Diamond giant De Beers is fully prepared for the expanded G7 restrictions on diamond imports from Russia, which took effect on September 1st. These restrictions now include diamonds weighing 0.5 carats and above, according to Rough&Polished.
De Beers stated that its customers will continue to provide proof of the origin of the diamonds they sell, even as the sanctions now cover rough diamonds weighing 0.5 carats and above, instead of 1 carat and above, as previously stipulated.
The company added that it welcomes the G7’s measures, which stand alongside the diamond industry and diamond-producing nations, aiming to trace the origin of diamonds. “De Beers fully supports the work being carried out by the G7 to prohibit the trade in Russian diamonds, and we are committed to working with the G7, the diamond industry, and our partner governments to ensure there is an effective system put in place,” said De Beers CEO Al Cook.
Australia-based jewelry retailer Michael Hill International reported a slight loss for FY 2024, amid “challenging” trading conditions.
Net profit after tax (NPAT) was minus AUD 479,000 (minus USD 322,000), compared to a positive AUD 35.2m (USD 22.5m) in FY 2023 and AUD 46.7m (USD 29.9m) in FY 20222.
The company has 300 stores in Australia, New Zealand and Canada, including low-price retailer Bevilles, Medley, and its new luxury business TenSevenSeven.
It reported increased revenues, up 4.2 per cent to AUD 644.9m (USD 437.4m), with Australia up 10.3 per cent, New Zealand down 11.8 per cent and Canada flat.
“While FY24 earnings were disappointing, with challenging economic conditions and inflationary pressures impacting consumers across all markets, the business continued to execute on its clearly articulated strategy, focus on retail fundamentals and drive topline sales,” said CEO Daniel Bracken, CEO and managing director.
He said it had been “a challenging and busy year”. The company noted in its FY 2024 Full Year Results that third-party data indicated it had continued to outperform the broader jewelry market.
Since early 2022, the price of polished natural diamonds has fallen approximately 40% and the industry is being buffeted by negative economic headwinds, an excess of mine supply and too much stock in the cutting centres. However, there is one statistic that cannot be ignored: around 50% of Diamond Engagement Rings purchased in the United States now contain a Lab Grown Diamond (LGD). Is this just another cyclical downturn or are we in the middle of a major structural change?
Diamonds were once the preserve of royalty and the uber-wealthy, but the diamond market has evolved over the past 80 years into more of a mass market product with democratisation of the diamond consumer. Since the late 1970s most polished diamonds below 5 carats were priced against the 4 ‘C’s’ (carat, clarity, colour and cut), which led to standardised pricing in the form of polished diamond pricing lists. Up until the turn of the century these lists were primarily available in the wholesale market, but the arrival of internet pricing soon gave the consumer access to that same standardised pricing. In a world where everyone knows the price of everything, branding is the only differentiator. Without a differentiator, commoditised products end up selling for the lowest price.
It was why one of the questions that De Beers tried to answer when it changed its business model 25 years ago was: “How do you take a necessity (the diamond) priced like a commodity and market it as a luxury priced like a brand?”
Unfortunately, that question remains unanswered. The industry did create hundreds of so-called ‘brands’; origin, cut, settings, etc; the problem was that very few of them were real “brands”. If something does not sell at a premium, it’s not a brand, and most natural diamonds sell at a discount, yet the more that the industry was unable to achieve a premium, the more it becomes fixated with talking about the “product” when the luxury world has spent the last 25 years talking about “values”.
The challenge for most jewellers is not making a sale, it is making a reasonable margin. Ask a jeweller what they are selling and if they reply “VS1, G-H colour, loose polished, 1-caraters” then the most relevant word in their business will be “discounting”, because what they are selling is a commoditised version of “crystallised carbon.” There is no differentiator.
The LGD industry realised that to succeed it simply needed to persuade consumers that natural diamonds and LGDs were the same – “optically, physically and chemically”, but to also position them as “slightly cheaper”. They could then ride on the back of 80 years of De Beers diamond advertising differentiate themselves by claiming that LGDs were “conflict free”.
A larger “ethical” LGD for the same money as a natural diamond or pay less for the same size, created a money printing machine for everyone involved. And it’s no surprise that LGDs real success has been in the United States, because historically America has always been a “discount market”, and “larger for less” plays to that tune.
If all you want in a diamond is the sparkle, then they are in essence the same. Except there is a very real difference between the two, which is why some LGD executives insist on calling natural diamonds “earth mined” diamonds, because “natural” is exactly what differentiates them. The story of their age, rarity, origin; their social and economic contribution but above all, their “social purpose”. It was the failure of the natural diamond industry to tell that story which opened the door to LGDs.
When LGD production exploded, wholesale prices collapsed to around a 95% to 98% discount to their natural diamond equivalent. Prices vary according to quality, but anecdotal evidence suggests that today in the wholesale market, it is possible to buy a single polished LGD for $150 a carat, buy in volume and its possible to pay as low as $80 a carat.
Many retailers have also dropped their LGD prices, but by no means as far, and even pricing LGD at a 20-40% discount to their natural diamond equivalent can still leave a very significant margin. Pandora will sell you a 1-carat LGD ring for $1,950. Helzberg Jewellers (a Warren Buffet company) will sell you a similar LGD for $1,999. It’s very likely that some in the LGD industry are making a gross margin of 200%, some much more for a product that Signet Jewellers sensibly cautiones it customers “Their relative abundance may not ensure the value will hold over time”.
Whatever happens to future LGD retail prices, the category has got itself into the American consumer psyche and that won’t easily change, although there are also two sides to this story. I heard of a jeweller who was recently asked by a HNWI to make a replica of her 8-carat natural diamond ring so she could wear it travelling. The original ring cost $500,000 but he sourced an equivalent LGD for $5,000, and apparently she was absolutely thrilled with it. The question is, will she buy natural again? On the other hand, if in the future a consumer could buy (for example) a 2-carat LGD engagement ring for below $200, how pleased would their fiancé be to receive it – Walmart recently had a 2-carat LGD ring for sale for only $257. How romantic!
The US bridal market (size over quality) is dominated by larger, lower quality diamonds. Since similar sized LGDs are cheaper (or you get a much better quality LGD), either that market disappears, or demand only reappears aner prices have fallen sharply (already happened). It is also likely that LGDs will replace small, lower quality natural diamonds in fashion jewellery – as they may replace the smaller stones in high-end pieces of natural diamond jewellery. Diamond mining companies whose profitability rely on these categories of diamonds probably need to find a new value proposition, or their days may be numbered.
For those in the natural diamond industry who can adapt, there is huge potential. For those that don’t, as the saying goes, “Kodak never saw it coming either”.
Except Kodak did see it coming; they just didn’t know what to do about it. Kodak was killed off by digital photography which ironically, they invented, patented, but didn’t know how to exploit it, so they franchised the technology and made a fortune until their patents expired, and then went bust. Have LGDs done the same to natural diamonds? “No”, the opposite; their success is forcing a complacent industry to change. Have they changed the paradigm? “Completely”.
More than 110,000 Western Australian couples have celebrated a special occasion featuring a piece of Rosendorff’s fine jewellery.
An announcement to the Australian Securities and Investments Commission (ASIC) said a meeting of creditors was set to get under way at 11am Thursday.
Richard Tucker of KordaMentha Restructuring, appointed receivers and managers of Rosendorff Diamond Jewellers, said the business was holding too much stock.
“We are running a short highly discounted sale through the store to materially reduce the current stock levels whilst a sale or recapitalisation of the business is pursued,” Mr Tucker said.
I have always loved the mystique of diamonds. I’m attracted to the joy and romance they bring to their beholders
Craig Rosendorff “It is a tremendous opportunity to acquire a very special jewellery item at very competitive prices and may also help save an iconic Perth jeweller.”
He said a secured creditor would support the receivers to ensure current special orders, repairs and lay-bys were completed in time for the special occasions they might be destined for.
“From proposals, to weddings and anniversaries, we understand the importance and significance these items have on people’s special memories,” Mr Tucker said.
Daniel Hillston Woodhouse of FTI Consulting has been appointed as administrator.
Rosendorff is an iconic West Australian luxury business specialising in diamonds and bespoke jewellery design headed by Craig Rosendorff.
In 1975 Mr Rosendorff renamed and launched what became one of the longest-standing diamond companies in Australia.
His rags to riches story has been dubbed The Diamond Dream.
“I have always loved the mystique of diamonds,” he says on the company’s website.
“I’m attracted to the joy and romance they bring to their beholders, the heritage and their connection to families across generations.”
The large, glamorous showroom in the centre of Perth on Hay Street has been the setting of many magnificent parties and events showcasing the designs of the Rosendorff team.
Mr Tucker said gift cards and store credits would be honoured while trade continues.
White knight rescues collapased Rosendorff Diamond Jewellers
The Rosendorff fine jewellery business will carry on but under new ownership following a deal struck by receivers appointed last month.
Insolvency firm KordaMentha confirmed today it had struck an agreement to sell the business set up by Craig Rosendorff in the 1980s to an unidentified WA buyer also involved in the jewellery trade.
The deal, expected to be finalised in two to three weeks, guarantees more than 20 jobs and covers the Rosendorff trading name, stock and intellectual property.
Receivers from KordaMentha were put into Rosendorff Diamond Jewellers at the end of April.
The business, which owes at least $4 million to creditors, has shrunk on falling sales in the past three years to just its flagship store in Hay Street Mall.
The deal covers the Rosendorff trading name, stock and intellectual property.
Today’s sale announcement coincided with news the receivers are stepping up a discount sale which has already brought in between $2 million and $3 million.
The West Australian revealed yesterday that administrators from FTI Consulting had identified “irregularities” in the company’s accounts while sheeting home blame for the collapse to the mining downturn.
They questioned a $1.8 million shortfall in stock and four transactions totalling $170,000 where jewellery “left the store without payment”.
FTI said “there were limited controls around the accounting and inventory functions, which have led to some anomalies in the financial accounts”.
However, it noted that such irregularities were not uncommon, and there is no suggestion of any wrongdoing by Mr Rosendorff.
The firm’s statutory report on Rosendorffs also noted that Mr Rosendorff, who has invested millions of dollars in the business over the past 30 years, had drawn increasing amounts out of the company as its financial situation deteriorated.
Between July 2017 and FTI’s appointment, those withdrawals totalled $1.8 million, including $582,000 in the past 10 months.
The administrators says Rosendorffs had been under financial pressure for two years, citing “cash leakage” and a steady decline in sales after 2011, triggered by the end of the mining boom.
Gordon Brothers is owed about $2.2 million, Rosendorffs’ staff $400,000 and trade creditors $270,000.
Controversial Australia-based miner Kimberley Diamonds has put its last remaining diamond mine into administration after it failed to secure fresh funding.
Kimberley, which avoided an estimated $40 million clean-up bill after it walked away from its Ellendale mine in Western Australia’s north, shut its Lerala operation in Botswana last week and placed the subsidiary responsible for the project into administration.
Kimberley said in a statement on its website that its subsidiary Lerala Diamond Mines had “no choice” but to place itself into administration after the parent company was unable to strike a new financing deal.
It had earlier stopped day to day operations at Lerala pending an overhaul of the mine’s diamond processing plant. “The successful completion of this performance improvement plant required further funds to be provided by investors and despite considerable progress being made on implementing these improvements, all of the required funds have not been forthcoming,” Kimberley said. “Kimberley has been in discussions with investors regarding further funds for some time, however to date no agreement for further and sufficient funding has been reached and KDL has been forced to cease providing financial support to Lerala.” But the collapse of Lerala won’t kill off the parent. Kimberley said it remained in discussions with investors for further funding and was “exploring corporate restructuring options”.
Kimberley delisted from the ASX earlier this year after a chequered history. The stock enjoyed a charmed run early on, surging from 11c in 2012 to $1.30 in 2013, but fell spectacularly in 2014 when it revealed it had failed to secure a price increase from global jeweller Tiffany & Co that it had already factored into its profit forecasts. Its shares never recovered, and last traded at just 0.7c prior to its delisting.
The company, chaired by former stockbroker Alexandre Alexander, also came under fire for its handling of the closure of Ellendale. The liquidators appointed to the Kimberley subsidiary that held Ellendale used a legal loophole to shift responsibility for the clean-up to the state government’s industry-funded mining rehabilitation fund.
The rehabilitation costs at Ellendale have been estimated at between $28m and $40m. WA’s new Mines and Petroleum Minister Bill Johnston has flagged an overhaul to prevent “rogue elements” taking advantage of the MRF.
Anglo American’s De Beers, the world’s largest rough diamond producer by value, has decided to begin selling its own polished diamonds in auctions for the first time in its history.
The pilot auction, scheduled for June, will include a wide range of polished stones manufactured directly from the company’s own rough diamonds.
“The pilot auction, scheduled for June 29, will include a wide range of polished stones manufactured directly from De Beer’s own rough diamonds.” All the polished rocks will carry grading reports from both the International Institute of Diamond Grading & Research (IIDGR) — De Beers’ in-house grading unit — and the Gemological Institute of America (GIA).
“We are interested in testing the level of demand from polished buyers for diamonds that have a clear and attractive source of origin, and that offer the assurance of product integrity that dual certification provides,” Neil Ventura, the miner’s executive vice president of auction sales, said in the statement.
If successful, the process would provide De Beers with more insight into the polished market, while also helping consumers fill gaps in supply or inventory if they were unable to find goods at the company’s rough auctions, he added.
All registered De Beers auction buyers will be eligible to bid in the first sale, which takes place on June 29.
Profit more than doubled for De Beers last year as trading conditions in the diamond-manufacturing sector improved and inventory levels stabilized.
Underlying earnings jumped to $667 million in 2016 from $258 million a year earlier, parent company Anglo American said in a statement Tuesday. This came as revenue grew 30 percent to 6.07 billion, reflecting a 37-percent hike in rough-diamond sales to $5.6 billion.
The midstream of the diamond industry returned to buying rough after a 2015 slump in demand that resulted from oversupply of polished and inflated rough prices. Manufacturers started working down their polished inventories in the second half of that year before restocking their rough supplies in 2016.
De Beers also lowered prices, with its rough-price index declining 13 percent across 2016. The miner consequently reduced its rough stockpiles during the year, management said. De Beers production fell 5 percent to 27.3 million carats, while sales volume leapt 50 percent to 30 million carats, meaning it sold a larger volume of stones than it mined. “2016 generally was a much better year for the diamond industry,” said Bruce Cleaver, De Beers chief executive officer. “The midstream performed much better than 2015, largely as a result of the strong and decisive action we took in 2015 to reduce production in accordance with demand.
The fruits of that tough action we took in 2015 was seen through 2016.” The company projected production would rise to 31 to 33 million carats in 2017, “because we see the market has recovered from where it was at the end of 2015,” noted Cleaver. The company maintained a conservative outlook for the diamond jewelry market given prevailing global macro-economic conditions and geopolitical risk.
Performance will be dependent on a number of macro issues, including the attitude of the new U.S. administration, the strength of the dollar, continued recovery in China and the impact of Indian demonetization, Cleaver explained. “All other things being equal, we think diamond demand will continue to grow along with GDP growth,” he said. Source: diamonds.net
In a surprise announcement, online jeweller Blue Nile has entered into an agreement to be acquired by an investor group managed by Bain Capital Private Equity and Bow Street LLC.
Bain Capital and Bow Street will acquire 100 percent of the outstanding shares of Blue Nile common stock.
The cash deal is valued at $500 million, Blue Nile stockholders will receive $40.75 in cash per share, 34 percent over Blue Nile’s closing price on November 4.
Blue Nile’s board of directors approved the deal unanimously, and recommended that stockholders vote their shares in favour of the transaction.
Petra Diamonds announced that it had recovered a 138.57-carat, Type IIa, D-colour diamond at its historic Cullinan mine near Pretoria in South Africa. The company said the diamond would be offered for sale in Johannesburg later this month.
