Mr. Kneller has kindly agreed to meet our correspondent at Safdico’s Antwerp-based office on the first day of the new working week. No doubt was left it was going to be a busy one for one of the founders of a most unique diamond company: there were three magnificent rough diamonds catching your eye on Johnny Kneller’s table each the size of a two-year toddler’s fist.
You and your company are recognized experts in processing large-size and very expensive rough diamonds. Could you describe the current state of the diamond market from the point of view of prices?
The prices for the moment are very strong. The reason is because there is a shortage of goods on the market. Very few large stones were sold in South Africa and Botswana over the past year, where the slowdown in mining has definitely affected this supply. The Russian tenders are interesting but the volumes are very small. People have started purchasing large diamonds for investment purposes. Nervousness with currencies and the banking system have prompted people to invest in hard assets. I think the market will be strong for a while.
How much stable are the current price trends?
The Asian markets are underpinning the stability. Their economies are still growing rapidly and diamonds are regarded by the Asians as a solid asset class. Let’s hope there will be no second world crisis.
Do you think the global diamond industry has already recovered from the crisis?
I don't think that the diamond market has fully recovered yet. There are still liquidity problems. Some big banks came into the game to support their clients and protect their investments. The banks are happy to support a market that is profitable. I don’t think all the problems are over yet.
What is your forecast for the global diamond market in 2010-2011?
Everyone is in agreement that in the medium to long term there will be a scarcity of rough diamond supply. No new mines are on the horizon and De Beers have said very clearly that they are focusing on profitability and cashflow rather than volume. This means that production will be limited for the next few years. I believe that demand will be strong at this new level.
There is speculation going on about some tacit agreement on curbing prices for large-size rough and polished diamonds. What could you say in this respect?
I am completely unaware of any tacit agreement on curbing prices for large diamonds. I have never heard of anybody trying to curb prices – it is in nobody’s interest. The diamond industry is too big and competitive for any price collusion or manipulation.
How would you characterize the current correlation between prices for rough and polished diamonds?
The problem between rough and polished prices is an internal one. Spot prices for rough have traditionally run ahead of their current polished value. Diamantaires are inherently over-optimistic. The current situation is the price of rough is higher than the price of polished.
Is it a paradoxical situation?
Very much so. The advent of “labels” (DTC; BHP; Rio Tinto; ALROSA) has commoditized rough assortments. Speculators in the secondary market buy and sell “labels” without ever having to look at the diamonds. This works very well in a rising market but serves to sever any correlation between “spot” rough and “spot” polished prices. People are paying prices which don’t make any sense.
What is in your view the optimal formula of business relations between diamond mining companies and their customers?
This is a question that has been debated for many years and there is no one single answer. Manufacturers need commitment of supply in order to keep their factories going. Miners need committed off-take in order to keep their mines going. A strictly “spot” market would suit only small manufacturers and miners. I suppose the optimal formula would be a combination of long term contracts with an element of “spot” pricing. At the end of the day there has to be compromise and trust.
Do you think there is any current need in increasing the output of rough diamonds?
The market is definitely short of rough at the moment. It was easier to halt production at the big mines than it is to kick-start them again. I believe the supply/demand curve will be in balance by the beginning of 2011. Prices should then stabilize at this new equilibrium.
The diamond industry is discussing the reports of a possible withdrawal of the Oppenheimer family from De Beers. How much true can it be?
I doubt whether this is true. Only the Oppenheimers can comment on the speculation. They have been committed to the diamond industry for such a long time that it doesn’t sound right but I certainly have no inside information.
Your company operating in South Africa is an authoritative connoisseur of this region and the industry. From your point of view, are there any grounds for the statements made by the representatives of some African countries about a greater degree of independence from De Beers and autonomy?
Botswana has indicated that they want to become a trading hub for rough and polished diamonds but I believe that the Botswana government would not take any step in this direction without full cooperation from De Beers. So the extent to which Botswana increases its independence will be carefully formulated by the parties.
Does your company take part in the beneficiation programs in the South of Africa?
Safdico has been beneficiating diamonds in South Africa for the last 50 years and currently employs about 10% of the South African work force. At the same time we were one of the first companies to obtain a diamond cutting license in Botswana. We have built a state of the art polishing facility for large stones. We have demonstrated our long term commitment to Botswana by building the Diamond Technology Park, which has become the centre of Botswana’s diamond trade and manufacturing industry (the Silicon Valley of Botswana). We have brought banks, government offices, brokers, GIA, mining companies, courier companies, hi-tech machinery suppliers etc into Diamond Technology Park. So yes, our commitment to South Africa and Botswana is very deep.
Gareth Penny, De Beers Group’s Managing Director, recently told Botswana Gazette that India and China presented a huge competition to Botswana’s ambition to rip rewards from the beneficiation program. To your mind, how much feasible is the prospect of a highly professional diamond-cutting center in Africa within the frames of beneficiation and when may it occur?
African diamond cutting operations will only succeed if they do NOT compete with India and China. If we compete with India and China, then forget it. It is for this reason that Safdico has focused on its large stone niche in South Africa and Botswana. In this niche, Technology and skills are far more relevant than mass production and labour costs.
What were your company’s results in the first quarter of 2010?
Our company’s results for Q1 2010 were satisfactory. Certainly better than last year. We have a solid base to build on for the future.
What are your company’s plans for this year?
Our plan is to consolidate our position in the large diamond niche. We have manufactured many of the large iconic Diamonds of the last few years. Lesotho Promise 603cts, Letseng Legacy 479cts, Light of Letseng 493cts. We produced some of the most special and unique diamonds that the world has seen in recent years. We focus on perfectly made diamonds even in low colours. Safdico has very much become a “label” in the polished market. We will continue to enhance our position in this space.
Are you interested to continue business relations with ALROSA?
A business relationship with Alrosa is always exciting. The quality of Russian diamonds is ideally suited for both our manufacturing and trading operations. I believe that Safdico has a role to play in Russia and cooperation with Alrosa will be mutually beneficial.
Alex Shishlo, Editor of the Rough&Polished European Bureau in Brussels
