dr r khajuria teampro london1 $ 64b diamond industry world of opportunities dr rajesh khajuria,...

Dr R Khajuria TEAMPro London

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$ 64b Diamond Industry World of Opportunities

Dr Rajesh Khajuria, DirectorTEAMPro Limited

London (UK) / Vadodara (India)

January 3, 2006


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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.html


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Part I: Industry Growth


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For 1,000 years, starting in 4th century BCE, India was only source of diamonds

Source: Emporia State University, USA


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IT or Diamond Revolution? India’s diamond industry handles 80 per cent of the

global polished diamond market, and earned $8 billion last year (compared to software’s $ 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).


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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


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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.


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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.


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South Africa w/w/o Diamonds


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SA: Ocean > 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.


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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.


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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.


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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.


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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.


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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: [email protected]


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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/diamond.htm


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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.


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Global Diamond Production


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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.


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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.


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Sorting


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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).


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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.


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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.


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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.


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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.


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South Africa Story


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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.


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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.


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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.


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AfricaThe Jwaneng mine, in Botswana


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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.


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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.


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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.


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Other African ShareOther 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%


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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/content_282793.htm


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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.


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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.


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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 US$370,000 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 US$5 billion by 2010 and became a major trading centre in Asia by 2015.


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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/1344370.cms


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Part II: Jewellery and Branded Diamonds


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Export of Gold Jewellery India’s 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?

inclpage=Uinfo_St_Statistics&section_id=6#/


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India’s 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


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India’s 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


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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.


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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


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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.


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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.


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Part III: Strategic Options?

Management of Growth


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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 ?


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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


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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.


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Thank You!Dr Rajesh Khajuria, Director

MBA (Finance), PhD (Management), CMC, FIMC, MIoD (London)

TEAMPro LimitedLondon (UK) / Vadodara (India)

[email protected]

India M: 94260 75402, T. 0265-2 750 752London T: +44-20-8866 4345 (Sunil Vaghani)

dr r khajuria teampro london1 $ 64b diamond industry world of opportunities dr rajesh khajuria,...

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