"fair-trade" diamonds

GLOBAL REPORT / FINANCIAL TIMES Diamond Troubles The mining industry in Africa is evolving, with De Beers losing marketshare and producers struggling with ethical concerns. By Rebecca Bream, Financial TimesAugust 14, 2006

The world of diamond mining is finally opening up.

Africa produces 65% of the world's diamonds, and the industry on thatcontinent has long been dominated by one company - De Beers.

Although it is by far the world's largest producer ofrough diamonds, De Beers' market share has dropped from 80% 20 years agoto about 40%. The changes come at a time when consumers are avoiding diamondspurchased from war-torn Africa, and the industry is dreading a filmstarring Leonardo DiCaprio as a diamond smuggler due out early nextyear.
Throughout Africa, competitors to De Beers have emerged. They includeBHP Billiton, the world's largest mining company, and smallerexploration companies such as Mano River Resources Inc. and GravityDiamonds.

De Beers is also facing Lev Leviev, Beny Steinmetz and Dan Gertler,three Israeli diamond-trading tycoons who have moved into mining toensure a reliable supply of gems.
Another development is the opening of more opportunities in war-scarredcountries such as Sierra Leone, Angola and the Democratic Republic ofthe Congo, mineral-rich states that were out of bounds for investmentfive years ago.

Botswana, South Africa and Namibia - the countries where De Beers is atits strongest - are top African diamond producers, but many of the minesthere are maturing. Companies, including De Beers, are increasingly allocating theirexploration budgets to countries such as the DRC that hold greatpotential for diamond discoveries. Diamonds are notoriously difficult to find, so companies feel that itis worth venturing into dangerous territory if there is a chance of alarge discovery.

When a good deposit is found, it can be highly lucrative. AfricanDiamonds, a small London-listed group, may have found such a deposit inits AK6 project in Botswana. De Beers has joined the group as its joint-venture partner on theproject, and AK6 has been regularly praised by De Beers executives.

African Diamonds said recently that the diamonds found at the site hadbeen valued at an average of $150 per carat, higher than originallyexpected. All this has had a positive effect on African Diamonds' share price,which has risen almost 200% over the last 12 months.
The flow of investment into countries recovering from civil war raisesthe subject of conflict diamonds. Illicit gem mining and trading fundedand prolonged many of the African wars and caused a backlash againstdiamonds among consumers who did not want to feel that they were contributing to the bloodshed.

This year marks the three-year anniversary of the creation of theKimberley Process, a U.N.-backed initiative aimed at curbing the tradein conflict diamonds. Under the scheme, each diamond must carry a certificate of origin,guaranteeing it does not come from a conflict area.
All of the diamond-producing countries that have signed the KimberleyProcess are being reviewed to assess their compliance.

They have had to detail in an annual report the measures they have putin place, and it is the consensus in the industry that a great deal ofprogress has been made. "We are quite proud of the way our industry has reacted," says FreddyHager, chairman of Target Resources, which mines diamonds in SierraLeone.

Human rights campaigners are less impressed and point out that the Kimberley Process will have to prove its mettle amid fighting in Ivory Coast. Kimberley Process members agreed last year to impose restrictions ondiamond trading in West Africa to stop gems being smuggled out of therebel-held areas of Ivory Coast through neighboring countries.

The next challenge probably will be its assessment of Liberia, which isrecovering from an on-off civil war and wants to join the KimberleyProcess. Although the industry regards conflict diamonds a closed chapter, thesubject is likely to be revived in the minds of the general public by anintervention from Hollywood.

Early next year, Warner Bros. is due to release "The Blood Diamond,"starring DiCaprio. Set in 1999, it will probably show in graphic detailthe bloodshed that was fueled by diamonds and could undo some of theindustry's work to rebuild its reputation.

Hager, who is also president of the London Diamond Bourse, said, "Thepublicity is going to be awful. Concern over the film 'The BloodDiamond' illustrates how vulnerable the trade is."
But some, including diamond-pricing expert Martin Rapaport, say that apublic outcry could present an opportunity to create a new market in"ethical" or "fair-trade" diamonds.

EarlyBird
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