James Allan has worked in the mining industries and mining financial services for the past 27 years. Lately, being the director of his own corporate finance company, Allan Hochreiter (Pty) Ltd., James has a really broad insight into the diamond and coal mining industries in South Africa, and worldwide. In particular, he was instrumental in gaining an extra $2.00 per share for shareholders when Anglo American and the Oppenheimer family delisted De Beers in 2001. Rough&Polished asked him to share his views of the current situation in diamond mining.
Will global polished demand be able to develop progressively and sustainably within the next 5-8 years in the absence of large-scale marketing programs formerly pursued by De Beers?
De Beers is still undergoing large-scale marketing and is spending in the region of $100m per annum. There is additional advertising spent by the trade that leverages on this. If anything, the level of advertising for the diamond industry as a whole has been increasing in the past few years.
The consumer market underwent qualitative changes in the past decade giving rise to quickly renewed industries (mobile phones, computers, etc.) offering goods in price ranges close to an average ticket for diamond goods and enjoying brisk demand among the young consumer audience. Is this likely to produce a serious impact on demand for diamond jewelry in the nearest 5-8 years?
This has been present in the last decade and every product has to compete for disposable income. The reasons for buying a diamond engagement ring tend to override many other purchases. The majority of diamond jewellery purchases take place in the age group 45-65 as shown in my presentation.
The success achieved in the CVD technology used to synthesize diamonds is obvious. What are the prospects for the diamond market in case such products will be distributed without any control?
The industry has adopted the policy of disclosure with synthetic diamonds and it would appear that the market for synthetic diamonds is very small when compared to the market for natural diamond. The introduction of cubic zirconia and moissanite was originally touted as being a threat to the diamond industry but this did not materialize. Buyers of these products aspired to one day buying and owning natural diamond jewellery. It is also unlikely that synthetic diamond will gain wide acceptance and replace demand for natural diamond, particularly in the diamond engagement ring market.
Is there any chance of organizing a civilized and regulated secondary market of diamonds? In other words, is it essentially possible to generate a mechanism giving polished diamonds some properties of an investment instrument?
There are a number of people trying to do this and this has been tried, without success in the past. With the forecast supply shortfall this may find increasing acceptance.
The Zimbabwe case proved a not-too-high efficiency of the Kimberley Process. Should the Kimberley Process be subject to re-organization, and if it should, in which direction?
I have no comment on this.
Mathew Nyaungwa, Rough&Polished, from Namibia
