Botswana diamond firm shuts mines for the rest of the year
Debswana, a diamond producing firm jointly owned by Botswana’s government and De Beers Mining, will close two of their diamond mines for the rest of the year as demand falls. 580 employees will be affected but most of them will be redeployed within the company or offered early retirement and other incentives.
“These actions are being taken to mitigate the effects of the global downturn by reducing production during 2009 to align with demand, conserving cash for the company, protecting employment and maintaining readiness for an eventual upturn in the market,” said De Beers.
Botswana
I was planning a trip to Botswana, a country that has always fascinated me, in July. I applied for a couple of Personal Loans for me and my wife and we have reserved tickets, but not yet paid for them. You know how it is…
De Beers says…
Diamond giant, De Beers, the world’s largest diamond producer by value, said in a statement last week that it produced 48.1 million carats in 2008, of which Debswana produced 32.3 million carats, down 4% from 33.6 million carats in 2007.
The global financial and economic crisis even forced wealthy consumers to cut their spending on luxury goods, including jewelry. The luxury-jeweler retailer Tiffany said in January that its same-store sales for the holiday season fell by 24%. Things are looking grim, even at diamond level.
De Beers, which is a cartel, is able to create an artificial scarcity of diamonds through its wholly-owned Central Selling Organization (CSO), thus keeping prices high. A cartel is a group of formally independent producers whose goal is to increase their collective profits by means of price fixing, limiting supply, or other restrictive practices.
De Beers acts
De Beers says that it finds itself entering “the worst diamond market in living memory,” says an analyst. The company is responding much as it would have in previous decades – by aggressively cutting production. This, said Stuart Brown, finance director, was the key to keeping the company profitable through to 2010, after which he expects a recovery in diamond demand.
The industry’s problems were triggered by a global drop in demand for luxury items of all kinds, including gemstones. To help support prices, De Beers will cut production as much as necessary – by 40 per cent for now – and save $1.5 billion in operating costs this year.
The diamond supply chain
The diamond supply chain consists of many layers with intermediate merchants who buy, sell, polish and cut the stones in their journey from mine to jewelry shop. Many small merchants, such as India’s diamond cutters, rely on debt to fund purchases of rough stones. A seize-up in credit markets after the collapse of Lehman Brothers also struck the specialist world of diamond finance.
By October the supply chain had virtually frozen. Very few rough stones moved through, while at the other end a glut of polished gems developed.
You need to be careful
If you see the prices dropping and are tempted to buy a diamond, be careful. It needs a pro and a trained eye to properly identify a diamond. Take one with you to the mall.
Its sad… really sad. I feel particularly bad for the people who were laid off. But let’s face it; who needs diamonds at a time like this? There are so many other important issues to be dealt with than fancy gems and sparkling diamonds.
You know, diamonds maybe shouldn’t have been given the kind of importance they should have. Diamonds, chemically speaking, are comprised solely of carbon. However, they are made of carbon that crystallizes after being subjected to enough heat and pressure. That said, they also have a myriad of industrial applications. But when you think about it, it’s a material that is only a few degrees different than graphite that is found in pencils, or ash for that matter. However, because they are shiny, and De Beers had to figure out a way to make a lot of money off of people, they now are given value. It’s like gold – nothing more special about it as a metal, and in fact iron is far stronger, but no other metal can be hammered thin to the point of transparency. But – jewelry companies and DEFINITELY their marketing departments sure don’t want the general public to learn about science, and that sort of thing.