diamond_final

MET::eMBA DIAMOND INDUSTRY

DIAMONDS

Diamonds have been a source of fascination for centuries. They are the hardest, most

imperishable, and the brilliant of all precious stones. Diamond is a mineral a naturally

crystalline substance the transparent form of pure carbon. It is indomitable, the hardest

surface known. This ‘King of Gems’ symbolizes purity and strength. Diamond is for

engagement and the 75th wedding anniversary, for a commitment to never ending love. The

word “diamond” comes from the Greek word adamas, meaning “unconquerable”.

The formation of these exotic diamonds began very early in the earth’s history. After

being formed in the interiors of the earth, the diamonds were shot to the surface by

extraordinary volcanoes. A diamond is likely the oldest thing you will ever own, probably 3

billion years in age, fully two thirds the age of the Earth.

Out of every batch of 10 diamonds made in the world, 7.5 are made in India. It shows

that India has established itself as the world's largest diamond processing center. In India, the

diamond processing units are mainly located in Gujarat, particularly in Surat, Navsari and

some parts of Saurashtra & north Gujarat region. About 80% of country's diamond

processing work is being done in Gujarat, out of which more than 50% is conducted at Surat

only. The diamond processing industry in India, thus, is quite unique as it is developed at one

location in an industrial cluster. ‘Surat city is known as diamond city of India.

The Industry comprises of about 2000 units of cutting & polishing out of which about

one third are located in Surat. IT employs about 15 lakh people directly and provides

employment opportunities to more than 25 lakh people. Their wage bill comes to Rs. 1500

crore per annum. An investment of Rs. 5 crore in this sector creates an employment for 1000

people. The industry is, thus, a major employer.

The processing capacity of each unit ranges from 4 to 400 carats, while production capacity

depends on the type, shape and size of the diamond; it also depends on the skill of the

workers. There are about 7000 different types of diamonds. The processing is done through

ingeniously manufactured and manually operated machines.


HISTORY OF DIAMONDS

It is believed that the history of diamonds originates in India. Several thousands of years ago,

before there was any definite indication that diamonds were rare or valuable enough to kill

for, the ancient scriptures in India have described them as one of the nine stones of the

Navratna, that are linked to the nine planets. The puranas also describe means of testing the

worth of various precious stones.

From myths about valleys of diamonds protected by snakes, to the production of millions of

carats in rough diamonds each year, the history of diamonds is one of mystical power, beauty

and commercial expertise. The stages in the history of diamonds are as follows:-

EARLY HISTORY

The first recorded history of the diamond dates back some 3,000 years to India, where it

is likely that diamonds were first valued for their ability to refract light. In those days, the

diamond was used in two ways-for decorative purposes, and as a talisman to ward off

evil or provide protection in battle.

DARK AGES

The diamond was also used for some time as medical aid. One anecdote, written during

the Dark Ages by St Hildegarde, relates how a diamond held in the hand while making a

sign of the cross would heal wounds and cure illnesses. Diamonds were also ingested in

hope of curing sickness.

MIDDLE AGES

During the Middle Ages more attention was paid to the worth of diamonds, rather than

the mystical powers surrounding them. The popularity of diamonds surged during the

Middle Ages, with the discovery of many large and famous stones in India, such as the

Kohinoor and the Blue Hope. Today India maintains the foremost diamond polishing

industry in the world.

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RECENT TIMES

During the mid-nineteenth century, diamonds were also being discovered in eastern

Australia. However, it was not until late 1970's, after seven years of earnest searching,

that Australia's alleged potential as a diamond producer was validated. On October 2nd

1979, geologists found the Argyle pipe near Lake Argyle: the richest diamond deposit in

the world. Since then, Argyle has become the world's largest volume producer of

diamonds, and alone is responsible for producing over a third of the world's diamonds

every year.

Diagram of old diamond cuts showing the evolution from the most primitive (point

cut) to the most advanced pre-Tolkowsky cut (old European).

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DIAMOND INDUSTRY

The diamond industry can be broadly separated into two basically distinct categories: one

dealing with gem-grade diamonds and another for industrial-grade diamonds. While a large

trade in both types of diamonds exists, the two markets act in dramatically different ways.

Diamond Industry

Gem Diamond Industry Industrial Diamond Industry

GEM DIAMOND INDUSTRY:

A large trade in gem-grade diamonds exists. Unlike precious metals such as gold or

platinum, gem diamonds do not trade as a commodity: there is a substantial mark-up in the

sale of diamonds, and there is not a very active market for resale of diamonds. One hallmark

of the trade in gem-quality diamonds is its remarkable concentration: wholesale trade and

diamond cutting is limited to a few locations (most importantly New York, Antwerp,

London, Tel Aviv, Amsterdam and Surat), and a single company—De Beers—controls a

significant proportion of the trade in diamonds. They are based in Johannesburg, South

Africa and London, England.

INDUSTRIAL DIAMOND INDUSTRY:

The market for industrial-grade diamonds operates much differently from its gem-grade

counterpart. Industrial diamonds are valued mostly for their hardness and heat conductivity,

making many of the gemological characteristics of diamond, including clarity and color,

mostly irrelevant. This helps explain why 80% of mined diamonds (equal to about 100

million carats or 20,000 kg annually), unsuitable for use as gemstones and known as bort, are

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destined for industrial use. In addition to mined diamonds, synthetic diamonds found

industrial applications almost immediately after their invention in the 1950s; another 400

million carats (80,000 kg) of synthetic diamonds are produced annually for industrial use—

nearly four times the mass of natural diamonds mined over the same period.

The dominant industrial use of diamond is in cutting, drilling, grinding, and polishing. Most

uses of diamonds in these technologies do not require large diamonds; in fact, most diamonds

that are gem-quality except for their small size, can find an industrial use. Diamonds are

embedded in drill tips or saw blades, or ground into a powder for use in grinding and

polishing applications. Specialized applications include use in laboratories as containment for

high pressure experiments, high-performance bearings, and limited use in specialized

windows.

DIAMOND SUPPLY CHAIN:

The diamond supply chain is controlled by a limited number of powerful businesses, and is

also highly concentrated in a small number of locations around the world. In fact, the amount

of power which De Beers has consolidated historically prevented it from direct trade with the

United States,. The concentration of power only loosens at the retail level, where diamonds

are sold by a limited number of distributors, known as sightholders, to jewelers around the

world.

SOURCES:

Historically diamonds were known to be found only in alluvial deposits in southern India;

India led the world in diamond production from the time of their discovery in approximately

the 9th century BCE to the mid-18th century CE, but the commercial potential of these

sources has been exhausted. The first non-Indian diamond source was found in Brazil in

1725. Today, most commercially viable diamond deposits are in Africa, notably in South

Africa, Namibia, Botswana, the Democratic Republic of Congo, Angola, Tanzania and Sierra

Leone.

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MINING:

Only a very small fraction of the diamond ore consists of actual diamonds. The ore is

crushed, during which care has to be taken in order to prevent larger diamonds from being

destroyed in this process and subsequently the particles are sorted by density. Nowadays, the

diamonds are located in the diamond-rich density fraction with the help of X-ray

fluorescence, after which the final sorting steps are done by hand. Before the use of X-rays

became commonplace, the separation was done with grease belts; diamonds have a stronger

tendency to stick to grease than the other minerals in the ore.

DISTRIBUTION:

The Diamond Trading Company, or DTC, is a subsidiary of De Beers and markets rough

diamonds produced both by De Beers mines and other mines from which it purchases rough

diamond production. DTC performs sophisticated sorting of rough diamonds into over

16,000 categories, and then sells bulk lots of rough diamonds to a limited number of

sightholders a few times a year.

Once purchased by sightholders, diamonds are cut and polished in preparation for sale as

gemstones. Diamonds which have been prepared as gemstones are sold on diamond

exchanges called bourses. There are 24 registered diamond bourses. This is the final tightly

controlled step in the diamond supply chain; wholesalers and even retailers are able to buy

relatively small lots of diamonds at the bourses, after which they are prepared for final sale to

the consumer. Diamonds can be sold already set in jewelry, or as is increasingly popular,

sold unset ("loose").

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COMPOSITION

Diamond is carbon in its most concentrated form. Except for trace impurities like boron

and nitrogen, diamond is composed solely of carbon, the chemical element that is

fundamental to all life.

But diamond is distinctly different from its close cousins the common mineral graphite

and lonsdaleite, both of which are also composed of carbon. Why is diamond the hardest

surface known while graphite is exceedingly soft? Why is diamond transparent while

graphite is opaque and metallic black? What is it that makes diamond so unique?

The key to these questions lie in a diamonds particular arrangement of carbon atoms or

its crystal structure-the feature that defines any minerals fundamental properties. A

crystal is a solid body formed from the bonding of atomic elements or compounds in a

repeating arrangement.

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CUT

Though India was known to have diamond mines many centuries ago - the fabulous

Kohinoor is an Indian diamond - it has virtually no mines today. However, India has

continued to maintain its tradition of diamond cutting and thousands of people are

involved in this skilled occupation.

The cut of a diamond refers to its proportions. Of the 4C’s the cut is the aspect most directly

influenced by man. The other 3 are dictated by nature.

India has a large labor force and this has made the country the biggest diamond cutting

center for small roughs. Indeed, were it not for Indian workers, many of these small

diamonds would be put to industrial use rather than jewelry.

Diamond cutting and polishing workshop in Bombay.

A diamond in its natural, uncut state is described as a "rough

diamond". Its natural appearance so resembles a glass pebble that

most people would pass it by without a second glance. It is the skill

of the diamond cutter that unlocks the brilliance for which diamonds

are renowned.

An uncut diamond

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If two identical diamonds are placed side by side and one is less brilliant and fiery than the

other, the fault lies in the cutting. Such a stone cannot demand as high a price as a well-cut

diamond.

Quite often the cut of a diamond is confused with its shape. Diamonds are cut into various

shapes depending upon the original form. Whatever the shape, a well cut diamond is better

able to reflect light.

A diamond’s ability to reflect light determines its display of fire and brilliance. Diamonds are

usually cut with 58 facets, or separate flat surfaces. These facets follow a mathematical

formula and are placed at precise angles in relation to each other. This relationship is

designed to maximize the amount of light reflected through the diamond and to increase its

beauty.

TYPES OF CUTS:

Well Cut : When a diamond is cut to proper proportions, light is reflected from one

facet to another and then dispersed through the top of the stone. Within the well cut

standards are the sub-categories of Ideal, Excellent &Very good.

Deep Cut : Then the cut of a diamond is too deep some light escapes through the

opposite side of the pavilion.

Shallow Cut : When the cut of a diamond is too shallow, light escapes through the

pavilion before it can be reflected.

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How Do I Know If a Diamond Is Well Cut?

A well cut diamond is the secret to a beautiful and brilliant diamond. Like beauty itself, the

true meaning if “well cut” is often found in the eye of the beholder. While you may prefer a

particular set of proportions, someone else might prefer slightly different proportions.

Personal preference even among experts will always be an issue in defining the best cut.

Carat Sizes

SHAPES RELATIVE SIZES

Round Emerald Marquise Pear

0.50

0.75

1.00

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KINDS OF DIAMONDS

Ideal: This range is very strict and combines the best in brilliance and fire. Technically, the

head of the class.

Excellent: This range is also of great beauty yet slightly more flexible regarding percentages.

Many experts prefer the appearance of this range to ideal.

Very Good: This range is balanced between precise proportions and price considerations.

Viewed by many as the best overall value in beauty and price.

Think of Ideal, Excellent and Very good as rings in a bull’s eye. These classifications for cut

represent an acceptable range for that category. The ranges narrow as you move toward Ideal

at the center. Ideal has the narrowest range, with excellent slightly larger and Very Good the

largest. All three of these categories fall within the “well cut” classification. In many cases

the visual differences from one classification to the next are so small they may be

indiscernible to the naked eye.

The cut, or proportions, of a diamond is measured in percentages relative to the diameter of

its girdle. The girdle diameter of each diamond is always considered 100%.

Example: The girdle of a diamond measures 10 millimeters (100%) the table measures 5.6

millimeters. The total depth measurement is 6.1 millimeters. The diamond would be

described as having a table of 56% and a depth of 61%. The table and the depth are the key

to determining good proportions.

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COLOR

Our standard conception of diamond is as a colorless stone. The best color is no color.

Diamonds allow light to be reflected and dispersed as a rainbow of color. Diamonds are

graded into categories defined by letters from D to Z. The color range from exceptional

whites (categories D, E and F) to tinted colors (categories M to Z). The best way to pinpoint

a diamond's true color is to place it next to another diamond that has previously been graded.

It is often surprising to learn that diamonds also occur by rare accidents of nature in shades of

pink, blue, green, amber, or even red. These rarely occurring colors are referred to as fancies

and are evaluated by a different set of color standards. Fancy colored diamonds are the most

expensive because of their extreme rarity. Some fancy colors can cost hundreds of thousands

of dollars for diamonds of one carat or less! The yellow color in diamonds comes from trace

amounts of nitrogen. One part in a million will cause a yellow tint to appear in the K color

diamond. As a rule, the more yellow the stone, the less value it has. There's a good reason for

this. The yellower the stone, the less sharp and sparkly it appears. A whiter stone lets greater

amounts of light pass through it, making it sparkle and shine. Chemically-pure, a perfect

crystal of diamond is colorless, but adds a little nitrogen and yellow appears. Add boron

instead and a blue diamond results. Colored diamonds are hot, both in the market place and

in science.

Color Grading Scale

D E F G H I J K L M - Z Z+

Colorless Near Colorless Faint Yellow Light Yellow Fancy Yellow

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CLARITY

Almost all diamonds contain very tiny natural birthmarks known as inclusions. To determine

diamonds clarity, an expert views it under 10 power magnifications. In addition to internal

inclusions, surface irregularities are referred to as blemishes. These two categories of

imperfections-inclusions (internal) and blemishes (external) - make up clarity. The fewer the

imperfections, the rarer and more valuable the diamond. Many inclusions are not discernable

to the naked eye and require magnification to become apparent.

Contrary to the popular belief, higher clarity does not always mean more beautiful. If the

inclusions are not visible to the naked eye, a higher clarity does not really improve the

appearance of a diamond but rather the rarity and price. A higher clarity is more desirable

and valuable.

Like color, clarity is also categorized using international grading. Clarity is graded using a

very precise and complex method of evaluating the size, location, and visibility of inclusions.

Alongside is the technical clarity scale with a description of each term.

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Diamonds are clarity graded face up (looking at the top of the diamond), not from the side or

bottom of the diamond. We have the most problem with clarity where the inclusions are not

visible with the eye from the top of the diamond but are visible from the side. When viewing

a diamond from the side, the middle third of the diamond is generally very transparent.

If an inclusion is in this part of the diamond and happens to be

turned broadside to your view, it can be much more visible than

when viewed from the top where there are many facets to hide

its appearance. If the diamond is going to be visible from the

side in the setting, make sure your diamond is clean to the eye

from the top and the side, regardless of what clarity grade it has.

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CARAT WEIGHT

A carat is the unit of measure used to determine the weight of a diamond. The term "carat" is

derived from the original method of using carob tree seeds to weigh diamonds. One seed

from this tree was equivalent to one carat.

The actual weight of one carat is now established at 0.2 grams. To assist in accurately

describing the weight of diamonds each carat is divided into 100 points. Diamonds of less

than one carat in weight are known as "pointers". For example, a 0.15-carat diamond would

be called a "15 pointer".

Diamonds are usually weighed prior to setting for more accurate measurements. Diamonds

are priced per carat, according to their size and quality. Although the carat weight of a

diamond is indicative of its size, it is not necessarily indicative of a diamond's quality.

Therefore, where two diamonds have the same carat weight, the one of better quality will

command a higher price per carat

How rarity affects size?

The rarity of a diamond is greatly affected by its size. The rarity of a 1.00-carat diamond is

much greater than twice that of a .50 carat. Although it only weighs twice as much, the 1.00

carat is statistically much more difficult (rare) to mine than the .50 carat. For an easy

comparison of price and size, see the table alongside. Prices are approximate and based upon

D Color, internally flawless, excellent cut.

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CLEANING

Although it is not one of the four Cs, cleanliness affects a diamond's beauty as much as any

of the four Cs. A clean diamond is more brilliant and fiery than the same diamond when it is

"dirty." Dirt or grease on the top of a diamond reduces its luster. Water, dirt, or grease on the

bottom of a diamond interferes with the diamond's brilliance and fire. Even a thin film

absorbs some light that could have been reflected to the person looking at the diamond.

Colored dye or smudges can affect the perceived color of a diamond. Historically, some

jewelers' stones were misgraded because of smudges on the girdle, or dye on the culet.

Current practice is to thoroughly clean a diamond before grading its color.

Cleanliness does not affect the diamond's market value, as any competent jeweler will clean

the diamond before offering it for sale. However, cleanliness might reflect a diamond's

sentimental value: some jewelers have noted a correlation between ring cleanliness and

marriage quality

A beautiful diamond is one that successfully maximizes the following beauty factors:

Brilliance - The total amount of white light, both external and internal, returned from the

diamond to the eye of the observer.

Scintillation - Reflections and flashes of white light from the diamond's surface as the

diamond, observer or light source moves.

Dispersion - The dispersion of white light into its component spectral colors.

Light Return Geometry - The "kaleidoscope" effect or spatial pattern of the diamond,

which is pleasing to the eye due to degrees of symmetry.

Perceived Symmetry - The symmetry as seen by the eye, whereby all facets are well

proportioned.

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CERTIFICATIONBefore purchasing a diamond, you should expect to review a copy of its certificate, as this is

your only guarantee of the quality and value of that diamond.

What's in a Certificate?

A diamond certificate, also called a diamond grading report, diamond dossier or diamond

quality report, is a report created by a gemologist, or gemologists, who have scrutinized the

diamond and placed it under a microscope to analyze its dimensions, clarity, cut, color,

finish, symmetry, and other characteristics.

The most important step in choosing a diamond is reviewing the diamond certificate, referred

to by diamond grading labs as a grading report. A grading report documents the

characteristics of a diamond, like the four Cs. Before purchasing a diamond, review a copy of

its grading report, as this is your guarantee of quality for that diamond. Learn more about the

diamond grading report

SHAPES

Diamonds are cut in many different and exciting shapes. The shape of a diamond is often

confused with its cut. Shape refers to the basic form of the diamond: oval or pear shaped, for

instance. Cut or proportions, on the other hand, refer to the ability of each of these shapes to

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reflect light. A round diamond, for example, could have a good cut or a poor cut depending

upon its proportions. When it comes to shape, it is simply a matter of personal taste. The

right shape for you is really the one whose appearance you prefer. Shape can be a statement

of whom you are; like other areas of fashion, shape can reflect your individuality. The most

popular shapes are displayed here, but many new and interesting shapes are being developed

every year.

TYPES OF DIAMONDS

SYNTHETIC DIAMONDS

Synthetic diamonds are artificial diamonds that have been created in a laboratory. By

varying the heat and pressure during formation, adding foreign elements, and

irradiating the finished crystals, synthetic diamonds can be made to imitate

natural colored stones. There is currently a wide spectrum of synthetic colored

diamonds available.

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The main difference between naturally-formed diamonds and synthetic diamonds is that

synthetic diamonds usually have higher concentrations of impurities, such as nitrogen, and

remnants of metal catalyst.

TREATED DIAMONDS

Treated diamonds are natural diamonds that started out with an unappealing or slightly off

color. By exposing these less desirable stones to the same high-

tech alchemy used to create synthetic colored diamonds, the

apparent color and appearance of these diamonds can be

significantly improved. Recently we have seen treated diamonds

with vibrant yellowish green, red and blue colors enter the market.

NATURAL FANCY COLOUR DIAMONDS

Natural fancy color diamonds are significantly more valuable and rarer than comparable

treated or synthetic stones. Although treated and synthetic diamonds can be

beautiful in their own right, the origin of their color should be fully disclosed

by the seller. They should also cost significantly less than natural diamonds.

Ethical practice and the law require that synthetic gemstones and treatments be

fully disclosed to consumers. Unfortunately, this does not always happen. As

always, be careful!

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Strengths:

One million craftsmen associated with it. their skills can be harnessed for designing

and making modern jewellery

Abundance of cheap and skilled labor in India.

Excellent marketing network spread across the world.

Supportive government industrial/ exim policy.

Weaknesses:

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High domestic interest rates compared to elsewhere

Small firms lacking technological/ export information expertise.

Low productivity compared to labor in china, Thailand and Sri Lanka.

As the major raw material requirements need to be imported, companies normally

stock huge quantities of inventory resulting high inventory carrying costs.

Opportunities:

New markets in Europe & Latin America

Growing demand in south Asian & Far East countries.

Removal gold control act.

Threats:

China, Sri Lanka and Thailand's entry in small diamond segment

Infrastructural bottlenecks, frequent changes in exim policies, irregular supply of

gold.

Over dependence on single-channel supply chain. Decisions of De Beers and Argyle's

terms for renewing their supply contract.

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For over 115 years DeBeers Diamond Trading Company has been synonymous with

diamonds and has practically monopolized the diamond industry. The company leads the

world in diamond exploration, mining, recovery, sorting, valuation and marketing. They

force out any and all competition by ruthlessly controlling the diamond supply. They have

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access to all the trade-ways, use cheap labor, and they are not afraid of making a few under

the table threats if it means scaring somebody out of trying to take a piece of their pie.

Through its selling arm, the Diamond Trading Company (DTC) based in London, De Beers

markets some two thirds of global supply, and has conducted a renowned diamond

advertising and promotion campaign for over half a century. The company is currently

committed to exploring ways to exploit the value of its brand.

BACKGROUND

The long history of De Beers began back in 1859 when the first reports surfaced of diamonds

being found in the Kimberley region of South Africa’s Northern Cape. The rush to this area

increased when the 83.5 carat “Star of Africa” was discovered in 18691.

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One of the people drawn to this area was a 17 year-old Englishman, Cecil Rhodes. Rhodes

came to South Africa in a time when permits for diamond mining were restricted to

individual claims with caps on how many claims one person could own. Rhodes initial foray

into business was to buy an ice-making machine and sell ice to the miners working under the

hot South African sun. With the profits Rhodes began to buy up mining rights.

In 1871 the brothers Johannes Nicholas and Diederik Arnoldus de Beer sold their farm which

they had bought in 1860 for £50, to Dunell Ebden & Co for £6,300. This farm was to be the

site of both the De Beers mine and the famous Kimberley mine. Rhodes acquired the farm in

the late 1870’s.

The breakthrough for Rhodes came in 1876 when all restrictions on the number of claims

that could be owned by an individual were dropped, and the chaos of 3,600 individual claims

was reduced to 98 syndicated holdings by 1880. Of the original 3,600, Rhodes was reported

to own one third by the time the restrictions were lifted.

However, much of the rich mining area around Kimberley was owned by Barney Barnato

another Englishman who had come to South Africa after a failed career as a vaudeville

comedian. Both Rhodes and Barnato set out to dominate the diamond industry by trying to

buy up all the shares that came onto the market. Their struggle for control of the only other

independent company, 'The French Company' (Compagnie Francais des Mines de Diamant

du Cap), was acute, until Barnato merged all his diamond interests in the Kimberley Central

Diamond Mining Company and became the owner of the French company. Rhodes, through

the backing of the Rothschilds managed to buy one-fifth of the company. Both parties

ramped up production from their interests to destructive levels until, in 1888, Barnato

capitulated and agreed to merge the Barnato Diamond Mining Company with Rhodes’

interests to form De Beers Consolidated Mines Ltd.

Rhodes continued to acquire diamond mines throughout southern Africa and used much of

the profits to develop a political career. By 1889 he had become the head administrator of the

British South Africa Company, which was charged with controlling what is now known as

Zimbabwe and Zambia, and also with developing new territory north of these regions. As a

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consequence of having control of these countries, Rhodes also controlled much of the global

diamond supply.

After Rhodes death in 1902, De Beers continued to dominate the mining and supply of rough

diamonds. However South Africa was also a large supplier of the world’s gold. As a result, a

new company, Anglo-American Corporation was created to exploit the gold mining potential

of the Rand region. Anglo-American began to buy shares in the De Beers Company which

had become a public company in 1893. By 1926 the company was the largest single

shareholder in De Beers and its chairman, Sir Ernest Oppenheimer was elected to the board

of De Beers.

DE BEERS – PRIVATELY OWNED COMPANY

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De Beers has been dishing out its share of shocks to the diamond industry over the past six

years. In 2001, it hit the industry with another. After 113 years, the world’s leader in

diamonds became a privately owned company. It was a momentous move.

As Nicky Oppenheimer said,

“There were – beyond all financial considerations – two powerful and dominant motives.

One was the conviction that De Beers should be liberated from the inherent short-termism of

the stock market, thus enabling it to take the long view and tailor its decisions more closely

to the needs of the diamond industry. Another was the need to reinforce and enhance De

Beers’ great singular strength that sets it apart from other mining groups- its total and

exclusive dedication to one product. This extraordinary focus has been, I believe, the reason

for its expertise and leadership in all aspects of diamond mining, research and marketing.

This single minded, almost obsessive, dedication is mirrored by those, like myself, whose

fate and fortune is now inextricably bound to the De Beers Group of companies and to the

product we mine and sell”.

The De Beers structure

De Beers is now owned by a consortium known as DB Investments (DBI) consisting of:

Anglo American Corporation (45%), Debswana, a company jointly owned by the

Government of the Republic of Botswana and De Beers (10%) and Central Holdings Ltd, an

Oppenheimer family company (45%). Nicky Oppenheimer continues as the Chairman and

Gary Ralfe as the Managing Director.

DBI is then broken down into two separate groups: De Beers Consolidated Mines Limited,

which comprises of all the South African interests of De Beers, and De Beers Centenary AG

which comprises of all the non-South African elements of De Beers and also deals with

purchases from other producers.

THE BIRTH OF A TAGLINE

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Ernest’s son, Harry, who was on the board of the company, opted to visit the US to

investigate the possibility of creating a pilot consumer advertising campaign. Until now

diamonds had been the sole privilege of the rich and Harry wanted to investigate the

possibility of creating a mass market appeal. Despite opposition from other directors who felt

that advertising diamonds would somehow cheapen them, Harry went to the US in 1939.

After meeting with many of the top advertising

agencies, Harry engaged with N.W Ayer who had

the novel concept of researching why people bought

diamonds. Until then De Beers had considered that

‘high fashion’ was the key reason for the purchase

of diamonds. To this end, in 1934, the company

engaged Chanel to design diamond jewelry; a move

that flopped.

NW Ayer’s research concluded that fashion was not

the key reason for a diamond purchase but rather it

was because they were a symbol of love. The

original campaign developed by Ayer was centered

on this concept and has been the same ever since. As

can be seen in the picture on the right side.

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However it was not until 1947 that a young copywriter called Frances Gerety working for

NW Ayer penned the famous tagline “A Diamond is Forever”.

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BUSINESS STRUCTURE

De Beers Investments is the privately held, ownership company of De Beers Societe

Anonyme (DBSA), and is registered in Luxembourg. It is made up of three shareholdings:

Anglo American plc has a 45% shareholding, Central Holdings (the Oppenheimer family)

has a 40% shareholding, and the Government of the Republic of Botswana owns 15%

directly. De Beers Societe Anonyme (DBSA) is the management company of the De Beers

group.

Changes to De Beers' business model

The tranformation of the company, from the late nineties to present, is becoming more

widely known. Sometimes referred to as a monopolist, De Beers at one time sold anywhere

from 60-80% of the world's diamonds.

This was done through a single channel marketing structure that was favored by most in the

diamond industry and producer countries for creating structure and stability, and maintaining

consumer confidence in gem diamonds. Currently De Beers sorts, values and sells

approximately 40% of the world's rough diamonds by value, but as a result of company

transformation, is now more profitable than when it maintained a greater market share.

A range of factors contributed to the need for change in the De Beers model. In the 1990s it

became increasingly evident that De Beers’ industry custodianship and supply-controlled

model was no longer viable. De Beers was also unable to conduct business in several

jurisdictions where it had interests or a corporate presence due to their dominance in the

diamond industry. In addition, more producers from varied locations such as Russia, Canada,

and Australia chose to distribute diamonds outside of the De Beers framework.

Also, diamond jewellery markets had fallen in comparison to other luxury goods. The

behaviour of consumers had changed and the diamond industry, being in a world unto

themselves, had been slow to respond to market dynamics.

To address this, on behalf of its own interests and that of the industry as a whole, De Beers

conducted a strategic review with Bain & Company, consequently changing its business

30


model from a supply-controlled industry to that which was driven by demand. De Beers also

implemented their Supplier of Choice sales strategy.

The diamond industry of today is markedly different to that of a decade ago, and is a

complex and constantly evolving geo-political phenomenon.

Current major players in the diamond industry are the African producer countries, i.e. the

Government of the Republic of Botswana, the Government of the Republic of Namibia, De

Beers, Rio Tinto, BHP Billiton, Lev Leviev, Harry Winston, and Alrosa.

31


MINING

The De Beers Company, as the world's largest diamond miner holds a clearly dominant

position in the industry, and has done so since soon after its founding in 1888 by the British

imperialist Cecil Rhodes. De Beers owns or controls a significant portion of the world's

rough diamond production facilities (mines) and distribution channels for gem-quality

diamonds. The company and its subsidiaries own mines that produce some 40 percent of

annual world diamond production. At one time it was thought over 80 percent of the world's

rough diamonds passed through the Diamond Trading Company (DTC, a subsidiary of De

Beers) in London, but presently the figure is estimated at less than 50 percent.

De Beers is active in every category of industrial diamond mining: open-pit, underground,

large-scale alluvial, coastal and deep sea. Mining takes place in Botswana, Namibia, South

Africa, Tanzania and Canada

Mining in Botswana takes place through the mining company Debswana, a 50-50 joint

venture with the Government of the Republic of Botswana. In Namibia it takes place through

Namdeb, a 50-50 joint venture with the Government of the Republic of Namibia. Mining in

South Africa takes place through De Beers Consolidated Mines (DBCM), 74% owned by

DeBeers and 26% by a broad based black economic empowerment partner, Ponahalo

Investments. In Tanzania it occurs through a partnership with the government of Tanzania,

75% owned by De Beers, 25% by the government. In 2007 De Beers began production at the

Snap Lake Mine in Northwest Territories, Canada; this is the first De Beers mine outside of

Africa. In July 2008 De Beers opened the Victor Mine in Ontario, Canada.

Trading of rough diamonds takes place through the Diamond Trading Company through

wholly-owned and joint venture operations in South Africa (DTCSA), Botswana (DTCB),

Namibia (NDTC) and the United Kingdom (DTC). The various DTCs within the Family of

Companies sort, value and sell approximately 40% of the world’s rough diamonds by

value.The Family of Companies employs about 20,000 people around the world on five

continents, with 17,000 employees in Africa. Over 7000 people are employes Botswana, over

7100 in South Africa, 3800 in Namibia, 700 in Canada and over 800 in Group Exploration.

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BRANDS

In the opinion of DTC, India has emerged as a developed market where consumers are

influenced look for multiple brands and may choose one brand over the other based on cost,

design and value offered. In tune with this market trend DTC is currently offering four

different brands Sangini, Nakshatra, Asmi and Arisia to cover all categories of buyers. DTC

has been playing a major role in educating the Indian consumers about the quality evaluation

of diamonds, the importance of certification and also making diamonds seem an affordable

luxury.

NAKSHATRA

Launched in 2000 Nakshatra reached the iconic stage in just three years. The Nakshatra

collection has unique floral designs with multiple diamonds encircling a single large

diamond to signify the constellation effect. Special Packaging and its own guarantee

certificate promising the purity and sparkle of Diamond. It is available in three collections:

Nakshatra collection, Eternity Collection & Solitaire Collection. It has emerged, as one of

India’s leading brand in Diamond Jewellery Segment.

GILI

Its primary brand value is “Genuine diamond and gold jewellery at affordable prices”. The

first jewellery brand that brought diamond jewellery within the reach of masses.

ASMI

Asmi in Sanskrit means, “I am”. Every action of a woman is a passionate exposition of the

intensity and drive with which she lives her life. The Asmi Diamond Jewellery Collection is

carefully crafted to beautifully compliment and complete her.

SANGINI

It is positioned as a brand that glorifies women in a relationship. Sangini diamond jewellery

is characterized by a bezel set centre stone being slightly larger than the others in the same

piece signifying the focal position of the woman in the man’s life.

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D’DAMAS

It is a generic brand that combines international quality with Indian values. D’damas is about

“Luxury and Aspirations,” “Innovativeness,” “Assurance” “Dynamism.” D’damas has been

recognized and awarded as a Jewellery Masterbrand. Under D’damas are numerous brands

that have made a mark on the Indian milieu like Forevermark Solitaire, Damas Solitaire,

Glitterati, Collection G, Gold Expressions, Vivaaha, Ballerina, Bollywood Gold,

Inspirations.

DESIRE

Desire Lifestyle is a diversified product range that addresses the lifestyle needs to reflect the

style and upcoming trends among the masses.

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SWOT ANALYSIS

Strengths

1) De Beers owns over 40% of the rough diamond Industry.De Beers controls about 70

percent of the world's rough diamond supplies, which are sold to 120 manufacturers and

dealers at periodic sales known as "sights."

2) De Beers offers diamond dealers a package of value added services, which draws in

attention of the dealers apart from the other suppliers. It includes marketing, training,

business planning, and market research. Because of this, De Beers has a strong research

and development division and the powerful use of the Forevermark logo and the phrase

“A Diamond Is Forever.” This is one of the ways De Beers succeeds in reaching its

customers.

3) Able to influence prices when selling to manufacturers as it has an excellent marketing

network spread across the world.

4) High quality De Beers prides itself on ensuring that every diamond in De Beers Diamond

Jewelry is conflict and child labour free.

5) Owns over 50% of the US diamond market share.

Weakness

1) As the major raw material requirements need to be imported, companies normally stock

huge quantities of inventory resulting high inventory carrying costs.

35


2) Some of the Small firms under DeBeers lack technological/ export information expertise

and that’s why even the production costs increase.

3) Association with conflict diamonds- De Beers is aware of the problem of conflict

diamonds and has taken measures to guarantee that no conflict diamonds enter its supply

chain or its jewellery.

4) The HIV/AIDS epidemic in Africa strongly affects the De Beers workers, and thus, the

performance of De Beers. The epidemic can slow down the production line, which calls

for additional workers. Currently, HIV has affected over 3,100 De Beers’ employees and

the turnover in workers is constantly increasing. De Beers predicted that there is an

approximate 3.4% increase in workers being affected by HIV every year. In order to

protect against such risks, employers are trained and encouraged to follow universal

precautions to prevent accidental HIV exposure in the workplace. This is one of the

greatest challenges that De Beers currently faces in improving their lost-time-injury

frequency rate.

5) Problem that De Beers faces presently is the association of diamonds and funding

conflicts in Africa. This issue was brought to the attention to a big portion of the

population due to the recent release of the movie, Blood Diamond. We think that

customers could be deterred from purchasing diamonds due to this issue, and this in turn

could lead to a significant decrease in De Beers’ diamond sales.

Opportunities

1) New available markets explorations in Europe, Middle East and Australia. With the rise

of Eastern Europe and their economies growing at high rates, Europe could be a very

lucrative market. Australia and the Middle East are both relatively high income markets

and if De Beers diamond jewelry is properly marketed within these regions, we feel the

sales could tremendously increase.

2) Can increase brand recognition by marketing De Beers. There is a growing demand in South

Asian and far East countries.

36


Threats

1) Increase entry of competition - De Beers had a near monopoly with about 90% market

share of Indian rough diamond business. The share came down to 60% three years back

and to around 42% last year.

2) Association with conflict diamonds: Conflict diamonds are rough, uncut diamonds used

by rebel movements or their allies to finance armed conflict aimed at undermining

legitimate governments. In 1998 the Non-government Organisation (NGO) Global

Witness brought to the world’s attention the fact that rebel groups were funding their war

against the legitimate government in this way. The De Beers Group has been working

with governments through the United Nations and other international organizations to

ensure that future conflicts cannot be funded in this way. De Beers is aware of the

problem of conflict diamonds and has taken measures to guarantee that no conflict

diamonds enter its supply chain or its jewelry.

3) De Beers’ market share is likely to go down further as the firm has lost its control over

many mines globally and contracts with most of the wholesale traders are going to end by

this year.

4) De Beers faces threats from Synthetic/Cultural Diamonds. Synthetic Diamonds are

possibly the biggest threat that De Beers has ever faced. After years of careful research

and experimentation, scientists have finally discovered how to create Synthetic

Diamonds, which are man-made diamonds that are indistinguishable from natural

diamonds. Companies have been manufacturing industrial Synthetic Diamonds for years,

but they have only recently discovered how to create Synthetic Diamonds of the same

quality and value of natural diamonds that are used in jewelry.

37


STP

Segment

The Indian woman is particularly enamoured by the dazzle and and sparkle of diamonds. She

likes to adorn these on every other occasion, with marriage ceremonies finding a special

place.

Like all men, the company is aiming to win the hearts of women i.e. the market segment they

are aiming at is Woman.

Target

The target audience of De Beers changes according to its marketing strategies. Its targets

have been the following:

1. Would be Brides - By promoting diamond as a fundamental part of an engagement.

2. Unmarried Women - As a symbol of Independence through their campaign ‘Right

Hand Ring’

3. Couples - Anniversary gifts through their campaign ‘Eternity Ring’

4. Highly fashion conscious individuals - By offering them the highest quality diamonds

because we hire employees who care about the stories that each diamond has to tell.

Position

De Beers positioned its diamonds as:

1. Not as a product but as a ‘Symbol’

2. ‘Timeless and Everlasting’

3. ‘Valuable and the right thing to buy for a Women’

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4. ‘Women’s Best Friend’

5. ‘A Diamond is Forever’

MARKETING MIX

1) Product:

De Beers are in rough diamonds and cut diamonds. De Beers product category can be better explained with the help of De Beers 4 C’s chart.

Rough Diamonds

DeBeers has its own sales and marketing arm. This is a company called the Diamond

Trading Company (the DTC). DeBeers sells almost half of the worlds rough diamonds

through this marketing arm.

This is almost half of the world rough diamond (rough diamond are those from the mine and

before they are polished for sale to jewelry manufacturers and diamond dealers around the

world).

However this include diamonds produced by the Russian company, Alrosa, which DeBeers

has an agreement.

The rough diamonds sold by DeBeers through their arm, DTC, are purchased by the world’s

leading diamantaires known as Sightholders. Sightholders buy tailored assortments or

"parcels" of rough diamonds from a blended “mix” of diamonds from the various mines.

These clients are chosen following assessment against a set of objective selection criteria

according to their ability to add value to diamonds as well as their audited adherence to the

DTC’s Diamond Best Practice Principles, which cover business ethics, the Kimberley

Process Certification Scheme and the industry’s System of Warranties, labour standards,

health and safety as well as environment. De Beers have actively promoted diamonds as

being symbolic of eternity and love, and therefore the ideal jewel for an engagement or

wedding ring. Their famously successful advertising campaigns have included such measures

39


as, showing diamonds as wedding gifts in popular romance films, publishing stories in

magazines and newspapers which would emphasize the romantic value of diamonds and

associate them with celebrities, employing fashion designers and other trendsetters to

promote the trend on radio and, later, television and even enlisting the British Royal Family

to directly promote diamonds.

40


Cut Chart Color Chart

Clarity Chart Carat Chart

41


2) Place:

De Beers is active in every category of industrial diamond mining: open-pit, underground,

large-scale alluvial, coastal and deep sea. Mining takes place in Botswana, Namibia, South

Africa, Tanzania and Canada.

Mining in Botswana takes place through the mining company Debswana, a 50-50 joint

venture with the Government of the Republic of Botswana. In Namibia it takes place through

Namdeb, a 50-50 joint venture with the Government of the Republic of Namibia. Mining in

South Africa takes place through De Beers Consolidated Mines (DBCM), 74% owned by

DeBeers and 26% by a broad based black economic empowerment partner, Ponahalo

Investments. In Tanzania it occurs through a partnership with the government of Tanzania,

75% owned by De Beers, 25% by the government. In 2007 De Beers began production at the

Snap Lake Mine in Northwest Territories, Canada; this is the first De Beers mine outside of

Africa. In July 2008 De Beers opened the Victor Mine in Ontario, Canada.

The Diavik Diamond Mine

42


Trading of rough diamonds takes place through the Diamond Trading Company through

wholly-owned and joint venture operations in South Africa (DTCSA), Botswana (DTCB),

Namibia (NDTC) and the United Kingdom (DTC). The various DTCs within the Family of

Companies sort, value and sell approximately 40% of the world’s rough diamonds by value.

The Family of Companies employs about 20,000 people around the world on five continents,

with 17,000 employees in Africa. Over 7000 people are employes Botswana, over 7100 in

South Africa, 3800 in Namibia, 700 in Canada and over 800 in Group Exploration.

The Family of Companies

The De Beers Family of Companies is involved in most parts of the diamond value chain.

Companies are as follows:

De Beers Canada

De Beers Consolidated Mines

De Beers Diamond Jewellers

Debswana

Diamdel

Diamond Trading Company

Diamond Trading Company Botswana

Diamond Trading Company South Africa

Element Six

Namdeb

Namibia Diamond Trading Company

Williamson Diamonds

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De Beers Diamond Jewellers

De Beers retail store on Rodeo Drive in Beverly Hills, California

In 2001, De Beers entered into a retail joint venture with French luxury goods company

Louis Vuitton Moet Hennessy (LVMH) to establish an independently managed De Beers

diamond jewellery company.

The joint venture, called De Beers Diamond Jewellers Ltd sells diamond jewellery. The first

De Beers store opened on Old Bond Street in London and there are now De Beers retail

stores in the following locations:

London at Bond Street, Royal Exchange and Harrods

New York City at Fifth Avenue

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http://en.wikipedia.org/wiki/Image:Rough_diamond.jpg

http://en.wikipedia.org/wiki/Image:DeBeersBevHills.jpg


Beverly Hills at Rodeo Drive

Las Vegas at The Forum Shops

Houston at The Galleria

McLean, Virginia at Tysons Galleria

Dallas at NorthPark Center

Paris at Le Printemps

Moscow in Russia

Kiev in Ukraine

Japan - Tokyo, Osaka, Hakata, Yokohama, Kyoto, Kobe

Taiwan in Taipei

Korea in Seoul

Hong Kong

Waikiki

Dubai at Mall of the Emirates, International Financial Center, and Wafi City

San Francisco in Union Square

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3) Price:

De Beers sets the price of its boxes in advance and determines the quality and quantity each

sightholder receives. Price and quantity are nonnegotiable.The sudden emergence of all these

producers meant that De Beers, in an effort to keep prices high, was forced both to hold back

a large portion of its diamonds and to purchase much of the excess supply of its new

competitors--often at inflated prices.For decades, the majority of the world’s diamond trade

was controlled by De Beers. It used its market power to keep the prices high.

One can't blame the DTC for the constant change in the market prices of diamonds.They are

no longer the 80-per-cent-plus dominant force they once were in the market. A lot of things

happen because they really have no control over them. Over the last three years, ever since

the DTC implemented the SOC initiative, most DTC rough would easily fetch a 10 per cent

premium, so non-sightholders were paying substantially higher prices for rough. Today, the

field is more level. The non-DTC rough is cheaper, and that makes it more interesting for

non-sightholders. Some Angolan goods were between 5- and 7 per cent cheaper than DTC

goods. Of course, there is no consistency of supply, but you can now actually make money

on those goods.

Thus,with a view to maintain its profitability De Beers has to charge customers a higher rate

for the rough diamonds.

Those who cut small diamonds have the biggest problems in profitability as rough prices

have increased and there is considerable buyer resistance to higher polished prices. The

worst-hit categories are the weak colour and clarity goods in the 1- to 7-pointer size range.

The manufacturers have no answer - technical or strategy-wise - to this and the overall result

has been a general migration towards processing larger sizes - which leads to increased

competition in those categories. It must be noted here that the ultra small sizes are doing

extremely well with buyers willing to pay spot cash for goods

As the diamond business is in rough times all over the world,De Beers has lost its market

share and worked hard upon setting up its foot again in the market with the continuous

variation in its pricing policy.

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4) Promotion:

(Please refer Advertising Campaign on Page No. 53 )

47


MARKET SITUATION

There are two major trends occurring in the diamond industry that will affect De Beers. First,

there is a shift towards online shopping, and secondly, women are becoming self-purchasers.

Consumers are becoming increasingly comfortable spending large amounts of money online.

In the past, people have liked to know and trust their diamond salesman and buy their jewelry

with a personal experience in a jewelry store. But now, we are able to purchase so much

online, why not buy diamonds online as well? According to BlueNile.com, the largest online

jewelry retailer, the average price spent on a diamond engagement ring from their site was

$5600 in 2004. The national average in the United States at that time was $2300. This is a

major difference indicating that not only are people willing to purchase diamonds online, but

they are willing to spend more money when buying online. De Beers.com has averaged over

200,000 people on their site per month over the course of the past year, an increase from

previous years. They report that most of these visitors are within their target demographic:

women, ages 18-34. These women visit the site to design engagement or “right hand rings”

and email their designs to friends. This is good for De Beers because not only are these

women unknowingly advertising De Beers to their friends, it also makes consumers think of

De Beers retailers, a relatively new venture for De Beers.

The second trend in the diamond industry is that women are becoming self-purchasers.

Perhaps the combination of women’s rise in the workplace and the “Right Hand Ring”

campaign by De Beers, women are empowered and encouraged to buy jewelry to celebrate

among themselves. This shift is great for the industry because self-purchasing women are

another segment to target diamonds towards, which can only lead to more sales.

48


DE BEERS SALES - DTC

DeBeers has its own sales and marketing arm. This is a company called the Diamond

Trading Company (the DTC). DeBeers sells almost half of the world’s rough diamonds

through this marketing arm.

This is almost half of the world rough diamond (rough diamonds are those from the mine and

before they are polished for sale to jewelry manufacturers and diamond dealers around the

world).

However this includes diamonds produced by the Russian company, Alrosa, which DeBeers

has an agreement. That agreement is due to expire at the end of 2009, unless of course it is

renewed. If it is not then Alrosa will become a direct competitor to DeBeers.

The rough diamonds sold by DeBeers through their arm, DTC, are purchased by the world’s

leading diamantaires known as Sightholders. Sightholders buy tailored assortments or

"parcels" of rough diamonds from a blended mix of diamonds from the various mines. These

clients are chosen following assessment against a set of objective selection criteria according

to their ability to add value to diamonds as well as their audited adherence to the DTC’s

Diamond Best Practice Principles, which cover business ethics, the Kimberley Process

Certification Scheme and the industry’s System of Warranties, labour standards, health and

safety as well as environment.

49


DE BEERS MARKETING

The Industry’s First Marketer

In order to stimulate demand for diamonds De Beers positioned itself as the marketer for the

whole industry. Starting from its engagement with NW Ayer in the late 1930’s the company

has continual developed and refined its marketing effort to a more refined audience.

Following NW Ayer’s research focusing on the ‘symbol of love’ De Beers’ strategies

included;

1. writing (or re-writing) scenes for Hollywood movies that injected diamonds into

romantic relationships between men and women

2. giving diamonds to movie stars to use as symbols of indestructible love

3. placing celebrity stories and photographs in magazines and newspapers to reinforce

the link between diamonds and romance

4. using fashion designers to talk on radio programs about the “trend towards diamonds”

5. commissioning artists like Picasso, Dali, and Dufy to paint pictures for

advertisements, conveying the idea that diamonds were unique works of art

Following these initial campaigns demand for diamonds increased by 55% and 80% of

engagements in the United States were consecrated by diamonds. NW Ayer recalled that the

campaign marked “a new form of advertising which has been widely imitated ever since.

There was no direct sale to be made. There was no brand name to be impressed on the public

mind. There was simply an idea — the eternal emotional value surrounding the diamond”

In 1963 the company engaged J. Walter Thompson a leading global agency to assist in the

development of the marketing and advertising plans. These agencies worked with the DTC to

understand the buying rationale for diamonds and to create campaigns based on these

rationales coupled with the projected availability of diamonds at the time.

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MARKETING STRATEGIES

Diamonds are one of the biggest scams ever perpetrated on the American public. They're

incredibly common -- if there were a real free market for diamonds, they would be worth a

few dollars each. But virtually every diamond in the world is sold by ONE company -- De

Beers. It's not just a monopoly -- it's the monopoly to end all monopolies. Because they

control just about every diamond mine in the world, they keep production very low, helping

to keep prices high. That's part of why diamonds are so expensive.

But wait -- what about the symbols of love part? In 1938, De Beers hired one of the largest

American ad agencies to convince the American public that diamonds are symbol of love

and commitment. This was one of the most effective marketing strategies carried out by De

Beers. They've been tremendously successful. How did they do it? A few ways: First they

went after newly developing Hollywood -- they convinced starlets to wear diamonds and

screenwriters to use them as symbols of love. Fashion designers were hired to talk about

the "trend towards diamonds".

In 3 years, diamond sales increased 55%. But that wasn't enough -- they needed total market

domination. They invented a new color, "diamond blue”.

By 1960, they had convinced an entire generation that a diamond was a fundamental part of

an engagement or wedding. It was a necessity -- there was no excuse for not having one. If

a man could not afford one, he was pressured to wait until he could before proposing.

When the Soviets made a deal to sell all their diamonds to De Beers, De Beers had a

problem. Diamonds from the Siberian mines were very small, and De Beers had spent

decades teaching Americans that larger was better. Their response: they began pushing

photos of smaller rings. An entire campaign was designed to teach people that small

diamonds were just as symbolic of true love as larger ones. They also began a campaign

to convince Americans that diamonds weren't just for engagement -- any important

occasion warranted a diamond.

51


So then De Beers came up against a new problem. "Diamonds are forever" is right -- De

Beers produces new diamonds every year, but the old ones don't wear out -- so what happens

if people try to sell their diamonds? That could destroy their profit margins! Solution:

Americans were convinced that diamonds are important to hold on to. Even if you inherit a

diamond, it cannot be sold -- that would violate the memory! Today, very few jewelry stores

will even buy "used" diamonds, and potential sellers are restricted to pawn shops and other

such places where they get a tiny percentage of the stone's market value. Result: diamonds

are a terrible investment because they cannot be resold, but no one perceives them this way.

52


ADVERTISING CAMPAIGN

Marketing research garnered by the DTC over the past sixty years indicates that the decision

to purchase a diamond is not often made spontaneously. More specifically, the lead time on

most diamond purchases is 9-18 months. The key factor in this decision is to provide

consumers with a strong rationale for purchasing diamond jewelry. To attract consumers to

its luxury brand, DTC advertising campaigns have focused on two key areas:

The ‘Occasion Purchase’ –

This campaign has been aimed at the male target market. Traditional occasions such as

engagements have long been rationales for diamond purchases. Ironically this has resulted in

a dearth of larger carat diamonds and a glut of smaller stones. This has led the DTC to

develop the ‘three stone anniversary ring’, using the tag line “For your past, present

and future”.

‘Past, Present and Future’ Advertisement

The “Occasion Purchase”

“Celebrating

Women”

53


The DTC has performed significant marketing research around this purchase. For example,

the Company has performed specific sample testing to track the trends in anniversary

announcements and to project their impact on the diamond business.

Celebrating Women – This campaign has been aimed at both men and women. Firstly, the

‘Celebrate Her’ campaign has focused on men buying jewelry to celebrate their partners

and. The print campaign is humorous with distribution in upscale men’s magazines.

‘Celebrate Her’ Advertising

Secondly, a campaign focused on empowering women to buy themselves jewelry has been

developed. The idea that a ‘right-hand’ ring should be bought to celebrate a major

achievement not only creates a new rationale for the purchase but also expands the target

54


market to include single or divorced women who have traditionally not been a focus of the

advertising.

‘Left Hand Ring’ Advertising

The De Beers diamond advertising campaign is acknowledged as one of the most successful

and innovative campaigns in history. N. W. Ayer & Son, the advertising firm retained by De

Beers in the mid-20th century, succeeded in reviving the American diamond market and

opened up new markets, even in countries where no diamond tradition had existed before.

N.W. Ayer's multifaceted marketing campaign included product placement, advertising the

55


diamond itself rather than the De Beers brand, and building associations with celebrities and

royalty. This coordinated campaign has lasted decades and continues today; it is perhaps best

captured by the slogan “a diamond is forever”. The purpose of this slogan is to prevent the

creation of a secondary market by dissuading women from selling the diamonds they have

received and by discouraging them from buying diamonds which other women have owned.

The consequence of this is that retailers can sell diamonds at a high price without

competition from a secondary market, and it allows De Beers to maintain control of the

diamond trade at wholesale level.

A young copywriter, Frances Gerety coined the famous advertising line "A Diamond is

Forever" in 1947, allegedly while she was dreaming.

Other successful campaigns started by De Beers include the “eternity ring” (as a symbol of

continuing affection and appreciation), the “trilogy ring” (representing the past, present and

future of a relationship) and the “right hand ring” (bought and worn by women as a symbol

of independence).

De Beers is also known for its television advertisements featuring silhouettes of people

wearing diamonds, to the music of Palladio by Karl Jenkins.

In 2001, De Beers entered into a retail joint venture with French luxury goods company

Louis Vuitton Moet Hennessy (LVMH) to establish an independently managed De Beers

diamond jewellery company.

De Beers has introduced Forevermark diamonds to markets in China, Hong Kong, India and

Japan. "Forevermark diamonds are natural, untreated, responsibly sourced, and cut and

polished by a specially selected diamantaire." Forevermark diamonds have an icon and

identification number inscribed on the table facet of the diamond. The inscription is 1/500 of

the depth of a human hair and applied using De Beers technology developed in Maidenhead,

United Kingdom, and Antwerp, Belgium.

Their famously successful advertising campaigns have included such measures as, showing

diamonds as wedding gifts in popular romance films, publishing stories in magazines

56


and newspapers which would emphasize the romantic value of diamonds and associate

them with celebrities, employing fashion designers and other trendsetters to promote the

trend on radio and, later, television and even enlisting the British Royal Family to

directly promote diamonds. They have also done advertising campaign by sponsoring the

2007 Formula 1 car for Scuderia Ferrari Marlboro. This campaign was described by De

Beers' PR agency N.W. Ayer & Son as "a new form of advertising which has been widely

imitated ever since" with "no brand name to be impressed on the public mind. There was

simply an idea—the eternal emotional value surrounding the diamond." Indeed, the campaign

succeeded in reviving the American diamond market, which had been weakened by

"competitive luxuries", and in opening new markets where none had existed before. In Japan,

for example, diamonds were successfully promoted as a western symbol of status, which

coincided with Japan's cultural opening after World War II. Japan is today the second largest

market for retail diamonds.

Iman, the face of De Beers, wearing the ‘Millennium Star’ at the Cannes Film Festival in May 2002

57


BRAND AMBASSADOR

Grand Media campaigns involving starlets such as former

Ms. World and Bollywood heroine Ms Aishwarya Rai

Bachan has resulted in double digit growth of 25% for

DTC’s branded diamonds in India.

The ‘Solitaire’ collection also features diamonds that carry

the De Beers Forever Mark, thus giving the jewellery

several layers of branding. The De Beers initiated Nakshatra

brand, with its floral patterns reminiscent of constellations

and the power of nature manifest in the universe, uses

Bachchan’s daughter-in-law Aishwarya Rai, a high-profile

actress in her own right, sometimes referred to as ‘the most beautiful woman in the world’ as

its brand ambassador.

In addition, the company also created a division, the Diamond Information Center (DIC) that

handles the placement of diamond jewelry with celebrities at high exposure events such as

the Oscars, Fashion Week and the Grand Prix series.

Acting as the marketer for the whole industry has been extremely successful for De Beers.

While market share for rough diamond sales has dropped from 80% to 60% the company still

has the power to garner significant returns from its industry advertising efforts.

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DTC ON THE INTERNET

As a support channel to the marketing efforts of the DTC the company has invested heavily

in the development of an Internet presence for the promotion of diamonds in the US. Market

research has found that in the luxury market, the Internet plays a major part in the purchasing

decision, as can be seen in the graph below.

The company has developed www.adiamondisforever.com as the initial site for the

promotion of diamonds and diamond jewelry. The site is used in promotional literature both

by the DTC and by sightholders of De Beers. The site clarifies issues such as the “Four C’s”

and the different types of diamond design that are available. It is more informational in

nature than other manufacturer’s sites and takes a ‘non-biased’ view of the diamond

experience. In addition the DTC is prohibited from direct selling on its website.

A design gallery is available that allows the customer to design online engagement and

anniversary rings. The Design Gallery was developed as a means of showcasing

manufacturer designs. Research had shown that the more designs a woman sees, the more

likely she is to accelerate/start the diamond purchase process. It is set up like a high-level

Importance of medium in buying decision

0

10

20

30

40

50

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/Web

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Art

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s/R

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59


catalogue, the Design Gallery is a Manufacturer subsidized (i.e. they pay a fee to participate)

searchable catalogue. The site highlights jewelry design by a number of different designers

but does not promote the De Beers stores, which is not permitted under the joint venture

agreement. Initial indications are that the website has been extremely successful with traffic

growing at around 15% per year.

The number of affluent households going online is growing. This is a major reason for the

push from De Beers to establish a persuasive, enjoyable diamond experience online. There

remains the potential for the LVMH joint venture to develop an online store for the purchase

of its jewelry. This would open De Beers to a wider market beyond the cities in which it

locates a retail store. However there is the possibility that this may affect the value of the

brand equity of a luxury item like De Beers.

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STRATEGIES TO RE-GAIN POSITION IN

MARKET

As market share has fallen at De Beers the company has sought outside help to turn things

around. In April 1999 the company engaged Bain & Co to undertake a review of its strategy.

The result was a significant volte face by the diamond company. While the company would

continue in the short term to promote diamonds through its DTC advertising efforts, four

major long term changes were announced under the umbrella of a new ‘Supplier of Choice’

strategy.

Traditionally De Beers had operated with murky contract arrangements where transactions

were often concluded with mere oral agreements or other backroom deals. As a result the

whole diamond industry had developed a reputation for price-fixing and other shady

agreements. It would be important for De Beers to clear up these perceptions if it was to take

part in a new, competitive diamond market. The first tenet of the new strategy was the

formalizing of a written contract process between De Beers and its sightholders.

Secondly, the whole diamond industry in recent years had suffered from the problem of

‘conflict diamonds’. These were diamonds that were smuggled out of war-torn areas of

Africa with the proceeds of the sale often going to support guerrilla armies and dictatorships

in areas such as Sierra Leone and Angola. This new strategy introduced ‘best practices’

which forbid the purchase of such diamonds. Any sightholder found purchasing such supply

would be shut out from the De Beers stock. Similarly De Beers would no longer step in to be

the buyer of last resort for diamonds. Traditionally De Beers had mopped up any excess

supply in the market that threatened to lower prices. Much of this excess supply came from

these war-torn areas which De Beers had purchased to protect its position. The company was

now refusing to do this and was prepared to cut production at its own mines to compensate

for this increase in supply.

The third major tenet was the sale of the De Beers brand name. The rights to the brand were

placed with a company, De Beers LV, which is a joint venture with LVMH, the luxury

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goods company. This detachment of the brand name from the day-to-day business of selling

rough diamonds was seen as an attempt to re-position De Beers as a luxury brand that may be

extended beyond diamonds. Undoubtedly the US represented a significant proportion of this

luxury goods market which was a key factor in De Beers wishing to enter and grow this

market.

The aim of the joint venture was to focus on creating retail stores in major cities around the

world. These stores would not only promote diamond jewelry bearing the De Beers name but

would also extend the brand into other fashion items such as handbags, silks and other

accessories.

The final piece of the strategy was perhaps the most dramatic. De Beers was no longer happy

to be the marketer of the whole industry. Rather than focusing on controlling supply and

‘price-fixing’ the company wanted to increase demand for diamonds. Only those

diamantaires that spent significantly to promote and distribute diamonds would be permitted

to be sightholders. The DTC would provide marketing assistance and consultancy to these

sightholders in an effort to spread the cost of promoting diamonds around the world.

The key rationale for the change in channel strategy was the drive to increase diamonds as a

portion of luxury goods purchases.

62


DE BEERS COMPETITORS

De Beers has four major competitors: Alrosa, BHP Billiton, Rio Tinto, and Aber. De Beers

has about 50% of the market share of the industry’s rough diamonds, Alrosa has roughly

20%, and BHP Billiton, Rio Tinto, and Aber each have less than 10%.

BHP Billiton, Rio Tinto and Aber are not primarily diamond mining businesses. They mine

other minerals and materials such as coal, iron, and copper, and generally only mine

diamonds because they already have the resources and tools set up for diamond mining from

their other mining interests. There is little additional cost to them to mine diamonds in

addition to what they already mine. Aber is a rather large competitor of De Beers because

they have a large ownership in Canada’s mines. Aber has deals set up with retailers such

as Tiffany’s and Harry Winston to supply them exclusively. This is a significant opportunity

that De Beers is missing out on. Alrosa is really the only competition that comes close to

De Beers in terms of market share and sales. They mine about 20% of the world’s

diamonds, and in 2006 had sales of $2.5 billion. This was 10% growth for Alrosa, whereas

De Beers lost 1% in sales with $6.15 billion. Alrosa mines 100% of Russia’s diamonds. They

have a distribution agreement with De Beers selling some of their diamonds to the Diamond

Trading Company. However, Alrosa recently announced that they are going to gradually stop

selling to the Diamond Trading Company. They are planning on following a similar business

plan to that of De Beers by marketing and selling their own brand of polished diamonds, as

well as selling rough diamonds. This will certainly be detrimental to De Beers because it will

result in more rough diamonds on the market. De Beers currently has much control over the

rough diamond market, because they buy up other mining company’s rough diamonds and

then sell over 40% of the world’s rough diamonds to manufacturers and other diamond

suppliers. Now Alrosa will be able to do this as well, and with 20% of the market share, they

are a significant threat.

Companies such as BHP Billiton’s Aurias Diamonds attempted selling their product directly to

the end consumer via their dot.com business. Although this dramatic attempt at shortening the

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diamond pipeline was not as successful as they had hoped, they have shaken up the traditional

ways of thinking about the pipeline. They are waiting to see what effect the De Beers push for

increased branding and instigation of thir Forevermark will have on them. They have established

the Branding Services Platform through which they are pressing on with their own product and

branding development. As a consequence, they have also recently released the Canadamark to

increase consumer confidence in their product. However, September 2003 say BHP Billiton close

their Australian office. From the first week of October they will operate the Aurias brand from

their Vancouver office. For now they are saying they will keep the brand alive but how

logistically this will work is still unknown. Apparently low return for capital outlay and return on

stock holdings are the rumored causes.

RioTinto has formed a separate division known as Rio Tinto Diamonds to look after all their

diamond mines and their rough clients. They will also continue with their successful Argyle

Diamonds Polished Sales Division based in Perth (who look after their valuable pink production).

Their relationship with Indian diamond cutters is thriving and currently 90 per cent of their rough

is exported to India. Diamond Manufacture in India is growing and they now account for over 70

per cent by weight and 35 per cent by wholesale value of the worlds polished diamond market,

compared to the mere 6 per cent that they manufactured in 1966. As India is able to cut small,

low quality near-gems at a very economical rate they have almost cornered this end of the

market.

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RISK ANALYSIS AND THEIR CONTROLS

With the influx of a growing market, there is a possibility that new competitors may drive the

market price down. However, with De Beers’ standing as the market leader with over 40% of

the rough diamond market, De Beers will successfully be able to combat the competition. De

Beers propose to increase advertisements so that they can retain customers through brand

loyalty and brand awareness. They want to make their consumers brand conscious when

purchasing diamonds.

With the introduction of synthetic diamonds, these man-made novelties may gain popularity

and eat away at the De Beers’ market share. To control this situation, De Beers will soon

increase the media coverage on “real” diamonds, using comparative advertisement. De Beers

want to increase the “real” diamond image and adversely affect the synthetic diamonds

through it. Also, they will continue to research consumer mindsets through surveys and

interviews. Through this, they hope to strategically win over the customers who are swayed

towards the synthetic diamonds.

There is also a possibility that the market that they have foreseen as untapped potential may

not be as profitable as expected. To ensure that it is profitable, De Beers will be monitoring

sales in the exploration regions. Also, if these markets are not profitable, they propose to

search for more opportunities and markets elsewhere.

Lastly, diamond costs are volatile and always have been. Although this is a risk, since the

diamond prices are set by the free market, De Beers cannot do anything to affect the price.

However, De Beers has successfully engaged this problem using contractual agreements that

lock consumers in a binding agreement to continue to purchase De Beers diamonds

regardless of price. Therefore, De Beers should continue to handle the situation as they

currently are leveraging their status as the market leader.

65


CORPORATE SOCIAL RESPONSIBILITY

CONTRIBUTION TOWARDS CHILD LABOUR

India processes small diamonds, using traditional labour-intensive methods. About 1.5

million people are employed in the diamond industry, mostly in the unorganized sector.

With a few exceptions, workplaces in these industries are normally congested, poorly lit and

poorly ventilated.

Children are also working under similar conditions. In the Surat area, one out of ten workers

in the diamond polishing industry is a child. The 1996 survey carried out under the National

Child Labor Policy Project showed that in this area; up to 40 per cent of the wage earners in a

family are children. In addition to the children who live at home and are sent to work, there is

also a group of children in Surat who live within the workshop itself and work from a very

early age.

Interviews with workers in the diamond industry in Surat who send their own children to

work revealed that these were the workers who were not artisans and who were at the bottom

of the ladder both economically and socially. Their own work was very irregular and

dependent on the power supply to the industry: no electricity, no work. They prefer that their

children work in the diamond industry and perhaps acquire the skills of an artisan rather than

go to school, because they have no faith that education from the school system will help their

children find regular jobs.

However, it is mostly workers from the lowest rungs of the ladder in the diamond industry

who send their children to work at an early age. Children of artisans, like diamond polishers,

normally go to school for several years before starting their apprenticeship, and children of

workshop owners and traders never work as children, even though they normally enter the

diamond trade after completing their education.

There are no reliable statistics on the number of children employed in this industry. Official

and unofficial estimates vary between 10,000 and 20,000.

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Children in the gem polishing industry are engaged ostensibly as apprentices, but in fact

provide cheap labor. The learning process takes five to seven years. During the first two

years the child does not receive any wage except for occasional remuneration and works for

ten hours a day. By engaging a child the ustad (master) contractor saves around Rs. 150- 200

a month at this time. After two years the child is paid Rs. 50 a month, when he actually does

work worth Rs. 250-300 a month, at the very least. Once the child has spent three or four

years and has started learning to make more facets, he or she is worth at least Rs. 300 to 400,

but is paid Rs. 100 a month. By the time the child is 14 or 15 years old and has acquired the

skill of gem polishing, he would be earning Rs. 150-200 a month whereas an adult would get

Rs. 500-600 for the same job. This is the juncture at which the contractor retains the services

of the child in order to reap maximum benefit.

To all evidence, cheap or free labor seems to be the main reason why employers in the

diamond and gemstone industry in India prefer to use children. In this respect the diamond

and gemstone industry is different from other industries in India.

In the course of the workshop, efforts were made to develop strategies which trade unions

could employ in a concerted effort to eliminate child labor from the diamond and gemstone

industry in India. Three major avenues were found:

First, the trade union movement is under a clear moral obligation to bring to light and

denounce child labor in the industry in question. Public awareness campaigns, especially in

countries where there is a large market for diamonds, had to be in the vanguard. These

campaigns must be skillfully conducted and always complemented by other initiatives. Their

aim should be to encourage employers to negotiate an agreement to eliminate child labor, to

campaign for governments to take action, and to motivate consumers to support positive

action.

Second, the diamond industry is one, which is very tightly controlled from the top, since the

distribution of rough diamonds for processing remains in the hands of a small group. This

control can also be used to reduce child labor in the industry.

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FUTURE PLANSThere are several marketing strategies that De Beers are planning to implement. In order to

increase awareness, revenue, and brand recognition, they have came up with the following

action plan.

De Beers are planning to advertise in Europe, Australia, the Middle East, and of course in

the United States. Lastly, because people do not yet know the difference between cultural

and synthetic diamonds, they are going to increase awareness regarding the difference

between these two after establishing solid brand recognition for them.

Before the new plan is implemented, there will be a constant research and development. This

endeavor will start promptly and last throughout the duration of their implementation

process. Their research and development team will continuously be looking for new ways to

improve and come up with new and better ways to market toward the consumers. Because

this implementation is done continuously throughout the year, it will consume much of the

cost from their limited budget. They are expecting about $350 million dollars for research

and development; however, this also includes the cost of exploration, which is not a new

cost.

De Beers are planning to come up with new advertising campaign the "Every diamond has a

story. What's yours?” modified version of "A Diamond Is Forever” campaign, as soon as

possible. One of the biggest problems that De Beers faced in the past was the lack of brand

recognition. Although De Beers owns 50% of diamond sales in the U.S. and 40% of diamond

productions in the world, not many people have heard of "De Beers" as a leading diamond

company. In order to amend this; they need to quickly put out their name boldly into the

market. Through the “story" advertising campaign, they are planning to give people the

insight about a De Beers diamond’s heritage, and bring back the memories people had of "A

Diamond Is Forever" campaign, which was a great success in the past.

The faster De Beers implement this advertising campaign, the better result they can expect

for them. They are planning to start this campaign early in their action plan. This campaign

will dedicate its advertising for 6 months as they believe that six months of intense and

constant advertising on TV and Magazine Ads should familiarize customers with De Beers’

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diamonds, and bring back the memories they had with the "A Diamond Is Forever"

campaign.

De Beers also believe that coming up with the new commercials on TV and in magazines are

an extremely effective ways to reach the public, specifically their target market. They will be

putting on "Every diamond has a story. What's yours?" commercials on air for six months

duration and create appealing ads on most popular magazines like GQ, Vogue,

Cosmopolitan, BusinessWeek, People, InStyle, and etc. This advertising campaign should

cost about $50 million dollars. Furthermore, these are not the only advertising methods they

will be implementing.

In order to create high brand knowledge about De Beers Diamond Company, they are

planning to concentrate on four main regions. De Beers are strictly looking into brand

knowledge in the U.S., Europe, the Middle East, and Australia. They are planning to

implement this with a longer brand knowledge in the U.S. because they believe that De Beers

needs to spend a longer time in the US, focusing on disassociating from conflict diamonds. In

Europe, Australia, the Middle East, or in the United States, De Beers are going to increase

brand knowledge through celebrity endorsements, fashion shows, and cultural shows. The

estimated cost is about $70 million dollars and through this, they are expecting people to be

aware of De Beer's diamonds and its brand recognition through these different advertising

campaigns.

Implementation of the comparative advertising will begin soon while De Beers is still in the

brand knowledge and advertising stage. Comparative advertising with synthetic diamonds

also falls under the cost of advertising campaign mentioned above. As mentioned previously,

De Beers is expecting cultural shows to have a strong impact on De Beers’ consumers and

keep the interest of the current De Beers’ customers.

De Beers believe that implementing all of these new marketing strategies in their action plan

will show De Beers as a well known diamond company. They hope to go about this action

plan to change De Beers and to show awareness of De Beers as being the greatest diamond

company

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70


INTRODUCTION

Rio Tinto Diamonds was established in Antwerp, Belgium in June 2002 and employs

approximately 50 people including a representative office in Mumbai, India. It was

established to provide a sales and marketing service to Argyle, Diavik Diamond Mines Inc.

Rio Tinto Diamonds operates as wholesaler of rough diamonds. Its activities are based on

three key principles:

• Deliver to our customers a reliable supply of consistent assortments;

• Manage our supply to protect customers’ investment; and

• Support our products in the market

Rio Tinto is a world leader in finding, mining and processing mineral resources. In order to

deliver superior returns to shareholders over many years Rio Tinto takes a long term

view when developing its mining operations. As such it sets high environmental, safety and

community standards with a commitment to making lasting contributions to local

communities.

The Rio Tinto group employs approximately 36,000 people worldwide. In addition to

diamonds the group has world class interests in iron ore, copper, aluminium, industrial

minerals and energy products. Diamonds are an important and growing product group for

Rio Tinto. Currently, the company produces about 25% of the world’s rough diamonds by

volume through its 100% control of the Argyle mine which last year produced 32.6 million

carats.

By 2004,when the Diavik Diamond Mine is in full production, Rio Tinto will be positioned

as a major gem diamond producer, whilst maintaining its position as one of the largest

overall diamond producers globally.

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BUSINESS STRUCTURE

Rio Tinto – B2B Process

In 2006, Rio Tinto Diamonds launched its business-to-business customer

recognition programme: the Select Diamantaire Customer Mark. The

Select Diamantaire is a Mark of formal recognition for our customers to

use in their marketing and communication efforts. The Select Diamantaire

Mark recognises and promotes our customers' status as exclusive providers of diamonds from

one or more of our three mines - Argyle, Diavik or Murowa. Select Diamantaires have direct

access to a consistent supply of rough diamonds representing the full range of production in

terms of size, colour and quality.

The Select Diamantaire Programme celebrates and promotes the distinctive skills of Rio

Tinto Diamonds' core customers, each of whom are selected for their specific experience and

expertise in the trading, cutting and polishing of diamonds. Rio Tinto Diamonds' objective is

to work with Select Diamantaires in ways that recognise the specialty of their business

model, their position in the value chain, their capabilities, geographic reach and customer

base.

Rio Tinto Diamonds currently has 25 Select Diamantaires who associate formally with a

network of businesses that consistently present trade customers with polished diamonds and

diamond jewellery. In 2007, the Select Diamantaire status was extended to this wider

network of providers, who are recognised as "Associate Select Diamantaires". Over 100

Associates directly linked to Rio Tinto Diamonds' Select Diamantaires are now able to use

the Select Diamantaire Mark in their business marketing and communication.

Our Select Diamantaire Programme includes personalised marketing materials, regular

information newsletters and a dedicated website providing comprehensive profiling of Select

Diamantaires' businesses along with all marketing initiatives and events.

"Rio Tinto's Select Diamantaire is a well-executed programme with clear and strict

processes to ensure that the Mark adheres to the highest standards and retains maximum

value for its customers. The Mark, along with rough diamond tracking and proof of Country

of Origin, ensures jewellery retailers that they are dealing with vendors of high integrity."

Amadena LLC/ Trans American Jewelry Co Inc

72

http://www.riotintodiamonds.com/diamantaire


TYPES OF DIAMONDS

Natural colour diamonds

Rio Tinto Diamonds is the world's leading provider of natural colour

diamonds. The Argyle diamond mine in Australia is the world's largest

source of natural colour diamonds, producing a variety of colours from

champagne and cognac to the mine's signature stones, the famous Argyle

pink diamonds.

In 2003, Rio Tinto Diamonds became a founding member of the Natural Color Diamond

Association (NCDIA), an international trade organisation established to raise industry and

consumer awareness, understanding and acceptance of natural colour diamonds, which

include champagne, cognac and pink diamonds.

Champagne diamonds

The United States, the world's largest diamond jewellery market, has demonstrated a large

appetite for champagne diamonds. More and more manufacturers and retailers are using

champagne diamonds as part of their standard offerings.

Market research indicates that the retail consumer finds natural colour champagne and

cognac diamonds an appealing alternative to more traditional white diamonds. This is

particularly true of experienced diamond consumers who wish to try something new.

Champagne diamonds are associated with status, good taste, romance and the finest things in

life; they are typically purchased for fashion, rather than for investment, by financially

independent, style-conscious women. Rio Tinto Diamonds continues to drive the demand for

champagne and cognac diamonds, particularly in the United States, focusing on establishing

a number of dedicated retail programmes for the product.

In addition to the major US market, champagne diamonds are also gaining prominence in the

domestic Indian market. From the platform of our representative office in Mumbai, we are

undertaking considerable research with our customers in creating occasions for champagne

diamond purchasing in India.

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A dedicated website for champagne diamonds has also been developed.

Pink diamonds

Pink Diamonds, produced at our Argyle Mine in Western Australia, are highly coveted as the

world's most sought after gems. The Argyle Mine produces more than 90 per cent of the

world's pink diamonds, which are sold in a broad range of colours and sizes. The best stones,

the Argyle Signature Stones, are reserved for the annual Pink Diamond Tender.

Rio Tinto recognises the unique position its pink diamonds occupy in the market. We have

developed a number of scenarios designed to leverage this unique position and provide for

growth opportunities for us and our customers.

Argyle Signature Stones

Beginning in 1984, the more exceptional polished pink diamonds from each year's

production, the Argyle Signature Stones, have been sold individually at special auctions

known as "tenders". Participation in these events is by invitation to the world's leading

diamantaires and diamond jewellers.

The Argyle Signature Stones have an average size of 1 carat. Around 60 carats in total are

sold at the Pink Diamond Tender each year. Prices achieved are typically in excess of

US$100,000 per carat. To put the true rarity of these special "pink" diamonds into

perspective, of every million carats of rough diamonds produced at the mine, a mere one

carat is suitable for sale in one of these tenders. Since 1985, more than 750 stones have been

offered for sale at the tender at a total weight of almost 600 carats.

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ROLE OF RIO TINTO DIAMONDS INDIA

Rio Tinto Diamonds Indian office in Mumbai plays an important role in its marketing

strategy. It consults regularly with Indian based customers to share information and

understand their issues and concerns.

The office manages product promotion in India and is a key contributor to the market

intelligence network. Rio Tinto Diamonds Mumbai office is also responsible for the planning

and implementation of the IADC initiative in the US. The IADC has helped the Indian

diamond jewellery industry establish a strong and growing presence in the most competitive

market in the world.

In addition it provides technical assistance to the customer base aimed at improving

downstream efficiency and margins. This has included developing improved cutting

techniques, publishing a technical bulletin, providing training assistance and presentations

and seminars at the Indian Jewellery Show. In August 2003 Rio Tinto Diamonds India

launched the Rio Tinto Diamonds Business Excellence Model(BEM). This model,

specifically for the Indian diamond and jewellery industry, is structured around health and

safety, quality and environmental and social responsibility. It offers a set of management

tools to enable organisations to manage their business risks and improve their performance.

BEM certification will drive safety, product assurance, quality management and

continuous improvement in the diamond and jewellery manufacturing industries and retail

trade.

75


MARKET DEVELOPMENT AND

PROMOTION

Rio Tinto Diamonds continues to build on its strategic alliance with the Indian diamond

industry. The Indo Argyle Diamond Council (IADC) was launched in 1994 and aims to

increase the competitive advantage of Indian diamond jewellery manufacturers in the US

market. The focus of the current IADC programme is on the top 40 US retailers.

The programme comprises the following major elements:

• Retail market entry strategies;

• Product development, pricing and follow-through to sales;

• Differentiation of member product offerings;

• Management of buyer communication;

• Staff training;

• Representation at the JCK show in Orlando and Las Vegas; and

• Exclusive Viewing Shows for product exhibitions to targeted retailers.

Additional marketing programmes are aimed at stimulating demand for champagne and

cognac diamonds, important elements of the Argyle profile.

With the market entry phase for Diavik production completed in 2002 and 2003, marketing

attention going forward will be focused on leveraging the Canadian origin of the product. Rio

Tinto Diamonds supports industry efforts to stimulate the consumer market and believes that

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Canadian origin diamonds are an exciting new product offering for the consumer and may

generate additional demand.

MARKETING MIX

1) Product

Rio Tinto Diamonds markets the rough diamond production from Argyle and its 60% share

from the Diavik Diamond Mine as separate product streams. As a result, the national identity

of the product is maintained and can be used by customers interested in promoting country of

origin.

The Argyle and Diavik productions are complementary and allow

Rio Tinto Diamonds to supply rough diamonds across all

categories. The Diavik ore bodies have a significant proportion of

their value in gemstones with good clarity and colour in larger

sizes.

The Argyle production is predominantly one of small, coloured,

affordable diamonds. In between there exists an overlap which

makes existing Argyle customers well placed to manufacture and distribute Diavik product.

In Rio Tinto’s product profile the outlook for top end goods remains strong with increasing

reports of scarcity.

Demand for affordable diamonds has continued and the Indian diamond industry continues to

grow as markets such as Japan have traded down in quality. A number of new customers

were taken on for the Diavik product, mainly for the better quality large goods where there

was significant value relative to the Argyle profile. In product segments where the Argyle

and Diavik production overlap, existing customers were given opportunities for growth.

Included in the new customers for the Diavik product was a group of manufacturers based in

the Northwest Territories of Canada, most of whom are planning to take advantage of market

interest in goods mined and manufactured in Canada. All Rio Tinto Diamonds sales take

place on a willing buyer willing seller basis, including those to customers in the Northwest

Territories. Currently around 10% of the total value of Diavik production is being sold to the

77


Northwest Territories cutters, who are limited in what type of rough diamonds they can use

by the economics of cutting in Canada. The Northwest Territories manufacturers’ share of

+2cts better end white goods is higher at around 25% of value.

2) Price

Whilst supply/demand fundamentals indicate rough price pressures due to the build up of

inventory in the pipeline, this was not the case in the second half of 2002 and throughout

2003.

Rough prices since 2003 have remained strong and have continually outperformed polished

prices. Rough supply has generally been higher than required to meet retail consumption of

diamonds, resulting in an increase in polished inventories in the cutting centres.

Looking ahead, the rough diamond market is anticipated to remain strong for some time.

Although production is forecast to increase, there will be substantially less sales out of

producer inventories in the years to come. If industry marketing efforts prove to be a success

and new markets perform as hoped, the outlook for the industry as a whole is positive

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3) Place

Diavik Diamond Mine

The Diavik Diamond Mine is an unincorporated joint venture between Diavik Diamond

Mines Inc. (DDMI) (60%) and Aber Diamond Mines Ltd. (ADML) (40%). DDMI is

headquartered in Yellowknife, Northwest Territories, Canada and is a wholly owned

subsidiary of Rio Tinto plc of London, England. ADML is a wholly owned subsidiary of

Aber Diamond Corporation (formerly Aber Resources Ltd) a publicly listed company based

in Toronto, Canada. The two joint venture participants retain the right to market

independently their respective share of the diamonds to be produced from the Diavik

Diamond Mine. DDMI is the manager of the project

Argyle Diamonds

Argyle’s production in 2002 was 32.6 million carats, approximately twenty percent of the

world’s annual production. The current high rate of waste mining, consisting of a series of

cut backs to expose new ore, will continue well into 2004. At the conclusion of the final

cutback, the waste mining rate will reduce to a level that supports the ongoing mining of 10

million tonnes of diamondiferous ore per year. This is planned to continue until 2007,

resulting in an average production rate of around 30 million carats p.a.

Merlin

The Merlin Diamond Project comprised a small-scale diamond mining and processing

operation in the Northern Territory of Australia. The Merlin Diamond Project, 100% owned

by Rio Tinto Limited was part of the purchase of Ashton Mining Limited in November 2000.

Argyle Diamonds (100% owned by Rio Tinto Limited) was the operator. As at the end of

May 2003, Rio Tinto closed the Merlin Diamond Project as it was considered not of the scale

required for Rio Tinto’s diamond mining strategy.

Murowa

Rio Tinto has a majority interest in the Murowa diamond project in Zimbabwe. There are

still a number of requirements that need to be addressed before bringing the mine into

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operation. If plans proceed to schedule Murowa will commence production in 2004 with a

limited initial output but with the possibility of future expansion.

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4) Promotion

The Indo Argyle Diamond Council (IADC) was launched in 1994 and aims to increase the

competitive advantage of Indian diamond jewellery manufacturers in the US market. The

following programs were initiated by the company:-

•Representation at the JCK show in Orlando and Las Vegas; and

• Exclusive Viewing Shows for product exhibitions to targeted retailers.

The world's largest supplier of champagne diamonds, said that although it is not a new

phenomenon, champagne diamonds are gaining cachet with high

profile jewelry designers and diamond jewelry retailers around the

world. Thus RIO TINTO has launched its new collection of

champagne diamonds and is promoting the jewellery made out of

them.

A new trade organization was recently created to promote natural

color diamonds called the Natural Color Diamond Association NCDIA, Belgium, it boasts an

international membership of rough diamond producers, diamond and jewelry manufacturers,

and retailers.

Following the success of its champagne diamond dresses at last year's Academy Awards, the

Natural Color Diamond Association (NCDIA) is launching a campaign for this year's Oscars

to focus attention once more on colored diamonds.

Last year, the stunning $2.5 million dress worn on the red carpet at the Oscar ceremony by

Entertainment Tonight presenter Maria Menounos

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CORPORATE SOCIAL RESPONSIBILITY

All of Rio Tinto's diamond operations are committed to making a positive contribution

towards sustainable development. Rio Tinto's stewardship interest is focussed on the

exploration, production and sales of rough diamonds.

Wherever it does business, Rio Tinto commits to provide a legacy of stronger, healthier and

environmentally secure communities. Where possible it seeks to influence the standard of

operation of its customers and its customers' customers.

The Argyle diamond mine

The Argyle mine in the remote east Kimberley region of Western Australia operates in a

region of significant economic and social disadvantage. One of our key focuses at Argyle is

to help build a stronger and more robust east Kimberley economy that is not dependent upon

the mine's operation.

The Diavik diamond mine

The establishment of the Diavik mine in Canada and its ongoing operation provide positive

sustainable development examples, from engineering feats to establish its infrastructure in a

harsh and frozen climate, to the development of considerable employment, training and

capacity-building opportunities for local communities.

The Murowa diamond mine

Consultation and community engagement have been important factors in the Murowa

operation from the outset, as Rio Tinto Diamonds recognises the impact of the mine on the

local community

In 2006, Rio Tinto Diamonds established a Centre of Technical Excellence which comprises

of a small team of experienced specialists who support more advanced evaluation projects

and promote and share best practice in the Rio Tinto Group.

The most advanced exploration project undertaken by Rio Tinto Diamonds to date is at

Bunder in the Indian state of Madhya Pradesh, where Rio Tinto has discovered a cluster of

eight diamondiferous kimberlites

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CONCLUSION

“In a materialistic world, gem diamonds are, after all, of no practical use. They are not used

in the making of things or the breaking of things; they don’t make cars go faster or planes fly

higher. They are not used in the production of anything – except happiness. And therein lies

their secret: they don’t feed our bodies, but they do feed something in our soul. And, because

of this, we have come to understand that, while they may not be necessary to our physical

survival, they are essential to our emotional well being. A thing of beauty in its own right,

the perfect marriage of the art of man and the art of nature, the diamond is also an enduring

symbol of all that is best in us and our aspirations: purity, love and commitment”. Said Nicky

Oppenheimer, Chairman of De Beers.

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diamond_final

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