From DTC to DIL and Back – A Possible Journey

At noon London time this past Monday, Diamond Trading Company (DTC) Sightholders heard some good news. They will be allowed to buy goods at a place that until now was a secondary market sanctuary, Diamdel.

There is certain importance to it. The idea behind Diamdel was that De Beers could learn and collect information, somewhat widen the scope of its market as well as get to know some rough buyers that they wouldn't have otherwise.

Allowing Sightholders to buy Diamdel goods is just part of the equation. In fact, it is a two way door. Non-Sightholders that are clients of Diamdel can become Sightholders themselves – not just when the new contract period starts, but while it's running.

In a background talk with DTC Executive Director of Sales & Sightholder Services Mahiar Borhanjoo, I tried to understand the scope of things, how flexible the DTC is willing to be and asked him if the DTC be willing to consider Diamond India Ltd (DIL), as a viable candidate for a Sight.

DIL was formed a few years ago by a group of diamond manufacturers that wanted to buy rough diamonds and sell them in the Indian market for the better good of the local industry. This buying group, cooperative may describe it better, numbers 58 members and supplies over 100 firms, including a few non-Indian firms. A buyer's purchase ticket typically runs from $50,000 to $500,000, according to DIL Chairman Pravin Shankar Pandya.

They don't tender the goods, concerned that it would run up the price unnecessarily, and sell "not at a hyper profit," as Pandya puts it. The income is invested back into the company, but there is also a dividend distribution among the members. It bought $16 million worth of unsorted rough at the recent auction in Zimbabwe, and has a buying agreement with Alrosa.

Coupled with its sorting capabilities, Pandya says DIL is serving an important function. "The DTC is not built to make $100,000-$300,000 sales," he says, but rejects the description of being rough diamond dealers. "We try to provide the right goods to the right hands." Sounds familiar?

DIL, which does not buy from Rio Tinto or BHP Billiton, would like to be a Sightholder and they are not concerned with their non-standard model. They met with DTC CEO Varda Shine and were told, I understand, that they need to be around for three years to be eligible to apply for a Sight. Those three years have passed.

The DTC has a criteria list for applicants that defines who may apply for a Sight. It sets certain limitations on diamond mine ownership, for example. The talk was that this was drafted in such a way to allow Steinmetz in and Leviev out. Over the years, Sights were not renewed for rough diamond dealers, as the DTC sought to eliminate the inefficiencies in the market, and sell straight to manufacturers.

DIL bought about $120 million worth of goods last year, and has expanded the scope of its activities to precious metals.

Borhanjoo provided a surprising answer to my question. He did not say that DIL's format does not fit DTC's, preferring to leave it open. But then he provided a surprising idea. "We will consult with our clients, we have a consultation forum where discuss ideas, and then decide." Is this really up to Sightholders to decide on this? Spokesperson Louise Prior said that it is "Way too early to comment."

With the recent formation of a second rough sourcing consortium in India, this one based in Surat, maybe there is a void to fill. Are rough buying groups the wave of the future, a game changer in terms of buying and marketing rough? In Israel, a group of young diamantaire has been toying with the idea for some time, and it's not a far fetched idea that it will materialize. The DTC may find that adopting, even encouraging this shift, may work for its own benefit as well as for the market.

Correction: Last week I wrote that Zimbabwe is blocking Rio Tinto's exports from Murowa. According to Sales & Services Manager Ellah Muchemwa, the ban was removed in the beginning of August and exports were renewed late last week.