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$ 64b Diamond Industry W orld of Opportunities

$ 64b Diamond Industry W orld of Opportunities. Dr Rajesh Khajuria , Director TEAM Pro Limited London (UK) / Vadodara (India) January 3, 2006. Can You Make Diamonds? Yes.

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$ 64b Diamond Industry W orld of Opportunities

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  1. $ 64b Diamond IndustryWorld of Opportunities Dr Rajesh Khajuria, Director TEAMPro Limited London (UK) / Vadodara (India) January 3, 2006 Dr R Khajuria TEAMPro London

  2. 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 Dr R Khajuria TEAMPro London

  3. Part I: Industry Growth Dr R Khajuria TEAMPro London

  4. For 1,000 years, starting in 4th century BCE, India was only source of diamonds Source: Emporia State University, USA Dr R Khajuria TEAMPro London

  5. 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). Dr R Khajuria TEAMPro London

  6. 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 Dr R Khajuria TEAMPro London

  7. 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. Dr R Khajuria TEAMPro London

  8. 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. Dr R Khajuria TEAMPro London

  9. South Africa w/w/o Diamonds Dr R Khajuria TEAMPro London

  10. 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. Dr R Khajuria TEAMPro London

  11. 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. Dr R Khajuria TEAMPro London

  12. 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. Dr R Khajuria TEAMPro London

  13. 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. Dr R Khajuria TEAMPro London

  14. 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. Dr R Khajuria TEAMPro London

  15. 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: newsdesk@afxnews.com Dr R Khajuria TEAMPro London

  16. 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 Dr R Khajuria TEAMPro London

  17. 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. Dr R Khajuria TEAMPro London

  18. Global Diamond Production Dr R Khajuria TEAMPro London

  19. 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. Dr R Khajuria TEAMPro London

  20. 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. Dr R Khajuria TEAMPro London

  21. Sorting Dr R Khajuria TEAMPro London

  22. 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). Dr R Khajuria TEAMPro London

  23. 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. Dr R Khajuria TEAMPro London

  24. 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. Dr R Khajuria TEAMPro London

  25. 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. Dr R Khajuria TEAMPro London

  26. 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. Dr R Khajuria TEAMPro London

  27. South Africa Story Dr R Khajuria TEAMPro London

  28. 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. Dr R Khajuria TEAMPro London

  29. 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. Dr R Khajuria TEAMPro London

  30. 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. Dr R Khajuria TEAMPro London

  31. AfricaThe Jwaneng mine, in Botswana Dr R Khajuria TEAMPro London

  32. 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. Dr R Khajuria TEAMPro London

  33. 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. Dr R Khajuria TEAMPro London

  34. 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. Dr R Khajuria TEAMPro London

  35. Other African Share Other 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% Dr R Khajuria TEAMPro London

  36. 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 Dr R Khajuria TEAMPro London

  37. 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. Dr R Khajuria TEAMPro London

  38. 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. Dr R Khajuria TEAMPro London

  39. 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. Dr R Khajuria TEAMPro London

  40. 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 Dr R Khajuria TEAMPro London

  41. Part II: Jewellery and Branded Diamonds Dr R Khajuria TEAMPro London

  42. 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#/ Dr R Khajuria TEAMPro London

  43. India’s Gold Jewellery ExportMajor Destinations in 2004-05 Dr R Khajuria TEAMPro London

  44. India’s Precious Metals Jewellery Export Destinations in 2004-05 Dr R Khajuria TEAMPro London

  45. 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. Dr R Khajuria TEAMPro London

  46. 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 Dr R Khajuria TEAMPro London

  47. 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. Dr R Khajuria TEAMPro London

  48. 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. Dr R Khajuria TEAMPro London

  49. Part III: Strategic Options? Management of Growth Dr R Khajuria TEAMPro London

  50. 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 ? Dr R Khajuria TEAMPro London

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