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Israel Rough Diamond Conference
Diamond Industry OverviewFinancing and Valuating the Diamond Pipeline
Martin RapaportFebruary 12, 2008 – Tel Aviv
Martin @ Diamonds. Netwww . Diamonds. Net
Changing Markets
The diamond industry is undergoing fundamental, unprecedented, changes that are creating complex interactions throughout the entire diamond distribution system.
Everyone is affected.
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Changes
External Forces Internal Outlook Corporate Responsibility Beneficiation One Tough Question
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5
Fundamental External Change
Globalization– Hundreds of millions, new consumers– Economic warfare over resources
• Record $100 oil, copper, steel, rubber
– Currencies the weapons of choice– U.S. dominance declines– New socio-economic-political order– Uncertainty & Volatility, the new order
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Euro, Israeli Shekel, Indian Rupee Vs Dollar (index 2006=100)
Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 70
75
80
85
90
95
100
105
110
Euro
Shekel
Rupee
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S&P 500
Jan-
06
Jan-
06
Feb-0
6
Mar
-06
Mar
-06
Apr-0
6
May
-06
May
-06
Jun-
06
Jul-0
6
Aug-0
6
Aug-0
6
Sep-0
6
Oct-0
6
Oct-0
6
Nov-0
6
Dec-0
6
Dec-0
6
Jan-
07
Feb-0
7
Feb-0
7
Mar
-07
Apr-0
7
May
-07
May
-07
Jun-
07
Jul-0
7
Jul-0
7
Aug-0
7
Sep-0
7
Sep-0
7
Oct-0
7
Nov-0
7
Nov-0
7
Dec-0
7
Jan-
08
Jan-
081200
1250
1300
1350
1400
1450
1500
1550
1600
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Lessons – Take Away
The diamond industry does not control diamond markets or prices
De Beers is not your daddy– The not longer control supply
Diamond prices are not as important as diamond profits
Get ready to rock and roll
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Rapaport Diamond Index – 1 ct.1978-1982
Jul-7
8
Sep-7
8
Nov-7
8
Jan-
79
Mar
-79
May
-79
Jul-7
9
Sep-7
9
Nov-7
9
Jan-
80
Mar
-80
May
-80
Jul-8
0
Sep-8
0
Nov-8
0
Jan-
81
Mar
-81
May
-81
Jul-8
1
Sep-8
1
Nov-8
1
Jan-
82
Mar
-82
May
-82
Jul-8
2
Sep-8
2
Nov-8
20.600000000000001
50.6
100.6
150.6
200.6
250.6
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Internal Issues
Long Term Demand > Supply Production Overcapacity
– Diamond cutting is not a profit center American party is over Inventory & credit are out of control Wealth effect is booming Technology is great
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Demand Greater Than Supply
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15
20
25
30
35
40
45
50
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
$B
100
150
200
250
300
350
400
450
500
Mct
Diamond Demand - wholesales Diamond Supply - Mining Production
U.S Diamond Account is Flat
Polished Import
Polished Export
Rough Import
Rough Export
Net Diamond Account
2002 11,501 4,399 567 213 7,456
2003 12,161 5,006 707 193 7,669
2004 13,872 6,597 753 268 7,760
2005 15,374 8,090 864 381 7,768
2006 16,450 9,097 801 443 7,711
2007* 17,524 10,067 902 638 7,721
* Extrapolation based on First 3 months of 2007
$ Million
U.S Net Diamond Account
0
2,000
4,000
6,000
8,000
10,000 $ Million
Diamond Industry Bank Debt
1.9 1.8 2.0 2.4 2.6 2.9 3.21.5 1.8 2.2 2.8 2.9
4.0 4.61.5 1.4 1.4
1.7 2.0
2.1
1.3 1.3 1.31.8 1.9
2.1
2.0
2.0
0
2
4
6
8
10
12
14
2000 2001 2002 2003 2004 2005 2006
Antwerp Mum bai Tel Aviv New York
$6.1 $6.2
$8.7$6.1$6.9
$10.9
$ Billion
$12.0
Global Jewelry Sales Growth - 2006
8%
15%
3%
2%
3%
5%
12%
6%Others
China and India
Asia Pacific
Gulf
Europe
Japan
USA
WORLD
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Global Wealth - 2006
9.5 million millionaires, + 8.3%, India +20.5%
Total Worth $37.2 Trillion, Assets up 11.4%
1.8% Net Worth on Luxury = $670 billion
18% of Luxury on Jewelry = $120 billion
All Diamond Jewelry = $72 billion
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Diamond Prices
Will diamond prices
go up or down?
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Diamond Prices
What kind of diamonds?
Stop seeing things
black and white
What
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The Diamond Dream
The diamond business is not about diamonds.
When a man gives a woman a diamondhe is not just giving her a diamond.
The retail diamond business is about making people feel good.
Diamond Industry Responsibility
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Diamond Dream
What about the diamond dream of the woman in Sierra Leone ?
. Is our dream her nightmare?
How do diamonds benefit artasinal diggers?
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Ethical Issues
Artisanal Diggers– 1.5 million in West Africa– 7.5 million live off diamonds– 70% unemployment– 28% of children die before age 5
You are responsible for what you buy
And responsible for what you don’t buy
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Kimberley Process
The Kimberley Process (KP) Works to Eliminate Conflict Diamonds
KP Does not deal with development Issues
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Corporate Responsibility
Corporate Responsibility is an obligation that extends beyond law.
Corporate Responsibility extends beyond the Kimberley Process.
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Development Issues
Why did G-d give diamonds to the poorest people in the world and make them desired by richest people in the world.
What is the role of the diamond industry?
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Development Issues
The Road to Hell is Paved With Good Intentions
No good deed ever goes unpunished
Poverty Alleviation
Sustainable Economic Development
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Fair Trade Jewelry
Fair CompensationCommunity BenefitDo No HarmMonitoring & Branding
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Fair Trade Jewelry
Fair Trade Jewelry is sustainable because socially conscious consumers will spend more for diamonds and jewelry that makes the world a better place.
Fair Trade Jewelry is not charity it is sustainable economic activity.
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Take Away
Our diamonds
are only as good as we are.
Martin Rapaport
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The Tough Question
Who needs Israel?
No mines.
No consumers.
How do we add value to diamonds?
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Distribution
Non-mining profit in the diamond business comes from:– finding the right buyer– for the right diamond– at the right time– at the right price (added value)
Free, fair, open, competitive markets
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Distribution
Governments can and should create an enabling environment for beneficiation. But they cannot legislate development and sustainable job creation which can only be done by the private sector. in a free market.
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Distribution
Governments must be extremely careful not to use their regulatory power to eliminate the competitive distribution of diamonds or they will destroy their diamond business
There must be room for everyone and every idea in a free market.
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Distribution
All competition is legitimate & good.– Companies should be able to sell their
diamonds any way they want as long as they do not dominate the market
– Selective distribution can and should compete with tenders or any other distribution system
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Distribution
If adding value through downstream marketing initiatives is a good idea then it should not have to be enforced by selective restrictive distribution.
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Beneficiation
With all due respect to Africa why shouldn’t buying countries also demand their fair share of beneficiation?
Over-regulating diamond distribution can be a double edged sword.
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Take Away
Free Fair Competitive Markets is the only way forward.
Governments should create an enabling environment and encourage but not enforce beneficiation over the long term.
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Markets
Chief Linchwe II – Head of the Bakgatla tribe, one of the founders of Botswana
“As children we learned the meaning of life from the elders of the village as we sat in the circle of the fire.”
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Markets
“My grandmother liked to tell the story of two men. One was blind and one could not walk. They were working together, you see. The blind man carried the crippled man on his back. One had the feet; the other had the eyes.”
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Markets
“One day, they met a lion. The blind man just through the crippled man away and ran. The crippled one was killed by the lion because he couldn’t run; the blind one was killed because he couldn’t see.”
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Markets
“As people, you must live together, especially in an unhappy situation. This is the main purpose of the African in traditional life: to live with his community, to protect others. There are lions everywhere, you know.”
Chief Linchwe II – a Founder of Botswana
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Conclusion
The greater the lion the greater the need to cooperate.
Everyone in the diamond industry is dependent on everyone else.
Everyone can and should add value in their own way.
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Mahatma Gandhi
Man becomes great
exactly in the degree
in which he works
for the welfare
of his fellow man.
Mahatma Gandhi - 1930
