Cautious Outlook for Fall; Gemfields Accedes to Takeover

Russell Shor

July 17, 2017

With rough inventories on the increase and financing for diamond companies growing more elusive, De Beers and the other major diamond producers will be approaching the summer and early fall sales periods with caution.

De Beers and Alrosa both have cycle sales (sights) set later this month and most industry watchers believe there will be reductions from June’s allocations.

De Beers did not announce a price increase at its June sight, but its clients did find some types of goods slightly more expensive, based on stronger-than-expected demand at the JCK show in Las Vegas. The sight and side sales totaled $530 million for June, a bit more than the May totals, which were $522 million.

De Beers’ executives said demand for rough was good, “following positive feedback from the Las Vegas show and in line with other trends.”

Alrosa’s June rough diamond sales totaled $354.4 million, slightly down from the June 2016 total. The company announcement, which also gave six-month total rough sales of $2.44 billion, said the market is “stable, though there was a seasonal slowdown at the end of June.”

In the weeks since Las Vegas, however, retail sales, including jewelry, have remained slow in the U.S. New taxes on the trade in India and a tug-of-war between a bank and a major Antwerp diamond firm have undercut confidence.

The Indian government imposed a 0.25% tax on rough diamond imports in June, which took effect this month. The country’s diamond manufacturers denounced the tax, saying profits are already under extreme pressure and that this tax could cause some to start losing money and shedding workers.

FINANCES

In Antwerp, KBC Group Bank and diamond manufacturer Excelco are at odds over $29 million in outstanding loans, resulting in a see-saw battle over its assets. Excelco is a leading Antwerp manufacturer and former De Beers’ sightholder that supplies a number of U.S. retail chains.

Originally reported by Bloomberg News, KBC, which is winding down its diamond portfolio, obtained an order earlier this month to have the company’s assets seized from its Antwerp offices. This followed a seizure of company assets held by De Beers and ABN Amro bank. Exelco reportedly owed KBC $29 million.

On July 6, however, a Belgian court ordered KBC to return all of the company’s assets, claiming it was on-track to repay its loan by 2020, as contracted.

COLORED GEMS

The not-quite-friendly takeover of Gemfields by its largest shareholder, Pallinghurst, is not expected to have a significant impact on the gemstone mining company’s operations. As it reverts to a privately held company, however, the gemstone world could lose an important source of information.

In fiscal 2016, which ended in September of that year, Gemfields:

• Ruby: 10.3 million carats of both high quality and commercial grade from its 75%-owned Montepuez mine in Mozambique. Sold for $73.1 million.
• Emerald: 30.1 million carats of high and commercial grade from its 75%-owned Kagem mine in Zambia. Sold for $101 million. Gemfields claims Kagem accounts for 25% of the world emerald production by volume.
• Amethyst: 964,548 kilograms from its 50% stake in the Kariba mine in Zambia. Sold for $660,000.

A Gemfields’ survey of the global colored gemstone market in 2016 reported that world sales of gemstones and cultured pearls totaled an estimated $8.4 billion; 69% of that amount were ruby, sapphire and emerald.

Gemfields’ executives had advised its shareholders to reject Pallinghurt’s offer because it “significantly undervalued Gemfields and its prospects as a leading player in the colored gem sector.”

The company also owns Fabergé, the luxury jewelry manufacturer (2016 sales were $11.8 million).