Reporter Ketan Tanna caught up with De Beers’ managing director designate, Gareth Penny, at the Mines to Market Conference in Mumbai, India.
With regards to the Belgian Polish Diamond Dealers Association (BVGD) decision to approach the European Commission on ending Supplier of Choice, and any partnership between De Beers and ALROSA, Penny said, “Anybody is entitled to approach the European Commission for anything” and that he saw nothing wrong with that. He said that De Beers works with the European Commission on similar issues. However, according to Penny, the very premise of the letter was a cheap shot at Diamond Trading Company (DTC,) and was factually incorrect. He discusses this point and more during the interview:
Rapaport:Â What is your current evaluation of the diamond market?
Gareth Penny:Â We are very positive about the market. The fundamentals of the business are good. We had an excellent year, in terms of consumer demand, last year [2004.] The business grew by about 8.5 percent, which is one of the highest growth periods in a very long time. Demand for polished is looking reasonable. In United States, Valentine’s Day sales were pretty good. It was between mid-to-high single digits. China is looking good. India had a little bit of wobble due to excise and other issues, but is seems to be back on the track. The rough market is very strong as well.
Rapaport:Â Does De Beers plan to increase rough prices?
Penny:Â We will communicate that when we have to with our clients.
Rapaport:Â Are you dropping some sight holders in the June 2005 sight?
Penny:Â We have not made a decision as yet. Every two to three years, we look at our list. Obviously, everyone should expect and want that there is an opportunity for new people to come on. That is a part of dynamic business.
Rapaport:Â South Africa is making overtures for De Beers to relocate its headquarters from London to Johannesburg. How does De Beers respond to this request?
Penny: We had very fruitful discussions with the South African government on that. We understand that they would like to see as much as much activity (as possible) in southern Africa. We have an interest to that as obviously as it has is cost effective in many ways. But we have maintained the activity in the United Kingdom from the demand and consumer point of view. Within that, both sides can be accommodated. Most of our activities in London are demand focused activities that are looking at the consumer market. Those activities we will not consider shifting. There are some diamond related activities that we will consider shifting
Rapaport:Â South Africa’s deputy minister of minerals and energy, Lulu Xingwana, called the De Beers a “lily white board dominated by males,” following your new appointment to replace Gary Ralfe. What is your take on this statement?
Penny:Â (Laughs) I think she is entitled to her comments. I believe that it is important for any corporate to appoint the best people for the job. Clearly, that is up to shareholders to decide who they want to run the company. I don’t want to comment more as I do not see it as an issue.
Rapaport:Â Has De Beers decided to close unprofitable mines in South Africa?
Penny:Â We believe that a lot can be done in driving down costs. And if we are successful in driving demand, then hopefully we can drive up operating use as well. If you combine those two together, for most of those mines, we should be able to sustain.
Rapaport:Â Have you given lay-off notices?
Penny:Â No, we had given notice to some employees to reduce the operating cost. That is a very different thing from closure.
Rapaport:Â The Belgian Polish Diamond Dealers Association (BVGD) has urged fellow members to support a complaint filed with the European Commission regarding De Beers’ Supplier of Choice (SOC) program, what is your reaction?
Penny:Â They are entitled to their view. There is a lot in that letter that is factually incorrect.
Rapaport:Â Such as?
Penny:Â I think the whole premise of that letter… We are in a competitive world. SOC and DTC cannot be blamed for what is a fundamentally very typical competitive position for the Belgium (diamond) industry. I think Belgium’s industry instead of looking for a particular position, should look at where the competitive advantage is and how they are going to play to it in terms of computer aided design, marketing etc. I do not think any industry or any company including De Beers can try to put itself in vested interest and enshrined position. It is very competitive business we are in everywhere in the world. It is a dynamic and changing business. It is easy and a cheap shot to look at De Beers and DTC. What they need to look at is very fundamentally where they are going to go to ensure that they have got competitive advantage