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Mix-Ansicht- DeBeers (AngloAmerican) bastelt weiter am Diamantenkartell - monopoly, 25.01.2003, 00:08
DeBeers (AngloAmerican) bastelt weiter am Diamantenkartell
-->EU's bittersweet surprise for De Beers
By: Stewart Bailey
Posted: 2003/01/16 Thu 16:43 | © Mineweb 1997-2003
JOHANNESBURG - Today proved bittersweet for diamond giant De Beers, as the European Union (EU) Competition Commission gave the green light to its much-vaunted Supplier of Choice strategy, but put the kibosh on a $800 million a year deal with Russian diamond producer Alrosa.
The trade arrangement with Alrosa was first proposed in its current form in December 2001 and has been awaiting approval from the EU regulators ever since. In terms of the deal De Beers would buy $500 million worth of rough diamonds from Alrosa’s run of mine production each year, as well as $300 million of its annual export allotment drawn from the state’s inventories. The offtake agreement covered half of Russia’s yearly rough diamond production.
The deal was renegotiated in 2001 after the previous arrangement, worth $550 million a year, lapsed. The diamond producer’s relationship with the Russian parastatal has run for more than 40 years, but pundits have warned recently that the arrangement would run foul of the European watchdog given that it reduces the scope for competition between De Beers and Alrosa, the world’s second largest independent diamond producer.
Put on a brave face
De Beers, which is 45 percent owned by Anglo American, put a characteristically brave face on news that the EU had issued a statement of objections to its Alrosa proposals, but the likelihood that the regulator will insist on some dilution of the plan will be a something of blow for the world’s largest diamond producer. De Beers’ managing director Gary Ralfe said in a statement that he “welcomed further dialogue with the Commission”.
“It is helpful to have a clear articulation of issues that the Commission would like us to address and we look forward, with Alrosa, to continuing our discussions in a constructive way with the Commission,” said Ralfe. The EU has ordered De Beers and Alrosa to address its concerns and report back with an alternative deal in the next two months.
James Allan, mining analyst at independent Johannesburg brokerage Barnard Jacobs Mellett, said Alrosa stood to benefit most from the offtake agreement with De Beers, given that it was a key requisite for Western Banks seeking to lend funds to the Russian group. “Alrosa needs De Beers more than De Beers needs Alrosa,” said Allan. He said that while the Russian diamonds in its parcels were low margin stones for De Beers, they gave the world number one diamond producer the variety it needed to satisfy all the requirements of its customers.
Allan said, however, that even a radical change in the structure of the current deal would not alter the structure of De Beers’, which has sales of more than $5 billion each year. He said even if the EU requested the current deal be halved to $400 million a year, the impact on De Beers’ - and more especially Anglo American’s - bottom line, would be negligible.
Supplier of Choice is go
Meanwhile, the Commission gave the green light to plans by De Beers to launch its Supplier of Choice programme, a plan designed to fan demand for diamonds through a concerted branding and advertising programme. The plan uses the booming luxury goods market - which spends more than 10 percent of turnover on advertising compared to a meagre 1.5 percent by the diamond industry - as a model.
De Beers’ ambition is to double the value of the diamond jewellery market, which currently stands at around $50 billion a year, over the next decade. The diamond producer’s sorting and marketing arm, the Diamond Trading Company (DTC), will spearhead the marketing drive, targeting $200 million in adspend by 2004.
The marketing expenditure would be funded by De Beers, along with “co-operative support” from its sightholders, which comprise a select group of diamantaires that have exclusive rights to purchase De Beers’ diamond parcels. In terms of the Supplier of Choice Strategy, the sightholders are selected by De Beers on a range of criteria, ranging from the breadth of their marketing network and their commitment to selling ‘conflict-free’ diamonds, to their ability to stump up the cash to fund their portion of the total marketing budget envisaged by De Beers.
The end game will see De Beers growing the retail end of the diamond industry through the development of a range of brands, positioning both its own ‘De Beers’ brand and the various brands of its clients, to benefit from the total growth in the industry. One of the chief benefactors would be its own De Beers LV retail joint venture with French luxury goods house Moet Hennessy Louis Vuitton (LVMH).
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