5987 4 CORNERS OF THE GLOBE 5991 DIGGING THE DIRT5993 OFF THE SHELF 5994 BRIEFLY NOTED

DIAMOND INTELLIGENCE BRIEFS

A Confidential Service for

Executives in the Diamond and Diamond

Jewelry Business

May 25, 2010 | Vol.25 No.607

By Chaim Even-Zohar

Fraud and deception come in many forms. There is, however, a huge difference between individual fraudsters collaborating with corrupt lab employees accepting bribes to upgrade gem-grading reports and top management of a major laboratory sending written instructions to staff ordering them to take part in a well-organized, across-the-board scheme to apply improved color grades.

For a grading lab, whose only reason for existence is to provide documentary guarantees to enhance consumer confidence and trust in diamond purchases, such despicable – and arguably also fraudulent – behavior may inflict huge damage on the industry at large.

This, apparently, is what has happened at the immensely popular and hitherto highly respected Gemological Association of All Japan GAAJ-ZENHOKYO laboratory, which has allegedly manipulated color standards between late February in 2007 and late October in 2008, affecting some 338,000 diamonds that were graded during the period. Revelations first made in Japanese newspaper Mainichi Daily News and further verified by Diamond Intelligence Briefs, show that GAAJ-ZENHOKYO, which traditionally enjoyed a reputation of very strict and meticulous grading, had come under pressure from some wholesalers “to look into this matter.”

Some diamond traders acted with shock and disbelief. “The Japanese jewelry industry’s reputation will be in tatters. Sales have already been depressed for so many years already. This will make consumers run to other discretionary purchases. My understanding is that GAAJ-ZENHOKYO serves the middle market, so their market share is significant. This is very bad news.”

According to reports, “GAAJ-ZENHOKYO discussed manipulating diamond color evaluation standards during a technical meeting at its Tokyo headquarters on Feb. 24, 2007. Two days later, the association's board officially decided to go ahead with the manipulation so that color evaluation of diamonds weighing 1 carat (0.2 grams) or over would be upgraded by a half to one grade compared to the industry's uniform standards, and that of diamonds weighing less than 1-carat would be upgraded by a half grade,” reports Mainichi Daily News.

Following the decision, the lab reportedly started overestimating diamonds at the Tokyo headquarters as well as its Osaka and Fukuoka branch offices. GAAJ-ZENHOKYO, however, has refuted the allegations, saying, "We only rectified deviations of our in-house evaluation standards." [DIB has not received answers to further questions at press time.]

Whistleblower Informs PressThe Association of Gemological Laboratories Japan (AGL), which is responsible for the industry's uniform evaluation

standards and to which GAAJ-ZENHOKYO belongs, had received complaints about the lab’s alleged upgrading almost two years ago. In October 2008, a jewelry shop in Tokyo complained to AGL that the evaluation conducted by GAAJ-

‘Certififraud-Japan’ Jitters Japanese Diamond Market

DIAMOND INTELLIGENCE BRIEFS 5986

EDITORIAL

GAAJ-ZENHOKYO has begun offering services to an international clientele, concentrating specifically upon the South East Asian and European markets.

Fearing Consumer BacklashA prominent Tokyo diamond merchant commented that

“the majority of department stores and retailers have been using GAAJ-ZENHOKYO. They are now faced with the risk of consumers either returning goods or having them re-graded. Overall, the

market is very jittery about this appearing in the main-press as then Japanese consumers might lose confidence. Especially the important high-end buyers might not be interested in buying diamonds for some time.”

GAAJ-ZENHOKYO is one of the top three gemology companies in Japan that boast a combined 70 to 80 percent share of diamond evaluation in the domestic market. The other two are AGT (formerly associated with GIA) and CGL (Chuo Ken). There are many smaller labs, including the well-known DGL and GTC.

The Mainichi Daily News exposé stresses that “certificates are issued by private companies and their appraisal method does not entail official attestation. International evaluations standards are based on those set by private organizations in Europe and the United States, and Japanese companies mostly adopt the method used in the United States.”

The newspaper continues: “The credibility and fairness of evaluation certificates are not only important to consumers but also to retailers.” In reference to the GIA master set, the

newspaper informs its readers that “AGL and other organizations set uniform color standards in the 1990s by creating ‘standard gem sets’ in collaboration with leading U.S. evaluation organizations and distributing them to its member companies. However, since consumers cannot assess fine details in quality, they have no choice but to believe in dealers' claims that they have appraised the diamonds based on the standard gems.”

Arguably, any laboratory can set its own standards – and deviations occur frequently throughout the industry. But when the consumers are made to believe that a lab strictly adheres to GIA standards, based on a GIA-approved master set, intentional and deliberating upgrading seems, prima facie, fraudulent.

At the end of the day, even if no specific Japanese laws were violated (something we cannot ascertain), the final judgment will be in the court of public opinion. Not only is the jury is still out, it hasn’t even convened yet. We’ll see how this story evolves and will also report further reactions by GAAJ-ZENHOKYO when, and if, received.

ZENHOKYO 's Fukuoka office was wrong, prompting AGL to re-evaluate the questionable diamonds. As a result, it turned out that GAAJ-ZENHOKYO had overestimated diamond quality in terms of color. No public announcements, as far as we could ascertain, had been made at the time.

It is known within the gemological community that the Gemological Institute of America (GIA) has graded the master set for the Japanese standard-setting body some years ago, and that the GIA set is considered to be a standard for grading in Japan by membership labs. As GAAJ-ZENHOKYO claims that it “rectified deviations,” questions have been raised in Japan whether the GIA had changed standards.

The GIA has unequivocally reassured the Japanese market that it has not made any changes whatsoever to its D to Z color-grading standards. It has been learned that in order to provide comfort to the Japanese market that the integrity of the relevant master set is beyond reproach, the GIA has indicated its willingness to review the set, just to preclude the remote possibility that stones may have been switched.

GAAJ-ZENHOKYO closed its Fukuoka branch last year and the current reports, which started to circulate last week, were triggered by leaks attributed to a former lab employee to the Mainichi Daily News. The newspaper, as a matter of fact, concludes that “consumers had ended up buying low grade goods at higher prices.”

"The higher diamonds are over-graded and thus overstate their true value, the more profits diamond import companies can make. The GAAJ probably tried to pick up more orders for grading by overestimating diamond quality," said a former employee at GAAJ-ZENHOKYO’s Fukuoka office, interviewed by the Mainichi Daily News.

GAAJ-ZENHOKYO: Household Word in Japanese Industry

“GAAJ-ZENHOKYO is a world renowned gemological institute, conducting original research and providing educational and gemological services for the jewelry, colored gemstone and diamond sectors in Japan and abroad. Founded in 1965 as a commercial subsidiary of the Gemmological Association of All Japan (GAAJ), it was the first gemological laboratory to serve both the coloured stone and diamond industries in Japan, and is today is the country’s largest and most trusted provider of gemological and grading certificates’, boasts its corporate website.

GAAJ-ZENHOKYO also has an international presence. It says that although the bulk of its activities are geared for the Japanese gemstone and jewelry markets, in recent years

DIAMOND INTELLIGENCE BRIEFS 5987

4 CORNERS OF THE GLOBE

Zimbabwe Government InitiatesLocal Gem Beneficiation

In keeping with the trend of local diamond beneficiation in southern Africa, the Zimbabwe government has established a joint venture with diamond firm Canadile Miners to construct a multimillion-dollar Diamond Technology Centre for local diamond processing and other downstream activities.

In addition to manufacturing units, the new center will house a diamond auction floor, a marketing wing and an administration block where banks and offices of the Ministry of Mines and Mining Development and Kimberley Process Certification Scheme will be located, reports the state-owned The Herald. The Minerals Marketing Corporation of Zimbabwe will be housed at the complex that will be built in Mt Hampden opposite Charles Prince Airport, adds the report.

The center’s project manager, Retired Colonel Charles Mugari, says that the complex will house “value-adding activities of the diamond industry such as cutting, polishing and sorting right up to the actual marketing of the finished products."

Locals from Chiadzwa including women and the disabled will be hired to serve in all functions of the downstream diamond industry, says Mugari.

To that end, local Affirmative Action Group (AAG) plans to set up a consortium of 10 companies composed of youth, the disabled, women, war veterans, and widows and widowers that will be involved in the cutting and polishing of diamonds, according to AAG president Supa Mandiwanzira.

The new center is aimed at stakeholders other than diamond miners to benefit from the country’s natural resources, Mandiwanzira told The Herald.

ZIM

BA

BW

E

New U.S. Bill Calls for Zimbabwe’s Suspension from the KPNew legislation introduced in the United States Congress that aims to update U.S. policy toward Zimbabwe presses for

the country’s expulsion from the Kimberley Process and calls on the Obama administration to consider new sanctions on individuals overseeing what it deems as illegal diamond activity.

The Zimbabwe Transition to Democracy and Economic Recovery Act of 2010, introduced by Senators Johnny Isakson, Russ Feingold and John Kerry, seeks to amend its 2001 predecessor, the Zimbabwe Democracy and Economic Recovery Act (ZDERA), signed into law by former President Bush, which aimed to achieve peaceful and democratic change and economic reform within the regime.

The original law placed restrictions on U.S. support for any new international loan, credit or debt reduction for Zimbabwe until a number of political conditions were met, namely an end to abuses and the restoration of the rule of law. The law also called for targeted sanctions against individuals responsible for politically motivated violence.

A decade later, the U.S. senators behind the new bill assert that while some political and economic progress has been, amendments to the ZDERA are imperative to proactively expedite “real and lasting democratic change” within Zimbabwe.

Therefore, the new bill calls for “the continued review and updating of ”ZDERA’s program of targeted sanctions against specific individuals and financial institutions that are directly involved “in the breakdown of the rule of law and abuses of power.”

With regard to the diamond industry, the new bill encourages “new action to address illegal activities involving diamonds in Zimbabwe that are reportedly fueling abuses and undermining democratic progress. Specifically, it urges the Obama administration to consider new sanctions on individuals overseeing these activities and to press for Zimbabwe’s suspension from the Kimberley Process. Zimbabwe’s continued participation in the Kimberley Process undermines the integrity and important work of that process,” writes Senator Feingold in a letter for the Congressional Record.

Among other amendments, the new bill authorizes continued and expanded technical assistance to reformist ministries of the transitional government as well as to the Parliament as it seeks to repeal or amend repressive laws. It also allows the United States greater flexibility and leverage when engaging with the International Financial Institutions on Zimbabwe.

For more information about how U.S. foreign policies are affecting the diamond industry with regard to Zimbabwe, see analysis in DIB 605: http://tinyurl.com/295m3yu

UN

ITED

STA

TES

Marange Diamond Area

DIAMOND INTELLIGENCE BRIEFS 5988

4 CORNERS OF THE GLOBE

economic institutions that can facilitate and improve transparency in the cross-border trade involving such natural resources in order to reduce exploitation by illegal armed groups and promote local and regional development.

The amendment further directs the U.S. President, acting through the Secretary of State, the U.S. Permanent Representative to the United Nations (UN), and other appropriate U.S. officials to use the voice of the United States at the UN Security Council to renew the mandate and strengthen the capacity of the UN Group of Experts on the DRC to investigate links between such minerals and the financing of illegal armed groups.

DRC. "Continued weak governance in the Democratic Republic of Congo has allowed the illicit trade in the minerals columbite-tantalite, cassiterite, wolframite, and gold to flourish, which empowers illegal armed groups, undermines local development, and results in a loss or misuse of tax revenue for the Government of the Democratic Republic of Congo," says the amendment.

The Congo Conflict Minerals Act of 2009 has been a project of Senator Sam Brownback of Kansas, who is currently running for the governor's office in the state. Brownback has been supported in his quest by Senators Richard Durbin of Illinois and Russ Feingold of Wisconsin. Feingold says that by working to ensure that raw materials used in electronics are not benefitting armed groups, "we can have appositive impact on ending armed conflict and human rights abuses."

Reporting RequirementsThe amendment “declares it is U.S.

policy to promote peace and security in the DRC by supporting the efforts of the DRC, other governments in the Great Lakes Region of Africa, and the international community to:1. monitor and stop commercial activities

involving the natural resources of the DRC (the minerals columbite-tantalite [coltan], cassiterite, wolframite, and gold) that contribute to illegal armed groups and human rights violations in the eastern region of the DRC; and

2. develop stronger governance and

No, this time the target isn’t “conflict diamonds,” b u t r a t h e r “ c o n fl i c t

minerals,” including metals which are used in mobile telephones, laptop computers, and digital video recorders as well as other global technological products.

Any manufacturer of products using a range of minerals as raw materials must report to the U.S. Security and Exchange Commission (SEC) whether these goods were purchased in the DRC or in a neighboring African country.

Though minerals had nothing to do with the financial crisis in the United States, U.S. lawmakers have used this bill to attach “pet projects” as amendments, counting on the overall desire of the U.S. Congress to legislate financial reforms and they would not object to “innocent” amendments – even they have nothing to do with the subject on hand.

Thus, deeply hidden in the landmark financial overhaul bill passed by the Senate, is a provision requiring mining companies to declare with the SEC if certain minerals originated in the DRC or elsewhere. Moreover, the amendment also requires mining companies to report what steps the company took to ensure that purchase of these minerals did not benefit armed groups in Africa.

Originally known as the "Congo Conflict Minerals Act of 2009," the amendment requires the annual disclosure to the SEC of activities involving columbite-tantalite, cassiterite, and wolframite from the

U.S. Financial Bill Mandates SEC Reporting of DRC-Mined Minerals

UN

ITED

STA

TES

Gokhran Sells $30.8 Million in Diamonds from Its Stockpile Since JanuaryRussia’s State Precious Metals and Gemstones Repository (Gokhran) has sold 960 million rubles (US$30.8 million) worth of

rough diamonds so far this year, reports Interfax.The total sum consists of 920 million rubles (US$29.5 million) in gem diamonds weighing up to 10.8 carats and 40 million

rubles (US$1.3 million) in diamonds weighing 10.8 carats or more, according to sources.The Gokhran says that its sales target this year is 2.35 billion rubles (US$75.5 million) and aims to sell 1.94 billion rubles (US$62.3

million) worth of rough diamonds in the Russian market.The Gokhran did not start selling diamonds until April of last year. For the whole of 2009, the Gokhran says it sold 1.391 billion

rubles (US$44.7 million) in diamonds in Russia and exported 214.5 million rubles (US$6.9 million) worth. Sources say that the Gokhran missed its 2009 sales target due to reduced demand for diamonds brought on by the global economic crisis.

RU

SSIA

Alluvial Mining in DRCPhoto Courtesy: commdev.org

DIAMOND INTELLIGENCE BRIEFS 5989

4 CORNERS OF THE GLOBE

Israeli Tax Authority Warns Diamantaires to Declare Cash at The Border

In a rather unusual move, the Israeli Tax Authority together with the Israeli Diamond Controller of the Ministry of Industry, Trade and Labor are distributing a joint circular clarifying the legal obligation in respect to declaration of funds carried into or out of Israel.

The circular points out that in the Israeli diamond industry, it is quite usual to carry out large international transactions. However, a number of recent instances are cited in which diamantaires have failed to declare the cash they were carrying.

It is explained in the circular that this mandatory declaration does not create any tax consequences whatsoever, and it is only necessary for the government to enforce anti-money laundering laws.

In this respect, attention is drawn to the Financial Action Task Force's (FATF) Special Recommendation IX, which, says the circular, is something the Israeli government has adopted. Each financial instrument or cash exceeding 90,000 NIS (about 15,000 Euro) needs to be declared. This also applies when sending these sums by mail or other non-banking ways.

To find FATF's Special Recommendation IX, download the FATF's IX Special Recommendations at: http://tinyurl.com/2337xm3

For greater understanding of the specific Special Recommendation IX, see the interpretive note at: http://tinyurl.com/254jy27

ISR

AEL

The unprecedented warning issued by the Israeli tax authorities to the country’s diamantaires refers to FATF Special Recommendation IX, which was developed with the objective of ensuring that terrorists and other criminals cannot finance their activities or launder the proceeds of their

crimes through the physical cross-border transportation of currency and bearer negotiable instruments. Specifically, it aims to ensure that countries have measures:1. to detect the physical cross-border transportation of currency and bearer negotiable instruments, 2. to stop or restrain currency and bearer negotiable instruments that are suspected to be related to terrorist financing or money laundering, 3. to stop or restrain currency or bearer negotiable instruments that are falsely declared or disclosed, 4. to apply appropriate sanctions for making a false declaration or disclosure, and5. to enable confiscation of currency or bearer negotiable instruments that are related to terrorist financing or money laundering.

It is important to stress that there is a “reporting requirement” – there is no prohibition in any way to carry cash. Actually, the FATF stresses that this Special Recommendation IX may not restrict trade payments between countries for goods and services or imped the freedom of capital movements in any way.

In Israel there has been some confusion on the definitions which are applicable. According to the FATF the term bearer negotiable instruments includes monetary instruments in bearer form such as: travellers cheques; negotiable instruments (including cheques, promissory notes and money orders) that are either in bearer form, endorsed without restriction, made out to a fictitious payee, or otherwise in such form that title thereto passes upon delivery; incomplete instruments (including cheques, promissory notes and money orders) signed, but with the payee’s name omitted.

The Israeli tax authority basically views every diamantaire as a potential “cash courier”, but even sending money or checks by Fedex or regular mail needs to be reported. According to FATF, the term physical cross-border transportation refers to any in-bound or out-bound physical transportation of currency or bearer negotiable instruments from one country to another country. The term includes the following modes of transportation: (1) physical transportation by a natural person, or in that person’s accompanying luggage or vehicle; (2) shipment of currency through containerized cargo or (3) the mailing of currency or bearer negotiable instruments by a natural or legal person.

It is also important to realize that Special Recommendation IX does NOT refer to diamonds, though there are other laws that govern their movements. Says FATF very specifically: gold, precious metals and precious stones are not included despite their high liquidity and use in certain situations as a means of exchange or transmitting value.

If a country discovers an unusual cross-border movement of gold, precious metals or precious stones, it should consider notifying, as appropriate, the Customs Service or other competent authorities of the countries from which these items originated and/or to which they are destined, and should co-operate with a view toward establishing the source, destination, and purpose of the movement of such items and toward the taking of appropriate action.

WARNING TO ISRAELI DIAMANTAIRES

- continued on next page

DIAMOND INTELLIGENCE BRIEFS 5990

4 CORNERS OF THE GLOBE

The key characteristics of the relevant cash declaration system are as follows: All persons making a physical cross-border transportation of currency or bearer negotiable instruments, which are of a value exceeding a pre-set, maximum threshold of EUR/USD 15,000 (i.e. NIS 90,000) are required to submit a truthful declaration to the designated competent authorities. The declaration/disclosure system appies to both incoming and outgoing transportation of currency and bearer negotiable instruments.

The circular of the Israeli tax authority found it necessary to point out that there had been instances of non-reporting and false-reporting by diamantaires. The FATF maintains that persons who make a false declaration or disclosure should be subject to effective, proportionate and dissuasive sanctions, whether criminal civil or administrative. In certain serious situations, the FATF enables the confiscation of such currency or bearer negotiable instruments.

For fu l l text of Specia l Recommendation IX, please click: http://tinyurl.com/2337xm3

50 Israeli Companies at JCK Show Try to Recapture Lost Market Share in U.S.

Twenty-five Israeli diamond companies will exhibit at the Israel Diamond Pavilion, hosted by the Israel Diamond Institute Group of Companies (IDI), at the upcoming JCK Show – Las Vegas. An additional 25 Israeli companies will also be exhibiting throughout the show. The strong Israeli presence underscores the importance the U.S. market is for the Israeli diamond industry as it accounts for about one-half of Israel’s total polished exports. In 2009, Israel’s main competitor, India, increased its U.S. market share by 25 percent (from 20 percent to 25 percent)

of all polished imports, which came squarely at the expense of Israel’s provisional share.“JCK – Las Vegas is one of the most important highlights on the yearly calendar of

the Israeli Diamond Industry. This is our major market and a great deal of our marketing efforts goes toward developing the Israeli industry’s ties here. That’s why we have set up IDI – New York, located in the Diamond District, which is geared to facilitating connections between the Israeli Diamond Industry and U.S. buyers,” says IDI Managing Director Eli Avidar.

“We are pleased to see signs of recovery in the U.S., with diamond demand growing. Since the U.S. is our leading market, we are convinced that this will have an important positive impact on the Israeli Diamond Industry,” says IDI Chairman Moti Ganz.

In the first quarter of 2010, Israel’s polished diamond exports grew 55 percent over the same period last year. During the same period, polished diamond imports into the U.S. rose by 73 percent over the first quarter of 2009.

The Israel Diamond Pavilion will be located on Level 2 at booths 1000 – 3100. IDI will be represented at stand 2144 within the pavilion, and at its image booth at 5049. A mini-site with full list of Israeli exhibitors can be accessed at http://tinyurl.com/2a9b79o

UN

ITED

STA

TES

HRD Antwerp Launches Its Lab Link Service in Spain HRD Antwerp and Madrid-headquartered Gemacyt - Laboratorio Gemológico are partnering up to provide the Spanish

diamond sector with direct access to the HRD Antwerp - Diamond Lab. Through the HRD Antwerp - Lab Link pick-up certification service, diamonds will be delivered to Gemacyt and then returned to the clients after grading in Antwerp. The service is already employed in Hong Kong, Dubai, New York, Israel and Mumbai.

Spanish industry clients of the Lab Link service will have access to the complete range of services provided by the HRD Antwerp - Diamond Lab in Antwerp, including full diamond certificates, fancy color diamond certificates, laser inscriptions with the HRD Antwerp Certificate ID number inscribed on the girdle, and sealing, which guarantees the association between the stone and the certificate. The Lab Link service is also tailored for smaller and medium sized companies that send out parcels of limited size and even single stones.

HRD Antwerp will also launch its Fast Service in Spain, a service which already exists in Belgium and Israel. The special fast-track route is for diamonds which require urgent processing.

Ferrari will serve as official freight forwarder and logistics provider for the HRD Antwerp Lab Link service for clients, with full door-to-door secured services which will be under their full liability.

SPA

IN

continued from previous page -

DIAMOND INTELLIGENCE BRIEFS 5991

DIGGING THE DIRT

Namdeb Posts Profit Loss for 2009Namibian diamond company Namdeb has reported a loss

before taxes of N$555 million (an estimated US$72 million) for 2009 due to global economic crisis and its impact on the company’s diamond revenues. In 2008, the 50:50 joint venture between De Beers and the government of Namibia posted a profit of N$1.9 billion (an estimated US$204 million) before taxes.

“The diamond industry was severely affected in 2009 by the global recession,” says Inge Zaamwani-Kamwi, Namdeb’s managing director, in the company’s 2009 financial release. “This was due to a combination of three principal factors – high stock levels throughout the diamond pipeline, constricted liquidity in the industry and lower levels of retail and consumer demand – leading to substantially lower demand for rough diamonds.”

The mining company’s diamond sales revenue of N$3.37 billion (an estimated US$435 million) fell 40 percent compared to 2008, attributable to 25 percent reduction in the volume of carats sold and a 57 percent reduction in the volume of carats produced. The miner produced 929,000 carats in 2009 down from 2.1 million carats in 2008.

These factors were partially offset, however, by the increase in stone size recovered, says Namdeb, which also acknowledges that the difference in the reduction of sales and production was made up from diamond inventory carried forward from 2008.

Namdeb’s production costs for the year of N$2.8 billion (an estimated US$361 million) were 33 percent lower than in 2008 and included a drop in cost of sales of N$1.4 billion (an estimated US$181 million) due to the company’s cost-cutting initiatives to deal with the recession, including a temporary halt in production.

“As a result of Namdeb’s actions, production levels and cost base has been aligned with the reduced demand and inventory and debt levels reduced, and with better than expected consumer slaes in the fourth quarter, sentiment has improved markedly from a year ago,” says Zaamwani-Kamwi.

In line with a gradual recovery in consumer demand, driven in part by the strength of the developing markets in China and India, Namdeb expects a gradual increase in its production levels, sales and prices but remains cautious due to “the fragility of the world economy and perceived weakness of the global recovery post recession,” concludes Zaamwani-Kamwi.

Namibia Turns Focus from Diamonds to Uranium

Namibia is seeking to diversify its economy, hurt by the global economic crisis, by exploiting its uranium deposits, the second largest in Africa. To make up for a declining diamond industry, whose diamond production fell to 929,000 carats last year from 2.1 million carats in 2008, the country is focusing on strengthening its uranium sector by attracting international investors. The country is holding its first mining expo, where international companies such as Areva SA, the world’s largest nuclear reactor builder, and Rio Tinto Plc. may announce details about commencing future uranium projects in the country, reports Bloomberg.

Mining analysts that Namibia’s uranium output may quadruple by 2015 as new mines are opened, more than doubling uranium’s contribution to the economy. Moreover, Namibia’s uranium sales last year of N$4 billion (US$530 million) surpassed diamond sales of N$3.8 billion (an estimated US$505 million) for the first time. It is estimated that the country’s uranium production could increase within five years to 40-50 million pounds, or one-fifth of all mined uranium, should all the potential projects actually come on stream.

Uranium companies are planning to spend more than US$3 billion in developing uranium deposits and starting operations in the country, according to Bloomberg. Russia, alone, is prepared to invest about US$1 billion.

As with Namdeb, its joint venture with De Beers, the Namibian government may similarly take part in the uranium industry by having its exploration and mining company, Epangelo, form joint ventures with foreign investors, according to the Energy Minster.

Endiama’s Lucapa Mining Operationsto Resume

The Angolan Lucapa Mining Society (SML) is resuming its diamond exploration activity after a 10-month hiatus spurred by the global economic crisis, according to Carlos Sumbula, chairman of the state-run diamond firm Endiama. SML is a 51:49 joint venture with Endiama and Sociedade Portuduesa de Empreendimentos (SPE).

Sumbula also said that a meeting with Angola's trade-union commission has taken place to solve the problems related to arrears of the workers due to the financial crisis, reports Angop. The miner is also engaged in talks with national and foreign mining firms regarding acquisition of equipment to guarantee the recommencement of operations.

SML's operations are located in the Chicapa River and Luachimo River basins in the Lunda-Norte province.

Namdeb Elizabeth Bay

DIAMOND INTELLIGENCE BRIEFS 5992

DIGGING THE DIRT

Petra Completes Kimberley Underground Deal

Diamond miner Petra Diamonds Limited has completed its acquisition of the Kimberley Underground diamond mines in Kimberley, South Africa, from De Beers Consolidated Mines Limited.

Petra’s stake in Kimberley Underground is now 74 percent while its Black Economic Empowerment joint venture partner, Sedibeng Mining (Pty) Limited, holds the remaining 26 percent.

Petra and De Beers began the sales process in September 2007 but the acquisition took longer than expected due to the complexities of converting the old order mining right and splitting it into two new order rights, says Petra. However, since the start of the purchase agreement, Petra has been operating the mines under care and maintenance and has built up substantial ore stockpiles totaling approximately 500,000 tonnes estimated to contain 90,000 carats. Petra says it will begin processing and diamond recovery shortly.

Petra has settled the purchase consideration of R78.5 million (US$10.4 million) by assuming all of De Beers’ rehabilitation obligations of R63.5 million (US$8.4 million) and a payment in cash to De Beers of R15 million (US$2.0 million).

Petra has constructed a new diamond recovery plant at the mine’s Joint Shaft, which will treat production from two out of the mine’s three kimberlite pipes. Petra will commission a second production plant by June 2011.

Production of diamonds will commence at the Joint Shaft plant immediately and Petra will sell the first Kimberley Underground diamonds at its tender in July 2010.

Petra expects to treat approximately 600,000 tonnes of ore at Joint Shaft in fiscal 2011, of which approximately 180,000 tonnes will be drawn from the Joint Shaft stockpile.

Petra expects to haul ore at the rate of approximately 750,000 tonnes per annum (both plants combined) for fiscal 2011, increasing to one million tonnes per annum thereafter.

Kimberley Underground is expected to produce approximately 100,000 carats in fiscal 2011 rising to 180,000 carats per year thereafter following commissioning of the second plant.

De Beers says it will continue to manage its surface mining at Kimberley Mines, which operates independently of the underground mine workings.

Alrosa Projects Diamond Sales of US$9.5 Billion over Next 3 Years

Russian diamond conglomerate Alrosa posted first quarter 2010 revenues of 27.391 billion rubles (an estimated US$880 million), a 460 percent jump compared to last year when depressed demand in the first quarter drove Alrosa to halt all diamond sales to the market, reports Interfax. Until July 2009, the miner sold its rough only to Russia’s State Precious Metals and Gemstones Repository (Gokhran).

During last week’s supervisory board meeting, it was recommended that from Alrosa’s 2009 net profit of 2.348 billion rubles (US$75.6 million), an allocation of 1.91 billion rubles (US$61.5 million) would be invested in developing the firm’s underground mines, exploration and other areas. Another RUB 70.5 million (US$2.3 million) would be allocated to long-term financial investments and RUB 113.7 million (US$3.7 million) would go toward provisions for the reserve fund. The company says that RUB 249.9 million (US$8 million) would go toward dividends.

The board also discussed a three-year financial model, which calls for the company to mine 102.321 million carats of diamonds and achieve targets sales of US$9.5 billion in the period 2010-2012, according to a company statement.

In 2012, Alrosa’s underground diamond mines Aikhal and Mir are scheduled to begin producing at their design capacity (500,000 tonnes and 1 million tons of ore, respectively, per year). The Udachny underground mine will produce its first 25,000 tonnes of ore by 2012. Alrosa says it will invest US$24.7 billion in the construction of these underground diamond mines.

Alrosa’s net profit for the three-year period is projected to reach RUB 22.05 billion (US$710.4 million) of which RUB 6.2 billion (US$199.7 million) will be spent on exploration and some RUB 1.977 billion (US$200.9 million) will be allocated for construction of social facilities. Financial provisions of RUB 1 billion (US$32.2 million) are also planned.

During the meeting, the Board, among other things, commissioned to the Executive Committee to ensure lower credit and loan service costs. According to the proposed financial model, by 2012, the company’s aggregate liabilities should not exceed US$3.013 billion.

Additionally, Alrosa states that Gennady F. Piven’s and Valery K. Kolodeznikov’s mandates as members of the Alrosa Executive Committee were terminated due to the termination of their employment contracts. The Board approved the appointments of Vice-Presidents Sergey N. Pushkin and Vassily B. Grabtsevich as new members of the Executive Committee.

Alrosa's Udachny Pipe

DIAMOND INTELLIGENCE BRIEFS 5993

OFF THE SHELF

U.S. e-Commerce up 10% in 1st QuarterOnline retail spending in the United States climbed 10 percent in the first quarter of

2010 to almost US$34 billion, signifying the first time growth rates reached double digits since the second quarter of 2008, according to comScore, Inc.’s U.S. retail e-commerce sales estimates.

ComScore’s retail e-commerce data, which excludes auctions, autos and large corporate purchases in the U.S., shows that first-quarter growth was predominantly driven

by upper-income consumers. Additionally, online-only retailers continued to gain e-commerce spending market share from multichannel retailers. While data shows that larger online retailers continued to generate higher growth rates than the smaller retailers, the latter group also began to see positive growth in the quarter.

“While these spending gains provide reason for

optimism, we should note that upper-income households are currently shouldering much of the growth,” cautions Gian Fulgoni, comScore Chairman. “Should the economy falter in the second half of the year and uppe-income consumers return to a savings mode, we could still see growth decelerate.”

Tiffany Increases Quarterly Dividend

by 25%Tiffany & Co.’s Board of Directors

has increased its quarterly dividend by 25 percent. The luxury retail jeweler has declared the quarterly dividend of $0.25 per share of Common Stock, up from $0.20 per share of Common Stock. This is the second announced increase in the quarterly dividend payment policy since the start of the calendar year, says a company financial release.

"Following an 18% increase in the quarterly dividend rate earlier this year, this action again demonstrates the Board's recognition of our strong balance sheet liquidity and their confidence in Tiffany's long-term earnings growth potential," says Michael J. Kowalski, chairman and chief executive officer.

The dividend will be paid on July 12, 2010, to stockholders of record on June 21, 2010, states the company.

GGC 19.9% Share of ZaleGolden Gate Capital (GGC) now

holds a 19.9 percent stake in beleaguered American jewelry retailer Zale after recently providing it with a $150 million loan. The private equity firm now owns 6.4 million shares of Zale’s common stock, according to a Securities and Exchange Commission filing. By exercising its right to purchase the shares, GGC is now the second largest stakeholder in the company after Breeden Capital Management LLC, sources say.

The loan deal, made earlier this month, allows GGC to take up to 25 percent equity interest in Zale and also gives the fund two seats on Zale’s board of directors. The two new board members are Stefan Kaluzny and Peter Morrow.

Affluent Consumers Want Return on Brand Investment

Affluent consumers want their fashion brands to be a good investment and provide a return on what they spend, according to a new survey among 1,245 affluent fashion consumers.

"The findings give fashion brands a totally new yardstick to measure success based upon the preferences of brand loyalists,” says Pam Danziger, president of Unity Marketing and lead researcher in the new fashion brand study titled The Luxury Fashion Consumer & their Favorite Fashion Brands. “For example, investment is more important than price/value in a fashion brand. Honesty and integrity is more important than high quality and being able to astonish and surprise their customers is more important than that the brand allows them to express their personality,” concludes Danziger.

With a few exceptions, the most purchased fashion brands among highly affluent consumers are not considered true luxury, but accessible luxury or even premium mass brands, according to the survey results.

The survey examines fashion shopping behavior and the top fashion brands among luxury consumers and included questions about fashion shopping and purchases in the past year. Each fashion customer was asked to rate their favorite brand out of the 11 most widely purchased fashion brands among all affluents in Unity Marketing's 2009 luxury tracking surveys. The fashion brands included in the study were: Ann Taylor, Anne Klein, Armani, Brooks Brothers, Calvin Klein, Coach, Gucci, Liz Claiborne, Michael Kors, Ralph Lauren and Talbots.

DIAMOND INTELLIGENCE BRIEFS 5994

BRIEFLY NOTED

De Beers Releases 2009 Report to Society

De Beers has released its fifth annual Report to Society, which charts the company’s recent performance in promoting sustainable development. This year’s report details how De Beers’ response to the economic downtown impacted the Group’s sustainability performance for the year.

Mentioned in the report are DTC Sightholder case studies and corporate social investment programs as well as milestones in safety performance, economics and development, and ethics.

The report also articulates De Beers’ recommendations in support of a permanent Kimberley Process “secretariat,” the establishment of majority rather than consensus voting within the Kimberley Process and the inclusion of human rights language within the Kimberley Process framework.

Highlights of the Report include: � The Family of Companies achieved zero fatalities for the first time in 80 years,

reflecting the implementation of numerous targeted safety measures; Lost Time Injury Severity Rate improved from 106.89 per 200,000 hours in 2008 to 6.52 in 2009;

� Despite a 49% reduction in diamond production, the Family of Companies was still able to pay US$3.4 billion (2008: US$6.2 billion) to stakeholders around the world;

� More than US$580 million in rough diamonds was supplied to Sightholders for manufacture in southern Africa (2008: US$1.1 billion);

� The Family of Companies disbursed a total of US$29.3 million in community social investment, including contractually mandated initiatives and in-kind contributions. This amounts to 9.2% of pre-tax profits of US$318 million and is significantly in excess of the international benchmark of 1%;

� Social Impact Assessments were carried out in Botswana for the major Cut-8 expansion project at Jwaneng mine, as well as the expansion of the Morupule coal mine;

� The Family of Companies continued to provide Anti–Retroviral Treatment to a total of 1,820 employees and their partners in Botswana, Namibia and South Africa;

� In 2009, the Family of Companies used 21.1 million cubic meters of new (potable and non-potable) water at its mining operations (2008: 37.2 million cubic meters) equating to at 41% reduction. Its use of reused and recycled water increased to 57% of total water footprint.

To read the report in full, go to: http://tinyurl.com/create.php

CIBJO Releases Updated Version of

Gemstone BookFollowing the recent release of its

revised Precious Metals Book, the World Jewellery Confederation (CIBJO) has now published an updated version of its Gemstone Book.

The two books, along with the Diamond Book, the Pearl Book and the Gemmological Book are part of the CIBJO Blue Books series, a definitive set of standards for the grading, methodology and nomenclature standards for diamonds, colored gemstones, pearls, precious metals.

The CIBJO Blue Books were originally compiled, and now continuously updated, by a number of committees comprised of representatives from trade organizations and laboratories in the diamond, colored gemstone, cultured pearl, precious metals and jewelry industries.

The standards represent a consensus derived from the broad expertise on the subject within these committees, and also from individuals outside the committees who had expressed an interest in participating in the development of the guidelines.

To download the CIBJO Gemstone Book, visit: http://tinyurl.com/3y5y9c9

Shree Ramkrishna Export Launches Mobile Site

Indian diamond manufacturer and DTC sightholder Shree Ramkrishna Export has launched SRK Lite, a mobile version of its business-to-business website. Especially engineered for hand surfing, the new http://m.srkexport.com site is being described as the diamond industry’s first B2B mobile website.

This mobile site, currently in beta version, is intended to be a lighter version of Shree’s original website and provides enhanced access to the company’s diamond trading platform of loose diamonds and jewelry.

“Today, mobile phone is accessible to almost every common man across the globe, hence launching this service will help us reach and meet with our aim to connect with a vast number of of people across the globe anytime anywhere,” says Rahul Dholakia, direcotr of Marketing.

The official inauguration of the site will take place at the JCK Las Vegas Show on June 5th.

DIAMOND INTELLIGENCE BRIEFS 5995

BRIEFLY NOTED

The Women’s Jewelry Association (WJA) has named 33 nominees for its annual Awards for Excellence, which recognizes its members’ contributions to the jewelry industry and the WJA. The nominees and award recipients of the award’s eight categories will be recognized at the association’s annual gala on Monday, July 26 at Chelsea Piers, Pier 60 in New York City.

The categories and nominees for 2010 include: Design - Fine Jewelry & Watches

� Emily Armenta – Armenta, Houston, Texas

� Coomi Bhasin – Coomi, Secaucus, N.J. � Maeve Gillis – MaeVona, New York, N.Y.

� Sarah Graham - Sarah Graham, La Quinta, Calif.

� Janel Russell – Janel Russell Designs, St. Paul, Minn.

Manufacturer/Dealer/Supplier � Lita Asscher - Royal Asscher Diamond Co., New York, N.Y.

� Marjorie Blank - Joseph Blank, Inc., New York, N.Y.

� Michele Kwiat Siegel – Kwiat, New York, N.Y.

� Fiona Tilley – Gurhan, New York, N.Y. Retail – 15 stores or more

� Aida Alvarez - Birks & Mayors, Inc., Tamarac, Fla.

� Caroline Grousi-Scheufele – Chopard, Geneva, Switzerland

� Lisa Kazor - Neiman Marcus, Dallas, Texas

� Debbie Sloane - Cartier North America, New York, N.Y.

Retail – Fewer than 15 Stores � Christina Gandia Gambale & Jennifer Gandia - Greenwich Jewelers, New York, N.Y.

� Lula Halfacre - Traditional Jewelers, Newport Beach, Calif.

� Charlene Hudson - Fink's Jewelers, Roanoke, Va.

� Nancy Moeller - RF Moeller Jeweler, St. Paul, Minn.

� Sarah & Rachel Read - Lee Read Jewelers, Meridian, Idaho

Sales and Merchandising � Sandy Haymann Marks - Leo Schacter, New York, N.Y.

� Shayne Kiesbuey - Erica Courtney, Los Angeles, Calif.

� Dawn Mcguire - Sterling Jewelers, Akron, Ohio

� Corrie Silvia – Manufacturing Jewelers and Suppliers of America, Attleboro Falls, Mass.

Marketing and Communications � Lisa Cochin - Diamond Promotion Service, New York, N.Y.

� Rebecca Foerster - Rio Tinto Diamonds, New York, N.Y.

� Helena Krodel - Jewelers of America, New York, N.Y.

Editorial/Reporting/Publishing � Sophia Chabbott –Women’s Wear Daily, New York, N.Y

� Tanya Dukes - Elite Traveler, New York, N.Y.

� Jennifer Heebner - JCK Magazine, New York, N.Y.

Special Services � Ruth Batson - American Gem Society, Las Vegas, Nev.

� Ellen Haddigan - Diamond Empowerment Fund, New York, N.Y.

� Andie Weinman - Continental Buying Group, Inc., Fort Lauderdale, Fla.

WJA also will honor Susan Jacques, president and CEO of Borsheims in Omaha, Neb., with its Lifetime Achievement Award; James Courage, CEO of Platinum Guild International, with the Ben Kaiser Award; and JCK Events and JCK Magazine, with its Corporate Award for Excellence.

WJA Announces Nominees for Awards for ExcellenceWorld Gold Council Welcomes Former

DTC Exec The World Gold Council (WGC)

has appointed former Diamond Trading Company executive director David Lamb as its managing director of Jewellery, to be effective 1 July 2010.

Lamb, who will be based in New York, will be responsible for the strategic development of the gold jewelry market worldwide with a particular focus in building the premium market in the United States. He will be a member of the WGC’s Leadership Team and will report directly to Aram Shishmanian, chief executive officer of the WGC.

Prior to his appointment to the WGC, Lamb was an executive director of the Diamond Trading Company, as worldwide marketing director and subsequently chief strategy officer.

Prior to his De Beers tenure, Lamb had spent more than 20 years at international advertising agencies, notably JWT Worldwide where he was executive vice president and held various leadership positions including head of Worldwide Account Planning and head of Multinational Clients.

Lamb’s vision and depth of experience “will help re-invigorate the premium gold jewellery market in the United States and guide the continued growth of the markets in

China, India and the Middle East.” says Aram Shishmanian, CEO of the WGC.

An example of WGC’s gold marketing strategy. David Lamb will be responsible for the development of gold jewelry market worldwide with a particular focus in building the premium market in the USA.

DIAMOND INTELLIGENCE BRIEFS 5996

BRIEFLY NOTED

Naomi Campbell May be Subpoenaed in Charles Taylor Trial

Supermodel Naomi Campbell may be subpoenaed to testify as a witness in the U.N. case against former Liberian president Charles Taylor, who faces 11 counts of war crimes and crimes against humanity for his role in fuelling Sierra Leone’s civil war.

Prosecutors at the Special Court for Sierra Leone in The Hague have filed a motion seeking testimony from Campbell which may help tie the former warlord to using rough diamonds for personal enrichment and for arms purchases for the Revolutionary United Front (RUF) rebels in Sierra Leone.

The supermodel allegedly received rough diamonds from Taylor as a gift in 1997 when the two attended a dinner at the home of former South African president Nelson Mandela.

Campbell previously declined to voluntarily testify in the trial and has consistently declined to publicly talk about the case, telling prosecutors that she was concerned for her safety, sources say.

However, Campbell’s former agent, Carole White, and Hollywood actress Mia Farrow, both of whom were also present at the reception, are voluntarily willing to testify about Campbell’s gift from Taylor, according to international media reports. The two women reportedly overheard Taylor say at the dinner that he was going to give Campbell diamonds and then were both told by the model the next day about how she received the rough diamonds. Farrow reportedly presented to the court a photo of Taylor and Campbell together at the dinner. The actress also told ABC News that Campbell said she would give the diamonds to the Nelson Mandela Children’s Fund, which says they have no records of having received the diamonds from Campbell.

The Prosecution opened their case in June 2007 but Taylor boycotted the proceedings and dismissed his legal team. The trial was adjourned until new counsel could be assigned.

The Prosecution opened witness testimony in January 2008 and formally closed their case in February 2009 after having presented testimony from 91 witnesses. The Defense opened their case in July 2009. Sources say that the Prosecution has asked the court to allow it to reopen its case to present witnesses.

Taylor has pleaded not guilty to all counts of murder, rape, conscripting child soldiers and torture.

Damas Appoints Anan Fakhreddin

as CEOMideast jewelry retailer Damas

International Limited has appointed Anan Fakhreddin as chief executive officer, the company says.

Fakhreddin is a member of Damas’s board of directors and, most recently, served as the Dubai-based managing director for the Middle East and Turkey at the World Gold Council. He previously worked with the Diamond Trading Company for nine years, covering the GCC region.

Fakhreddin says that he looks forward to further enhancing the Damas product

line and customer service channels, whi le ident i fy ing expansion opportunities in growth markets. Fakhreddin replaces Sanjay Kalsi, who held the position of interim acting chief executive officer of Damas. Kalsi will resume his previous responsibilities as chief financial officer.

DIAMOND INTELLIGENCE BRIEFS, available only by subscription, is published on a weekly basis to ensure a speedy dissemination of information indispensible to executives in the

diamond and diamond jewelry business. While the information herein is carefully compiled from sources believed reliable, no responsibility for its accuracy can be assumed and no representation of warranty expressed or implied is made as to their completeness or correctness.Diamond Intelligence Briefs may not be reproduced, distributed, published or used otherwise for any purpose but for the personal information of the subscriber without the prior written consent of the publisher.

1 year subscription - US$590 * Individual issues of DIB are available for US$25

website: www.diamondintelligence.com

Editorial and Research Management:Chaim Even-Zohar, Editor

Rachel Segal, Managing EditorAnat Hod, Graphics

Subscriptions and Circulation:CEZ Holdings Ltd.

Silver Bldg., 7 Abba Hillel St., Ramat Gan, Israel

P.O.B. 3441, Ramat Gan 52136, IsraelTel: 972-3-5750196, Fax: 972-3-5754829

office@tacy.co.ilwww.diamondintelligence.com

© Copyright 2010by Diamond intelligence Services Inc.

Naomi Campbell