diamond industry: an overview - allan hochreiter, boutique
TRANSCRIPT
Diamond Industry:
an overview
James AllanApril2010
2
Contents
Diamond industry in perspective
Who are the producers
Production profile
Last two years> what happened?
Market capitalisation for the juniors (2008 to 20101)
Supply demand forecast to 2020
Leverage off the diamond market
Conclusion
3
Diamond production in perspective ($bn)
126
99
74
50
27
14
112
80
73
29
10
9
0 20 40 60 80 100 120 140
Copper
Aluminium
Gold
Nickel
Platinum (3PGE)
Diamonds
20092008
4
44%
24%
9%
5%
2%
0%
16%
De BeersAlrosaRio TintoBHP BillitonGem DiamondsPetra DiamondsOthers
Concentration of production by value (2008)
4 producers Control 82% of supply
5
Share of global diamond production (140 million carats) 2008
10%
20%
1%
13%
4%20%
8%
22%
2% South Africa
Botswana
Namibia
Russia
Angola
Australia
Canada
DRC
Lesotho
Tanzania
Sierra Leone
Zimbabwe
Other
6
Share of global diamond production
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
18,000
20,000
2005
2009
2015
$m
Zimbabwe
Tanzania
Sierra Leone
Lesotho
Australia
DRC
Namibia
Angola
South Africa
Canada
Russia
Botswana
7
Cutting centre debt levels
-
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
$m
8
The last two years…..market
Early 2008> Positive market >Diamond shortage leading to rising diamond prices…
September 2008>Collapse of Lehman Brothers
September 2008>Credit tightened in financial market
October 2008>Credit lines withdrawn for diamantaires
October- December 2008>Collapse in diamond prices
Polished Prices
9
The last two years…..producer response
“Old De Beers” would have bought up diamonds and stockpiled
“New De Beers” cut production by 90% in Q1 2009>reduced supply to the market (Economics 101)
Increased production from Q2
Sales 1H 2009 down 68%
2009 sales lowest since 1986
0
1000
2000
3000
4000
5000
6000
7000
8000
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
De Beers Sales 1980-2009
10
Concentration of production 2009
Others21%
Petra Diamonds
1%
BHP Billiton7%
Gem Diamonds
2%
Rio Tinto7%
Alrosa31%
De Beers31%
11
Cutting centre debt levels – stocks and debt down
0
2000
4000
6000
8000
10000
12000
14000
1600019
80
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
$bn
12
Retail Sales of Diamond Jewellery 2008 ($65bn) (-10%)
51%
15%
6%
6%
6%
16%USA
Japan
Europe
Asia-Pacific
Asia-Arabia
Others
13
Diamond Content 2008
43%
12%8%
8%
15%
14%USA
Japan
Europe
Asia-Pacific
Asia-Arabia
Others
14
Diamond Content 2009 (-3%)
38%
13%10%
15%
20%
4%
USA
Japan
Europe
Asia-Pacific
Asia-Arabia
Others
15
Estimates for growth/(decline) in diamond jewellery consumption in 2009
63.0
2.8
12.5
9.5
6.0
8.5
23.6
Value ($bn)2009
100%
4%
17%
13%
9%
13%
44%
Marketshare
100%
4%
20%
15%
10%
13%
37%
Market Share
64.5-7.9%70Total
2.7-5%2.8Others
10.94%10.5Asia-Arabia
8.34%8.0Asia-Pacific
6.0-5%6.4Europe
8.5-5%8.9Japan
28.1-16%33.4United States
Value ($bn) 2008
Growth (Decline)
Value ($bn) 2007Region
16
Prices recover strongly in post recessionary periodsDTC Rough Price Index vs. US Recessions
17
Investment Opportunities
Top tier2
ndtier
Third 16
18
AH Diamond index - Junior Producers
0.00
0.20
0.40
0.60
0.80
1.00
1.20
1.40
30-M
ar-0
7
30-M
ay-0
7
30-J
ul-0
7
30-S
ep-0
7
30-N
ov-0
7
30-J
an-0
8
30-M
ar-0
8
30-M
ay-0
8
30-J
ul-0
8
30-S
ep-0
8
30-N
ov-0
8
30-J
an-0
9
30-M
ar-0
9
30-M
ay-0
9
30-J
ul-0
9
30-S
ep-0
9
30-N
ov-0
9
30-J
an-1
0
30-M
ar-1
0
19
AGL, Diamond Index & J153
0.00
0.20
0.40
0.60
0.80
1.00
1.20
1.40
1.60
07/0
3/30
07/0
5/30
07/0
7/30
07/0
9/30
07/1
1/30
08/0
1/30
08/0
3/30
08/0
5/30
08/0
7/30
08/0
9/30
08/1
1/30
09/0
1/30
09/0
3/30
09/0
5/30
09/0
7/30
09/0
9/30
09/1
1/30
10/0
1/30
10/0
3/30
Anglo American(AGL)
JSE Platinum Index(J153)
AH Diamond Index
20
Market Cap. Top Ten Diamond Companies (March 2008) ($4bn)
Updated on 18/07/2008
0
200
400
600
800
1,000
1,200
1,400
Gem
Dia
mon
ds L
td
Har
ry W
inst
on
Sho
re G
old
Pet
raD
iam
onds
Ltd
Nam
akw
aD
iam
Mou
ntai
nP
rovi
nce
Dia
mon
ds
Arc
hon
Min
eral
s
Tran
s H
exG
roup
Pan
gea
Dia
mon
dfie
lds
Plc
Fire
ston
eD
iam
onds
Plc
$m
21
Market Cap. Top Ten Diamond Companies (March 2009) ($1.1bn)
Updated on 08/06/2009
0
50
100
150
200
250
300
350
400
450
Har
ry W
inst
on
Gem
Dia
mon
dsLt
d
Pet
ra D
iam
onds
Ltd
Mou
ntai
nP
rovi
nce
Dia
mon
ds
Sho
re G
old
Nam
akw
a D
iam
Pang
eaD
iam
ondf
ield
sP
lc
Arc
hon
Min
eral
s
Fire
ston
eD
iam
onds
Plc
Per
egrin
eD
iam
onds
$m
22
Market Cap. Top Ten Diamond Companies (April 2010) ($2.5bn)
Updated on 21/04/2010
0
100
200
300
400
500
600
700
800
900H
arry
Win
ston
Gem
Dia
mon
ds L
td
Pet
ra D
iam
onds
Ltd
Per
egrin
e D
iam
onds
Sho
re G
old
Sto
rnow
ay D
iam
ond
Cor
p
Mou
ntai
n P
rovi
nce
Dia
mon
ds
Vaa
ldia
m R
esou
rces
Nor
th A
ustra
lian
Dia
mon
ds
$m
23
Diamond market conclusion
Cutting centre debt
De Beers’ production/sales in 2010 (60-70% capacity)
Supply restricted
Prices
Shares have lagged recovery in other commodity companies
Diamonds typically late cycle recovery
24
Diamond market – Longer term view
Start with global growth forecasts
Intensity of consumption
Combine with population growth forecasts
Long term view of diamond consumption
25
% of Chinese women acquiring diamond engagement rings
36%
44% 45%50% 51%
56% 57% 56%
66%
80%
20%
30%
40%
50%
60%
70%
80%
90%
100%C
heng
duD
CJ'
03
Thai
DC
J'04
Gua
ngzh
ou
DC
J' 0
3
Japa
n D
ER
'03
Kor
ea D
CJ
'02
KH
DA
S '0
2
Taiw
an D
CJ
'04
Dal
ian
DC
J'0
3
Sha
ngha
i D
CJ'
03
Bei
jing
DC
J'03
26
Economic growth forecasts
8.09 4654 085Asia-Arabia
8.522 3279 082Asia-Pacific
220 63916 580Europe
-0.14 0074 390Japan
319 73914 341USA
CAGR %2020 ($bn)2009 ($bn)
World Bank
27
Regional GDP and intensity of diamond jewellery consumption (2020)
3.62434660594651.433Asia-Arabia
2.0264413057223271.71Asia-Pacific
0.314741527206390.497Europe
2.994123231540070.124Japan
2.01164057716197390.342USA
Intensity of consumptio
n
DJ/capita
($)
Diamond Jewellery
consumption ($bn) ("DJ")
GDP/capita
GDP($bn)
Population (bn)2020
28
Diamond Jewellery Retail Market
2005
Japan14%
Europe10%
Asia-Pacific10%
Asia-Arabia13%
Others4%
USA49%
2010
Japan12%
Europe9%
Asia-Pacific15%
Others4%
Asia-Arabia18%
USA42%
2020
Japan8%Europe
5%
Asia-Pacific32%
Others3%
Asia-Arabia25%
USA27%
29
Diamond supply – Longer term view
Mine by mine production forecast (carats)
Overlay with constant $ price
Resulting deficit feeds into price increases
Overlay with pipeline stocks
Results in price index feedback to
Increased supply
Iterative process
30
No new material sources supply – World Production
Botswana (Jwaneng)
Australia(Argyle)
South Africa(Venetia)
Canada(Ekati)
Canada(Diavik)
Car
ats
(m)
Source: De Beers
31
Pipeline Stocks as a % of Global Demand
0%
20%
40%
60%
80%
100%
120%
140%
160%
180%19
98
2000
2002
2004
2006
2008
2010
2012
2014
2016
2018
2020
32
Diamond Pricing Index
0.00
0.50
1.00
1.50
2.00
2.5020
01
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
33
Supply and Demand Indexed (2000)
0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
DemandIndexedSupply
34
Conclusion on diamond prices
De Beers managing production increases to “match” demand
De Beers production 66% capacity in 2010 and 80% from 2011 result in …
Rising prices
“Prices will rise” – Stuart Brown (De Beers’ FD)
AH estimates prices will return to 2008 level by end 2010
Prices should double by 2020
Average of 7% per annum price increase
35
Leverage in Diamond Market
Growing production profile
Rising prices
Contain costs
Grow margin?
Value added downstream e.g.
• Harry Winston/Diavik
• Gem/Tiffany (Ellendale production only)
• Rockwell/Steinmetz
• Namakwa Diamonds
36
Conclusion
De Beers still manage the market for rough diamonds
Over-exuberance in 2008 led to high debt levels and subsequent crash
Market is recovering
Diamond prices likely to rise to 2008 levels by 2011
Long term outlook for prices +7% per annum
Diamond shares are late cycle bloomers (should outperform in 2010/2011)
Companies need to leverage off the diamond market