Diamond Market

1
Diamond Market

• Outlook for supply and demand

James Allan Botswana July 2007
2
Contents

• Diamonds - still a girls best friend
• What is driving the market?
• Supply and Demand
• Conclusion

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(No Transcript)
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Driving Growth
World Retail Sales (USD)
4.0
3.6
3.0
2.0
1.0
1.0
0.0
-0.2
-1.0
94-98
99-03
10
10
8.5
6.3
5.9
2.6
0
0
2005
2002
2003
2004
Source DTC
5
Retail Sales of Diamond Jewellery 2006 (72bn)
(6.3)
6
Adspend grows but still lags at 1.1
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Has the SoC Strategy been solely responsible for
the market growth?

• Increased ad-spend has no doubt played a role
• But what are the underlying fundamentals
• Remember economists dont understand the
  fundamental drivers of an economy as they do not
  understand sex.

8
The Baby Boom US Births by era
Million
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US Consumers Increases/ Decreases by Age (1995
- 2010)
Projected Change in Consumers by Age
Percent
Under 25
25 34
45 54
55 64
65 74
Over 75
35 44
Age
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Jewellery Expenditures by Age
Boomers - today to 2010

Per Capita

200
180
160
140
120
100
80
60
40
20
0
Under 25
25 - 34
35 - 44
45 - 54
55 - 64
65 over
Age
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Jewellery Expenditures by income
Per Capita

Boomers - today to 2010
250
200
150
100
50
0
lt 15K
15-30K
30-40K
40-50K
50-70K
gt 70K
Income
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US Diamond Jewellery Expenditure by Age (000s)
Adult Womens Market

Boomers - today to 2010
5000
4500
4000
3500
3000
2500
2000
1500
1000
500
0
Age
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The Jewellery Boom

• Baby Boomers entering high income bracket
• Inheriting more
• High disposable income
• Jewellery spend to rise sharply

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The Jewellery Boom
BOOMERS TO GIVE US JEWELLERY SALES DRAMATIC
GROWTH
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USA 3 STONE JEWELLERY
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3 Stone Ring Sales 11 2005
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Right Hand Ring advertising 15 in 2005
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USA Journey Programme
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Journey Diamond Jewellery
As a couple, you are on your own unique journey
two separate lives woven together into an
adventure story shaped and strengthened by shared
experiences
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USA Journey Programme
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US Jewellery Sales

• 20 adspend in Q4
• 50 sales in final 2 weeks
• DOW reaching record highs
• Consumer confidence up
• Blood Diamond

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US Jewellery Sales

• Growth of 7 in 2005 6 in 2006
• Still underperforming luxury goods (12.6)
• Major drivers married women, high income
  households and heavy owners
• Right hand ring and 3 stone ring showing
  superior growth
• Consumer confidence is still high (particularly
  in high income households)
• Economy going very well

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Market Growth India
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CHINA DIAMOND WEDDING RING
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(No Transcript)
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China
Diamond Wedding Ring Acquisition in China Now
Exceeds that of More Mature Markets
Acquisition of DCJ amongst recently married women
80
66
57
56
56
51
50
45
44
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Chengdu
Thai DCJ '04
Guangzhou
Japan DER
Korea DCJ
HK DAS '02
Taiwan DCJ
Dalian DCJ
Shanghai
Beijing DCJ
DCJ '03
DCJ '03
'03
'02
'04
'03
DCJ '03
'03
Source DAS/DCJ
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Chasing the Petro Dollar
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Diamond Production in 2006 (12.8bn)
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Botswana (Decline 460m)

• Grade decline at Jwaneng in 2006-2009
• Grade decline Orapa 2013-2015
• Lethlakane end of open pit life in 2014

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Russia (Decline 260m)
Canada
Australia
Angola

• Mirny and Udachny going underground

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Canada (Increase 570m)
Canada
Australia
Angola

• Jericho starting up
• De Beers mines Snap Lake, Victor and Gacho Kue

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DBCM South Africa (Decline 160m)
Australia

• Venetia steady
• Finsch declining
• Cullinan sold in 2007/2008?

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South Africa Other (Increase 160m)

• Other producers increasing
• Sustainability
• Risk is on the downside

Australia
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Angola (Increase 350m)

• Catoca and Luo expansions
• Start production at Alto Cuilo and Camafuca

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Mine Supply 1998-2015 (000cts)
2003 - 2004 Argyle -10m
2010 2014 Botswana
2004 2006 Argyle Canada Botswana
2000 - 2003 Argyle 5m Venetia 2m Botswana
7m Canada 7m Russia 10m
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Mine Supply 1998-2015(/ct)
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Mine Supply 1998-2015 (m)
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Diamond Production
2015 (13.4bn)
2006 (12.8bn)
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Demand scenarios and mine supply
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Supply/demand deficit

• Demand growth to 2006-2015 - 5-8bn?
• Supply growth to 2005-2015 - lt1bn?
• Canada 600m (Snap Lake, Victor, Diavik, Jericho)
• Angola and DRC gt450m
• Botswana down 500m?
• Deficit 5bn- 40 of current supply Prices

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Post 2015

• Jwaneng
• Venetia
• Cullinan
• Finsch
• Outlook for supply to decline as openpits go
  underground and underground mines look to next
  cut..

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Synthetics- A threat to the industry

• Combat the synthetic threat on several fronts
• Detection
• Disclosure
• Differentiation

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Global Overview

• Rough diamond prices up 35 since 2002
• De Beers prices up, 2 in Feb 2006gtpoorly timed
• H2 slowdown already over?
• Carat production decline of 10 2005 to 2010
• Argyle production to halve by 2010
• But growth in value of 7 to 2010
• Demand growth 5-6 per annum?
• Upward pressure on rough prices (but not in 2006
  and 2007)
• Less carats to cut and polish!
• Indian cutting centre will be under pressure to
  take bigger stones

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Rough Diamond Price Increases Since 2002Source
JA Presentation to World Diamond Conference Perth
2006
gt1500/ct
lt20/ct
75/ct
Percent
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Middle Orange River Produces Big Stones
152 carats 30 000/ct 4.6m
Percent
Alluvial production Rockwell Diamond Core
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Conclusion on the Diamond Market

• Supply growth average of 1 per annum to 2015
• US, China, India, Middle East growth is strong
• Prices flat in 2007
• Prices to balance market in 2008 to 2015
• Consumer confidence remains key to growth

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