4
Outlook for the world's diamond pipeline in 2015-2030, $ billion
Despite the crisis in the economy, diamond output in Russia is expected to be maintained, while global diamond production will reach 115-125 million carats a year, but due to demand outstripping supply rough will continue to grow in price, as the world’s pace-setting economies - the United States and China – continue to increase their GDP.
Prices in the diamond cutting industry and diamond jewelry retail will increase, but to a lesser degree. According to the author’s forecast, the value of rough diamonds mined by 2030 will increase almost twice, while the value of polished diamonds, as well as diamond jewelry sales will go up only by two-thirds.
Yuri Danilov, Ph. D., Ammosov North-Eastern Federal University
