Mining’s old guard needs strong medicine
A new report details subpar investor returns in the mining industry over the last decade, particularly big cap diversified companies which have not adapted to new realities.
De Beers told its diamond buyers they can purchase stones on sweetened terms at its next sale, in the first sign the market is slowing after a bonanza that started during the global pandemic.
The diamond industry was one of the surprise winners as the world economy rebounded from the first effects of the pandemic. Consumer demand for diamond jewelry grew strongly last year, while supply remained constrained.
De Beers raised prices of rough diamonds throughout much of 2021 as it sought to recover from the first year of the pandemic. The unit of Anglo American Plc has reported bumper sales so far this year after sanctions on Alrosa PJSC forced its Russian rival to stop selling through much of the spring, causing many buyers to seek supply from elsewhere.
That’s now starting to unravel. Alrosa started quietly selling again in the summer and stones from Russia have continued to flow. At the same time, Chinese demand has been hit by Covid-19 lockdowns, while surging inflation threatens wider consumer demand in the US and Europe.
De Beers responded on Friday by telling customers in a memo that it would be doubling the size of its so-called buyback process, according to people familiar with the situation.
The buyback system allows customers to handpick a percentage of the stones in any parcel and sell them back to De Beers. It allows them to remove stones they think may be unprofitable and helps prevent too much unwanted supply entering the market. De Beers told customers Friday that the buyback would be increased from 10% to 20% for diamonds bigger than 1 carat at its next sale scheduled for the end of this month, the people said, asking not to be identified as the information is private.
The increased buyback is a way for De Beers to offer sweeter terms without having to cut prices, a move that can trigger price falls across the wider market. It’s also a mechanism the company has used in the past when the market softens.
A De Beers spokesman declined to comment.
De Beers sells to around 60 handpicked customers who either cut, polish and manufacture the rough diamonds into jewelry themselves or sell to other companies which don’t have access to the sales.
The deteriorating market comes as De Beers is in the process of changing its chief executive officer. Anglo American said last week that Equinor ASA’s Al Cook will replace Bruce Cleaver, becoming only the second ever outsider to lead the iconic diamond company.
(By Thomas Biesheuvel)
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