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big + SMALL BullBoards Member Forums My BullBoards Mining & Exploration: Diamond Exploration in Canada Forum SUBJECT: De Beers Short stones...Pressure is on Posted By: alberta1 Posted Time: 11/12/03 16:47 EST « Previous Message Next Message » Gem shortage forces rethink at De Beers November 12, 2003 By Emma Muller Shortages in De Beers' rough diamond supplies have forced the group to rethink its strategy. De Beers confirmed speculation that it had hired Bain & Company to deal with its declining market share. The decline is seriously affecting the retail and branding initiatives of its customers who are at the core of its strategy of supplier-of-choice marketing strategy. The area of rough most severely affected is +2 carat, in particular in the better colour diamonds produced mainly in Russia and Canada. But De Beers is also short of the cheapest diamonds, below $15 a carat, produced by Rio Tinto's Australian Argyle mine and in Congo. These diamonds are the main weight supplied to the more than 800000 cutters in India. The shortages are a stark reminder of De Beers' decision five years ago to deplete its $5bn stockpile. Its inventory has since fallen well below a minimum working stock level of $2bn to 2,5bn that De Beers itself stated as being a sensible level. Estimates put De Beers' stock level now at less than $1bn. But the main causes for its shrinking supplies are poor producer relations and unsuccessful exploration. In Russia De Beers' contract for $800m worth of rough a year, under investigation by the European Commission for abuse of its dominant position, is clouded by uncertainty. The burden of proof lies with De Beers now. Brussels will change its views only if there is a change of some sort in the situation examined earlier on or some proposal to change the terms of the arrangement. Canada is proving an extremely difficult environment for De Beers to operate. The company has had no access to Canadian rough since BHP Billiton decided not to renew its sales contract for 35% of the Ekati production late last year. Closer to home, De Beers' relations in Namibia are tense. There is no immediate prospect of resolving its dispute in Angola, which has huge prospecting potential. Botswana, its closest ally which owns 15% of the recently delisted De Beers, is preparing a strategic review through an international tender, as is SA. Gem production from De Beers mines represents more than 40% of world production. But the group's inability to provide the diamonds to its clients in certain key ranges seriously undermines the branding and marketing strategies it has forced upon its customers, and also its own Diamond Trading Company trading brand. The branding strategy under its supplier-of-choice strategy requires customers to transform into retail-oriented businesses. This requires tying them into 12-month supply commitments with jewellers. However, De Beers has proved unable to offer such commitments. Several sight holders have seen their supplies in specific items cut off after the expiry of their six-month supply arrangements with the Diamond Trading Company, leaving them unable to fulfil their own commitments. Business Day