The participants focussed on a variety of issues confronting the diamond industry. Topics ranged from branding of diamonds to ‘conflict diamonds’ to the matter concerning generic marketing. The panelist seemed to agree on quite a few pressing issues. Excerpts:

CEZ: Mining executives are all mentioning branding and polished diamond’s involvement in partnership deals with clients. What exactly does this mean?
Gary Ralfe: De Beers is investigating possibilities of exploiting its brand name. If we do something it will be very small, evolutionary and gradual. Our future lies in mining and marketing of roughs. We do not intend to expand our small polished division in London.

James Rothwell: BHP is a new entrant into the business. We started selling roughs only towards the beginning of January 1999. We have no firm branding commitments. We will continue to work closely with our clients explore possibilities.

Gordon Gilchrist: Arygle agrees with Gary. We are closely watching De Beers. Argyle only polishes Argyle pinks. We do not intend to expand or polish anything other than our pinks.

CEZ: So we are reassured that polishing is not the producer's main agenda. It seems that most producers do some polishing and Almazy Rossii actually has plans to become a very big diamond manufacturer in its own right. Why do you want to do it yourself?

Sergei Oulin: Let me touch upon this very important issue of branding. In Russia, we have the privilege of having a very good basis of branding. Everybody knows that the Russian cutting industry, which started at the beginning of the 60s, has changed dramatically during the 90s.Alrosa is not hostile to the diamond manufacturers. Alrosa is at the moment re-establishing Russian cutting facilities. In the last two years, Alrosa polished about US$100 million worth of diamonds. This year we plan to produce more than US $100 million. We own big shares in some cutting factories in Russia. We invite cooperation from the Russian diamantaires and foreign participation in giant operations

CEZ: Sergei, you are selling or you've sold last year about $500 to $700 million to the rough domestic market. At what prices are you selling the rough diamond product?
SO: We're selling for a little bit less than the prevailing world price. It is very simple: We understand perfectly well that doing business in the Russian diamond business is different than in many other well-established diamond centres.

It is tough to work in Russia. We calculated together with the Russian Association of Manufacturers what price could be a reasonable incentive to develop the cutting industry in Russia.

CEZ: That gets me to minister Jake Ootes from the Northwest Territory, in Canada. You have said that you want to have a portion of the Canadian production cut and polished in the territories. Does it mean 5,10 or 30 percent? Are you going to force the producers to sell it cheaper, or is the government going to subsidise roughs in cutting plants?
Jake Ootes: The position of the Government of the Northwest Territory in Canada is that we want to encourage value additions to the products from within the Territory. That doesn't just extend to diamonds, it extends to the oil and gas industry too. We want to be participants in that. But mining of diamonds is on our doorstep now and it's in the development process. BHP went onstream last year.

We have the Diavik mine starting production in about 2 to 3 years. We would like to access a small portion of the roughs, so that we can develop some cutting and value-added industries for our people. The government wants to encourage development of some value-added industries. We are not looking at large portions. We have a small plant in operation at Yellowknife which has 20 employees. We also want to develop the jewellery manufacturing businesses as also boost tourism by setting up a museum.

On the question of access to roughs, we have an understanding with BHP and with future mines that may come into operation. The roughs are supplied at the current market rate.

CEZ: But are you subsidising the factories?
JO: Let me state that it is not a subsidisation programme. It is an incentive programme. We will provide training funds for any company coming into North West Territories. It is part of our apprenticeship and trade programme.

Additionally, to get this industry kick-started for us, we're looking at providing loan and loan guarantees.

CEZ: We all recognise that it is legitimate for producing countries to want to have the added value of the manufacturer. Can you as miners, honestly withstand the pressures from the producing governments?
Gary Ralfe: In our case, there is an important and self-standing business in South Africa. The South African industry is not only self-standing, it is a level playing field there with other diamond cutting centres from around the world.

I think the important distinguishing factor in all of these factories is that they get their rough supplies directly from the CSO in London - "London mixture"- and at our regular selling prices.

CEZ: Inge, your new Diamond Act of 1999 allocates a part of Namibia's production to domestic manufacturing. But what is your feeling about that?
Inge Zaamwani: The Diamond Act of 1999 will come into effect on the first of April, 2000, and it makes provision for local supplies. In the case of Namdeb, we have a contract with the CSO where our production is sold to the CSO, at 100 per cent. Currently, our manufacturing company receives its supplies from London at market prices like the others.

We hope that the government will recognise the agreement that I have concluded with the CSO [before the new act was applicable], to which the government is also a party. The provisions of the new act will not be used against us. Should the government direct that we supply directly, then we must comply as a corporate citizen operating in Namibia.

We should, however, explore as to how we can comply with that provision without violating our contractual commitments to the CSO.

CEZ: It is reassuring to hear that you will follow the same policy as in South Africa. Zvi Shur (manager of Israel Diamond Manufacturers Association), your comments?
Zvi Shur: The panelists represent more than 90 percent of the rough production in the world. And about 50 per cent of the rough production consumers are also present. In 1999, we bought close to $4 billion roughs coming into Israel. Altogether the CSO supplied close to 70 per cent of our supply -directly only $1.2 billion. The question is why do we need to go to other places to buy our roughs, to Antwerp at large sums of money? The money is here, why is the rough not coming to Israel directly, and save expenses to the producers and to the manufacturers for the good of both sides?

GR: Zvi, we take note of your important question. You've always been meticulous in keeping these records. Am I not right in thinking that the tendency and the overall percentage of direct supplies is going up?

ZS: Yes.

GR: Yes, I am pleased that it's working in that direction. It looks as though that might be a trend.

CEZ: Let's just think logically. We want you, the CSO, to make more money. Now you make more money if you sell directly to Israel because you can split up the margin between what the middleman earns now elsewhere. You take part of it, we want you to have it, but then the price for the Israelis is also going to be a better price. Isn't that good for both?

GR: Yes, of course. In the exuberant market we have now, it's a very easy case to make. But if I had been sitting here in 1998, I am sure that this question would have had a totally different flavour to it. A lot of people would be saying thank goodness that we can go and get our diamonds at a discount to the CSO prices in Antwerp, instead of paying full price for them in London.

CEZ:. Everybody, wants to stay away from 'conflict diamonds'. Some believe that there is some kind of lip service here. What do you do with them? Take them off the list?
GR: Yes, there is no doubt that we're coming to a situation where if a party of ours is dealing in conflict diamond, we would then not supply to this party. It's a subject that our lawyers deal with. Because, what we might have here is a conflict between the political and moral imperatives which are extremely strong, and certain legal constraints. Our lawyers are dealing with the matter, and with the growing formalisation of our own relationship with our clients, this matter will surely be covered.

Just coming back to the political and moral imperatives, we believe firmly that one of the major threats facing our business, which is currently passing through extremely good times, is the political issue that arises from conflict diamonds.

We are all aware of the power of the media. Hence, we should not be surprised if anybody wanting to launch a consumer boycott, would not immediately draw media attention. And so this is a matter where I would say that everybody's personal commercial interest must be subjugated to the overall interest of the industry to maintain its integrity.

For, diamonds are not only associated with integrity but with some of the most sensitive of human emotions. I think it should be a warning to us that we're all on the same side here in wanting to avoid conflict diamonds in any way blackening the good name of diamonds.

CEZ. Peter, I think your ABN-AMRO bank is financing about close to about $2 billion in all the centres. If you think you're financing Unita goods, what would you do with the financing and with the client?
Peter Gross: Let me make a general statement, that as a bank, we do support all efforts to prevent the purchase of diamonds from these conflict areas. We do maintain, similar to money-laundering, there should be strict policies of not financing any transactions that involve conflict diamonds.

And this should extend not only to Unita goods, but also to other conflict areas like Sierra Leone. In last week's report of Ambassador Fowler, after a one year investigation, it suggests that the trade in diamonds of Unita source, will become a criminal offense. If we, as a bank, have a customer who has committed a crime, there will be serious consequences as far as the relationship is concerned.

CEZ: Are you also going to kick the client out of the bank?
PG: That's what I just said. This could lead to very serious consequences.

CEZ: I just wanted to make sure that we have no misunderstanding. You've got a lot of clients here. So does David Grannot, managing director of Israel Bank.
David Grannot: I don't have anything to add to what Peter said. I think what he said is absolutely right. We would do the same.

Paul Goris: The Antwerp Bank is not very different from our colleagues. We also endorse whatever is necessary to stop diamonds being used to fuel conflicts, and certainly when we would have a customer and come to know that he is committing an infraction of the general ruling, then we would also say, sorry, we can't work with you anymore.

CEZ: Lev, how can your buying organisation in Angola give any better guarantee than anyone else that you are not going to buy Unita goods? Remember, your people in the jungles have been offered goods. How do you know where it comes from? Why would you know better than Lazare Kaplan or De Beers or anyone else?
Lev Leviev: Firstly, I have to slightly distance from the issue. I am really not involved in it myself. My involvement in Angola has been through Catoca. I am personally not involved in the buying and selling of Angolan goods.

Your question is very complicated and you started about the production of diamonds and continued to conflict diamonds. Dirty diamonds is a new issue, it is rather recent to the diamond industries. I want to make it very very clear that I certainly despise it. I don't want anything to do with diamonds that cost the lives of children and innocent people. It is a matter of security of the government and a matter of revenue.

The government's annual [taxation] revenues from diamond sales in the previous marketing arrangement were $12 million. Now we believe that they will reach $100 million. This means, that the Angolan Government can spend more money on the general welfare of the people. I realise that there may be [diamond buying] people who have worked there and but don't like it. But this is what the government there wants.

SO: Everybody knows that Lev is mostly cutting and polishing. But if somebody wants to collect the money to pay taxes, nobody in the world can beat Alrosa. We pay taxes two and a half times more than De Beers. Last year, we paid $600 million in taxes. So if that is the reason, I think we can calculate this and we can do a lot for the Angolan Government.

CEZ: Lev, you have said that you are going to market and sell the Ascorp production in Tel Aviv. Can you give us a date of the opening of the Ascorp offices?
LL: We are already selling the Angolan Ascorp production here in Tel Aviv for about one and a half months.

Nair Tete (of the Antwerp Diamond Bank): I have a question for Leviev. Do exporters, who now do not have licenses in Angola, have to sell to Ascorp? Will they have to just get out? Are they striking any deals with anyone else?

LL: I am not authorised to answer on behalf of Ascorp. We have a board of directors chalking out our policies. But in a previous official statement by the Angolan Government, all companies that were active in Angola were invited to come to the new organisation and find out ways to continue their activity.

Speaker unannounced: Most of the people here come here at the offices of the dealers every month and plead to be allowed to buy roughs. But, eventually they land up buying only about half of what they actually need. We have an airlift going every month to Antwerp.

Hence, if there is some money being earned here, it is the suppliers of the roughs who are earning it and not the manufacturers. I am not convinced with the CSO policies over the last years.

Itzhak Forem (president of the World Federation of Diamond Bourse): I would like to ask Rothwell: When you have an office in Antwerp why don't you also open an office at Tel Aviv? Then you can try and sell to the Israeli manufacturers who would then not need to go to Belgium and stand in front of the offices there begging for goods.

James Rothwell: Thanks. As I said earlier, BHP is a new entrant into the diamond business. We started selling diamonds only since January last year. We set up our office in Antwerp, because Antwerp is the major trading centre for rough diamonds, and a channel for all manufacturing centres. We certainly appreciate the fact that a large percentage of our production is coming here to Israel and is being cut here.

Health of the Israeli industry is very important to us in the long term as a producer. Our goods go to other manufacturing areas too.We will review our marketing programme in light of industry developments over time. It is possible, some time in the future, especially if we increase our production levels and the percentage continues, we will consider opening an office here.

CEZ: Bob, representing Aber, the second diamond mine in Canada, you own 40 per cent of the production and are allowed to market those roughs independently. You have a deal with Tiffany for some goods. But, what about the rest? Will you bring them to Israel?
Bob Gannicot: Well, of course there still is a three year waiting period before actually producing the diamonds.

CEZ: We would like to take your long-term commitment.
BG: My observation of the industry so far are: One, that the Antwerp market is still the broadest and the deepest open market for diamonds and it is easier for the producer to understand pricing of his goods here at the largest market at any particular time. Secondly, many people whom I have met most of them in Antwerp and to a lesser extent in Israel are represented at both places.

It is quite difficult to distinguish between selling to a principal that has manufacturing facilities and trading facilities in Israel, as opposed to coming here to Israel and doing it directly. I find it difficult to understand why there is a difference.

CEZ: I have one follow-up question for the banks. We hear that banks occasionally express their concern to the CSO about the level of sights. The banks sometimes tell the CSO to reduce sales because of the high industry debts or for other reasons. On the other hand, the sightholders are making money. The sightholders are not problematic account holders (clients) of the banks. So when these clients have sufficient credit facilities or cash why would their banks ask De Beers to reduce allocations? Such requests are certainly not in the best interest of such credit worthy clients of banks?

Are the banks then assuming roles that they should not be assuming? The sights are very profitable now; are the banks then depriving their best clients from making more money?
DG: The time when the banks discussed with the CSO regarding this matter, was at a time when we thought the market could not absorb all the production or all the allocation offered by the CSO to the sightholders. We did not look at it from the sightholders point of view, because, as you say, most of them are in good standing and we did not think they had a problem.

We looked at the industry as a whole and if we saw that the supply was too much, we didn't hesitate in our annual or twice yearly meeting with the CSO to express our opinion on this matter. So, it did not concern a client in the bank; it was a matter between the industry and the bank. We were concerned about the industry and not about a specific client who is in good standing.

CEZ: Generic advertising. Shouldn't there be an international industry association to advance the interests of the industry? It is felt that it should not be just De Beers. Is there a role here for the industry as a whole, to take a more active role in promoting our best interests?
Tim Haddon: I am new to this industry. I have been involved in mining for thirty years, in all its facets - in all commodities. We have had an international association where all participants in that industry could voice their concerns and issues, and become a spokesperson for that industry.

De Beers has played this role for many years, and as we all know, we're in a time of rapid change. I think a lot of the issues raised today will benefit from having an international diamond association. For instance, such an association could quickly react to an issue such as conflict diamonds and could be a centre point for disseminating information that is in the best interests of the industry.

CEZ: Sergei, would you join an organisation like this? Gordon, would you join an international industry association lobbying worldwide, promoting the interests of the diamond industry?
GG: My experience has been the same as Tim's. I have also been dealing in a range of commodities, and whilst the idea of setting up an international industry associationis very good,we have always found difficulties in the administration, bureaucracy and direction of such an association.

Certainly it is an idea worth considering but I think you have got to do a lot of thinking and comparison and study before such a body is launched. For, it could be a big drain on funds if not properly conceived.

SO: Well, I would support such an organisation because we have different parts of our international family getting represented. And we do not only lobbying, we need support to help build a united family.

Courtsey Chaim Even Zohar/Mazal U’Bracha