$ 64b Diamond Industry World of Opportunities

1
64b Diamond Industry World of Opportunities

• Dr Rajesh Khajuria, Director
• TEAMPro Limited
• London (UK) / Vadodara (India)
• January 3, 2006

2
Can You Make Diamonds? Yes

• Put pure carbon under enough heat and pressure -
  say, 2,200 degrees Fahrenheit and 50,000
  atmospheres - and it will crystallize into the
  hardest material known. Those were the conditions
  that first forged diamonds deep in Earth's mantle
  3.3 billion years ago.
• http//www.wired.com/wired/archive/11.09/diamond.h
  tml

3
Part I Industry Growth
4
For 1,000 years, starting in 4th century BCE,
India was only source of diamonds
Source Emporia State University, USA
5
IT or Diamond Revolution?

• Indias diamond industry handles 80 per cent of
  the global polished diamond market, and earned 8
  billion last year (compared to softwares 10
  billion).
• Someone writes 92/100 diamonds are processed in
  India.
• So why do we hear so much about IT and so little
  about the diamond business?
• What took the Hasidim centuries to accomplish was
  overturned by the Jains in only two decades. They
  did so using tactics that the software industry
  replicated some years later. (Source Times of
  India).

6
Outsourcing Diamonds first

• Next, they outsourced the finishing jobs to
  India (where incidentally, the diamond industry
  employs more people than the IT industry), while
  working their way up the value chain
• The remarkable thing is, like with the software
  industry, India does not produce much original or
  branded diamond products

7

• Diamond's origin may have finally been revealed
  in the twentieth century, but an appreciation of
  its beauty has been known since its discovery in
  India, prior to 400 (Harlow, 1998, p. 118).
• Historically, diamond has been referred to as the
  essence of purity and invincibility, a symbol of
  royalty, and token of everlasting love. Diamond
  is the birthstone for April.

8
Fashion of Industrial Product?

• Today, 75-80 of the world's natural diamonds are
  used for industrial purposes
• And 20-25 for gemstones,
• which are further used in Jewellery making.

9
South Africa w/w/o Diamonds
10
SA Ocean gt diamonds / Land

• Over the past 100 million years up to 1,400
  meters have been eroded from the land's surface,
  releasing billions of carats of diamonds on a
  trip to the sea. An estimate of diamonds eroded
  from the Kimberley mine -- the "Big Hole" --
  alone is 500,000 carats. The rivers carried most
  of the eroded diamonds to the Atlantic Ocean.
• Because powerful ocean waves break the poorer
  quality diamonds, 90-95 percent of marine
  diamonds are of gem quality.

11
80 find Industrial Use

• 80 of the diamonds mined annually are used in
  industry
• 4 times that production is grown synthetically
  for industry - that's a total of over 500 million
  carats or 100 metric tons.
• Diamond is a fundamental industrial material that
  affects our daily lives.

12
Venice to Paris and Antwerp

• Diamonds begin appearing in European regalia and
  jewellery in the 13th and 14th centuries.
• The early diamond trading capital was Venice,
  where diamond cutting probably originated
  sometime after 1330.
• By the late 14th century, the diamond trade route
  went to Bruges and Paris, and later to Antwerp.

13
Goa as 1st Trading Centre

• By 1499, the Portuguese navigator Vasco da Gama
  discovered the sea route to the Orient around the
  Cape of Good Hope, providing Europeans an end-run
  around the Arabic impediment to the trade of
  diamonds coming from India.
• Goa, on India's Malabar Coast, was set up as the
  Portuguese trading centre, and a diamond route
  developed from Goa to Lisbon to Antwerp.

14
Koh-i-Noor in London Museum

• Mogul rule of India (1526--1857), when diamond
  production increased, is notable for the creation
  of lavish objects like the Peacock Throne of Shah
  Jahan (1592--1666), which may have held the
  Koh-i-Noor diamond as a dangling bauble always in
  view of the shah's eyes.
• Many of the great riches of Persia were obtained
  by Nadir Shah when he sacked Delhi in 1739,
  taking the jewels and Peacock Throne back to
  Teheran, where most of the looted objects reside
  today among the Iranian Crown Jewels.
• Sadly, the Peacock Throne was apparently
  destroyed soon after Nadir Shah's death.

15
Ukraine

• KIEV - Ukraine announced the discovery of a large
  diamond field in the centre of the country.
• A statement from the president's office quoting
  Ecology and Natural Resources Minister Pavlo
  Igantenko said the quality of the diamonds found
  in the Kirovograd region matched those produced
  by world leaders South Africa and Russia.
• Ukraine has a thriving industry in cutting small
  and medium-size diamonds.
• Source newsdesk_at_afxnews.com

16
Top 7 Diamond Countries

• The top seven producing countries, that account
  for 80 percent of the world's rough diamond
  supply, are Australia, Botswana, Zaire, South
  Africa, Russia, Angola, and Namibia.
• http//www.emporia.edu/earthsci/amber/go340/diamon
  d.htm

17
Diamond India to Global base

• Extensive mining of diamonds shifted from
• India (17th century),
• to Brazil (18th century),
• to the African continent (19th century), and
  finally
• Australia and Canada (20th century).
• Today diamonds are mined in some 25 countries on
  every continent but Europe and Antarctica.

18
Global Diamond Production
19
Diamond Production

• India's maximum production, perhaps 50,000 to
  100,000 carats annually in the 16th century, is
  very small by modern standards.
• Brazil and Venezuela are barely discernible
  compared to South African production following
  discoveries in 1867.
• For the most part, except for major wars and
  economic recessions, diamond production has been
  steadily increasing, with non-African sources
  growing in relative proportion.

20
Diamond Dominant Countries

• Major production is now dominated by Australia,
  Botswana, Russia, and Congo Republic (Zaire),
• but South Africa is still a major producer, in
  both volume and value.

21
Sorting
22
Sorting

• There are two aspects of moving diamonds from
  mine to dealer.
• The first is the fairly straightforward but
  important task of separating diamonds into
  gem-quality, near gem-quality, and
  industrial-grade diamonds.
• The second is the more intriguing aspect the
  primary diamond marketing, which has been and
  still is largely controlled by De Beers
  Consolidated Mines, Ltd. through its majority
  control of Central Selling Organization (CSO).

23
Sorting

• The CSO sells a large percentage of mine
  production to diamond dealers
• independent mines sell by closed bids and through
  private transactions.
• Diamonds are grouped into "sizes"
• -- more than one carat
• "smalls" -- between 1 carat and 1/10th carat
• and "sand," -- less than 1/10th carat,
• with some leeway for market pressures.

24
Sorting

• Diamonds larger than about 15 carats are handled
  individually.
• Shape groups comprise "stones," "shapes,"
  "cleavages," "macles," and "flats," describing
  characteristics familiar to the market.
• The ultimate purpose of sorting is to estimate an
  asking price for the rough diamonds.

25
Diamond Pricing

• After great swings in diamond prices, the Diamond
  Trading Corporation (DTC) was set up by De Beers
  in 1934 to handle the actual sales of diamonds.
• The DTC and the Diamond Producers' Association
  (the mine operators) form the nucleus of the
  Central Selling Organization.
• The CSO stabilizes prices in hard times and
  raises them in accord with inflation and demand
  during good times.

26
Diamond Pricing

• It needs considerable wealth and stockpiles of
  diamonds to maintain this position, but this
  "single channel marketing" system has been an
  effective cartel.
• In the United States cartels are illegal, so De
  Beers cannot operate here. However, the company's
  interests are represented by a public relations
  office, the Diamond Information Center, and
  indirectly by the diamond dealers and jewellers
  who sell gems.

27
South Africa Story
28
South Africa Story

• The story of diamonds in South Africa begins
  between December 1866 and February 1867, when
  15-year-old Erasmus Jacobs found a transparent
  stone on his father's farm, on the south bank of
  the Orange River. Over the next 15 years, South
  Africa yielded more diamonds than India had in
  over 2,000 years.

29
South Africa Story

• In the 1870s and 1880s Kimberley, encompassing
  the mines that produced 95 of the world's
  diamonds, was home to great wealth and fierce
  rivalries, most notably that between Rhodes and
  Barnato, English immigrants who consolidated
  early 31-foot-square prospects into ever larger
  holdings and mining companies.

30
South Africa Story

• In 1888, Rhodes prevailed and merged the holdings
  of both men into De Beers Consolidated Mines
  Ltd., a company that is still synonymous with
  diamonds.
• Today South Africa is third in production in
  terms of value and is likely to stay that way for
  the foreseeable future.

31
AfricaThe Jwaneng mine, in
Botswana
32
Africa - Botswana

• The Jwaneng mine, in Botswana, is the most
  valuable diamond mine in the world.
• Its 1995 production of about 10.5 million carats
  had a value of about 1.2 billion.

33
Africa

• Africa is the richest continent for diamond
  mining, accounting for roughly 49 of world
  production.
• The major sources are in the south with lesser
  concentrations in the west-central part of the
  continent.
• The major producing countries are Congo Republic
  (Zaire), Botswana, South Africa, Angola, Namibia,
  Ghana, Central African Republic, Guinea, Sierra
  Leone, and Zimbabwe.

34
Africa - Congo

• Congo Republic (Zaire) With 18 of world
  production, this is the second largest producer
  of diamonds by weight (20 million carats in 1995)
  after Australia. Only 6 is of high gem quality
  another 40 consists of small stones, called
  near-gem, that are cut in India. Mbuji-Mayi is
  one of the world's most prolific mines. In recent
  years production has been about 5 million carats
  per year.

35
Other African Share

• Other significant African producers and their
  percentage of world production in 1996
• Angola 1.8
• Ghana 0.7
• Central African Republic 0.6
• Guinea 0.5
• Sierra Leone 0.3
• Zimbabwe 0.2

36
China Threat

• "If there is any place in the world where we can
  speak optimistically about the diamond industry,
  it is China," said Shmuel Schnitzer, president of
  the World Federation of Diamond Bourses.
• http//www.chinadaily.com.cn/en/doc/2003-11/19/con
  tent_282793.htm

37
Diamond industry sparkles in China?

• According to Guo Zhiyue, chairman of the China
  Diamond Manufacturers' Association, over 20,000
  workers in China manufacture 3 million karats of
  diamonds every year, making it the second biggest
  diamond manufacturing centre in the world, next
  to India.
• (2003-11-19, China Daily)
• However, most diamonds processed in China are
  small and sold cheaply, meaning it is less
  profitable than processing the bigger gems.

38
Diamond industry sparkles in China?

• In terms of the revenue gained from diamond
  manufacturing, China still lags behind India,
  Israel, South Africa and Belgium.
• Schnitzer estimated China will become the second
  largest diamond manufacturing centre measured in
  US dollars in five years.
• Shanghai is the fourth city in the world to be
  both home to a diamond bourse and manufacturing
  base, together with Antwerp in Belgium, Bangkok
  in Thailand and Israel's Tel Aviv.

39
Diamond industry sparkles in China?

• Trade on the three-year-old Shanghai Diamond
  Exchange Co Ltd (SDE) received a boost last year
  when the government announced a substantial tax
  cut within the exchange.
• The trade volume has amounted to US370,000 since
  June (2003), according to Kang Huijun, chairman
  of the board of SDE.
• He said the SDE aims to achieve a trade volume of
  up to US5 billion by 2010 and became a major
  trading centre in Asia by 2015.

40
Diamond industry sparkles in India

• The diamond market in India is now estimated to
  be 1.4bn or Rs 6,600 Crore annually and is
  expected to top Rs 7,500 Crore next year.
• India has emerged as the fastest growing market
  in terms of consumption.
• However, in terms of value, US still leads the
  pack with a 52 market share, followed by Japan.
• India and the gulf region approximately consume
  the same quantity of diamonds.
• http//economictimes.indiatimes.com/articleshow/13
  44370.cms

41
Part II Jewellery and Branded Diamonds
42
Export of Gold Jewellery

• Indias export has increased from Rs 5,000 Crore
  in Y 2000 to Rs 17,000 Crore in 2005 (USD 1.1b to
  3.8b).
• The fastest growing export segment in Gems and
  Jewellery industry.
• http//www.iijs.org/gjepc/gjepc.aspx?inclpageUinf
  o_St_Statisticssection_id6/

43
Indias Gold Jewellery ExportMajor Destinations
in 2004-05
Rs Cr USD Mil.
USA 6,063.07 1,348.7
UAE 8,773.27 1,956.19
UK 700.71 155.80
Singapore 570.07 127.22
Total India 17,112.00 3,812.88
44
Indias Precious Metals Jewellery Export
Destinations in 2004-05
Rs Cr USD Mil.
USA 317.65 70.77
Italy 36.65 8.18
UAE 11.02 2.46
UK 43.83 9.75
Total India 588.56 131.19
45
Retail Malls in India

• This is Vijay Shah's temporary abode for his stay
  in Delhi. The Antwerp-based diamond giant,
  chairman of the 400 million Vijay Diamond Group,
  is in town to launch Signet, his company's first
  retail store in November 2004.
• Mumbai-based DiA boutique is owned by Devaunshi
  Mehta, whose family have been DTC sight holders
  (under the company Mohanlal Raichand Sons) for
  over half a century.

46
Retail Malls in India

• Vijay Jain, CEO, Orra says Orra comes from Rosy
  Blue, one of the biggest diamond companies in the
  business, worth approximately 1.5 billion and
  present in 15 countries.
• The trend globally is pointing towards a movement
  away from cloak-and-dagger secrecy in the diamond
  industry.
• Source The Economic Times

47
Reducing Concentration

• De Beers, from owning 80 per cent of the
  production of diamonds globally, has now reached
  a plateau of about 60 per cent, thanks to mines
  found in Russia and Australia, far from Africa
  and De Beers' control.
• Diamond industry is getting under better control
  of Non-De Beer People.

48
Reducing Taxes, Attracting FDI

• GoM (Group of Ministers) of India is meeting on
  4th January 2006 to discuss replacing income
  based tax to turnover based tax like the world
  over in Diamond industry.
• If done, this will attract more FDI than ever
  before in Diamond Industry in India.

49
Part III Strategic Options?

• Management of Growth

50
Strategic Options to You

• Set up processing centres in China / x place?
• Cheaper cost, Closer to market, Needs more
  security
• Buy Diamond Mines or Partnerships in Non-DB
  countries?
• Up your value chain?
• Diamond Processing to Branding
• Diamonds to Jewellery
• Spread geographically to UK, France, Germany,
  USA, UAE ?

51
Strategic Options to You

• Whole range of Marketing issues?
• Branding, Advertising, Sales and Distribution.
• Finance Issue?
• Fund Raising Globally in multi-currency
• Taking advantage of London as the largest
  Financial Centre of the world
• Financial Management

52
Can TEAM Help?

• Conducting Market Research
• Devising Growth Strategies
• Implementation Advise
• Fund-raising from India, UK etc based on Project
  Viability studies
• Management
• 100 Confidentiality Assured.

53
Thank You!

• Dr Rajesh Khajuria, Director
• MBA (Finance), PhD (Management), CMC, FIMC, MIoD
  (London)
• TEAMPro Limited
• London (UK) / Vadodara (India)
• rajesh_at_teampro.org
• www.TeamPro.org
• India M 94260 75402, T. 0265-2 750 752
• London T 44-20-8866 4345 (Sunil Vaghani)