De Beers bullish about synthetic diamonds

SHARE   |   Friday, 22 June 2018   |   By Ditiro Motlhabane
De Beers bullish about synthetic diamonds

Lightbox's "fun, fashion jewellery” targets youthful consumers

to offer customers with differentiated, affordable alternative

SEE ALSO:

 'to clear confusion, no intention to suffocate competition'

SEE ALSO:

Months before the first batch of their synthetic diamonds jewellery hits the US markets in September 2018, De Beers has launched a massive public relations campaign to dispel misconceptions and fears about the decision, which caught many by surprise. 

SEE ALSO:

The historic launch will happen in exactly three months, breaking the 130-year mining tradition at De Beers. "We have the technology and the skills. If we can produce critical medical equipment used for conducting surgical operations on patients' eyes what more with jewellery?" the bold assertion flows effortlessly from David Prager, De Beers Executive vice president, on Tuesday at the high security state-of-the-art headquarters in Gaborone, Block 8 Industrial. Across the glass-topped oval table in the middle of the room sits De Beers Executive Vice President, Commercial and Partnerships, Alessandra Berridge. Samples of glittering Lightbox jewellery are on display as the duo wax lyrical about how De Beers is bullish about the synthetics market and is confident that they have made the right decision to deliver value for shareholders.

SEE ALSO:

Prager's comment is deliberately calculated to emphasise the capability of Element Six (a division of De Beers) as one of the world’s leading producers of synthetic diamonds. For over 50 years, Element Six, has been producing synthetic diamonds, mostly used for industrial purposes but will now start manufacturing diamond jewellery that will be marketed and sold under Lightbox -another subsidiary of the mining behemoth. To support Lightbox, De Beers Group is investing US$94 million over four years in a new Element Six production facility near Portland, Oregon. Once fully operational, the plant will be capable of producing more than 500,000 rough carats of lab-grown diamonds a year.

SEE ALSO:

Although De Beers want to downplay the impact of their 'intrusion' into synthetics jewellery market, their gate-crushing will heavily undercut the prices of producers who have been having a field day, unmarked. The synthetics market has been closely following the naturals, with only a marginal difference in prices despite the huge difference in the cost of production between the two. Natural processes that produce diamonds take millions of years, followed by a laborious and capital intensive mining process to extract them from the belly of the earth, while synthetics are produced in a lab in a matter of days. "So, it can never be fair to charge consumers almost the same amount for products that are completely different. Through jewellery from synthetics we are delivering what the market needs but cannot currently get at reasonable prices," said Prager.

SEE ALSO:

With such declaration, it is not surprising that De Beers will only charge US$400 for a half carat piece of jewellery that the synthetics market has been selling for about US$4 000. Although De Beers Executives suggest otherwise, experts in the field of Marketing are adamant that the strategy to create a big price gap between mined and synthetic diamonds is a masterstroke, specifically designed to undercut the market for man-made stones and push rivals out of business. It is unlike De Beers would openly admit that!

SEE ALSO:

According Berridge the jewellery from synthetic diamonds will be predominantly for fun and fashion, providing an alternative to expensive natural diamonds. She insists that the biggest benefit to an ordinary consumer is that for the first time they will have an opportunity to buy jewellery made of synthetic diamonds at the right price. Currently producers of synthetic diamonds have been making a small discount on the price of lab diamonds compared to naturals. But De Beers will adopt a totally different approach by selling synthetics for a fraction of the natural diamonds. Yet Executives of the mining giant vehemently deny that they want to push competitors out of business. "We will engage in honest marketing [which includes using a laser mark to identify synthetics and show that they are not naturals]. As a business we have a duty to deliver innovative solutions to ensure continued return on investment for our shareholders. Botswana is a 15% shareholder in De Beers and therefore cannot be negatively affected by Lightbox," said Berridge.

SEE ALSO:

Competition

SEE ALSO:

Competitors in the synthetic diamond market have devised smart marketing strategies deliberately targeting to discredit natural diamonds by raising ethical issues. Such is the positioning adopted by Canadian jewellers Spence Diamonds in promoting their artisan created diamond collection as "environmentally conscious, ethically responsible and environmentally sustainable.” Civil wars in some parts of Africa have been blamed on what has become known as blood diamonds. Closer home, Survival International has in the past launched worldwide campaigns targetting local diamonds, accusing Botswana government of evicting Basarwa from their ancestral land in the Central Kalahari Game Reserve (CKGR) to pave the way for diamond mining.

SEE ALSO:

Could venturing into synthetic diamonds be an indicator that De Beers is abandoning mining [or that indeed diamond mines are close to their commercial lifespan estimated within the next 15-20 years]? No! Prager and Berridge echo in unison. The duo insist that real is always rare, and that rarity determines high returns in comparison to synthetics which are for mass production targeting consumers in the lower end of the diamond market. "We are not moving away from natural diamonds. We remain committed to naturals as the core of our business. Hence, we are heavily invested in mining as shown by recent developments where we are expanding natural diamond business in Botswana, South Africa and Namibia. In Jwaneng Cut 8 is coming to a close and Cut 9 is at feasibility stage, while in Orapa Cut 3 is underway," says Berridge, matter of factly. 

SEE ALSO:

Prager adds that in the US, there have been more and more discussions over naturals vs synthetics, which led to growing confusion over pricing, marketing. He said the decision to sell synthetic diamond jewellery, which was arrived at following extensive market research that shows no conflict between natural gems and laboratory produced stones, is meant to protect the dream of natural diamonds.  He said unlike natural diamonds synthetics are not unique, finite, not natural and can be used for low cost fashion, for fun and/ or inexpensive gifts for light occassions like birthday presents for teenagers, babyshowers and can be worn to the beach. Moreover, he said synthetic diamonds are only comparable and similar to semi-precious stones.

SEE ALSO:

De Beers decision however seems to go against the long standing position by Debswana, who recently reiterated their commitment to fight synthetic diamonds through aggresive marketing to promote the "rare is real" position. Both Debswana (a partnership between Botswana and De Beers) Managing Director Balisi Bonyongo and Paul Rowley, executive vice president of Global Sightholder Sales told an audience at a business update forum in Gaborone that there is no threat posed by synthetics on natural diamonds.

SEE ALSO:

Sensitive time

SEE ALSO:

De Beers source about 75% of their diamonds from Botswana. The two partners are about to enter a new round of negotiations for a new sales agreement, which gives De Beers power over global prices, that will effect in 2020. Therefore the decision on synthetic diamonds has raised eyebrows in some quarters, with some warning Botswana to tread carefully as De Beers could leverage the threat of synthetics to the local economy.

SEE ALSO:

Sightholder sales, aggregation and sorting of De Beers diamonds, which currently takes place at Diamond Trading Centre Botswana (DTCB) and government owned Okavango Diamond Company (ODC), was relocated from London to Gaborone following an agreement from the last round of negotiations.

SEE ALSO:

Responding to a question on Botswana's views regarding the decision Minister of Mineral Resources, Green Technology and Energy Security Eric Molale recently assured citizens that government has been adequately consulted and support the decision by De Beers to enter the synthetics market. Molale refused to shed light on the upcoming negotiations but incoming President Mokgweetsi Masisi has hinted at pushing for more concessions.

SEE ALSO:

By end of last year, the diamond industry was estimated to be valued at US$82 billion. The industry is estimated to generate US$10 billion in the next five years.    



Related news

Internal advert