FATF Published Guidance Document for Precious Stones

The Financial Action Task Force has approved a detailed guidance document for the precious stones and metals trades. The Antwerp World Diamond Centre (AWDC) said in a release that it welcomed the move.

The document lays out how a more sophisticated a risk-based approach can be developed for those who deal in precious metals and stones, including the diamond industry. For the diamond business, this means that the specific concerns of the diamond industry will be taken into account more adequately.

Issues specific to the diamond trade addressed in the document include the physical inspection of diamonds at the official import-export offices, business with registered diamond dealers and bourse members, the Kimberley Process Certification Scheme for rough diamonds and a payment system through recognized and specialized banks.

AWDC notes that it was extensively involved in the consultation process that let to agreement on the guidance document, since the summer of 2007. The approval was announced at the FATF plenary in June.

FATF is an inter-governmental body that works to develop policies to combat money laundering and terrorist financing.

AWDC spokesperson Philip Claes commented, “We welcome the fact that, with its new guidance document, FATF has finally recognized the positive impact that the structure, regulation and supervision of the diamond trade in Antwerp has had in reducing money laundering risk.”

The Belgian government was also involved in finalizing and approving the FATF guidance. AWDC noted that it will work further with the Belgian authorities in establishing a more adequate and efficient money laundering regulation for the diamond industry, which will be based on the new FATF guidance document operate within the framework of Belgium’s implementation of the anticipated third EU directive concerning money laundering.

Russian Cutters Prefer Imported Rough Diamonds

Alrosa has lifted prices for its rough by 20% to 25%, said Ararat Evoyan, head of the Russian Association of Diamond Manufacturers. "The stones have become more expensive than imports. It is cheaper to buy in Belgium now, although import schemes are very complicated, and so we are now working on the simplification of these schemes. We will announce our official reaction of the association on June 25,” he told Polished Prices.

In addition to the pressure of the new prices this month, next month Alrosa has said it will end its VAT deferred payment scheme, thereby increasing the upfront cash requirement on the part of the domestic cutters.

On top of this Evoyan said: "The summer season is usually a dead season for diamond industry. Work usually starts after September 20."

He added the domestic Russian problems coincide with the falling demand position in the US diamond market.

Edward Shtribesky, spokesman for leading Russian polisher Smolensk Kristall, said: "Since Alrosa considers this (price increase) as a normal step in the frame of market economy, which we seriously doubt, we have to apply our reaction. We must buy abroad simply to survive." He said Kristall has raised the value of rough imports since January of this year fivefold, compared to the same period of 2007 - from $10 million to about $50 million.

Maxim Shkadov, the Kristall chief executive, said that prices had grown by 6% in the first five months of the year, before Alrosa issued its June 1 increase.

Foreign suppliers are now "a lot less expensive," according to Shkadov. The result will be an increase in Kristall's prices for polished, he said.

"We’ll definitely have to raise our own prices, but we can't do that in jumps of more than 15%. We're expecting sales to drop until we get an analytical assessment of the market, so we can tell how we need to operate."

Until now, Kristall buys about two-thirds of its rough from Alrosa, paying a total for rough of about $250 million per annum. In 2007, Kristall generated $404.4 million in sales, up 13% on 2006. The plant's capacity is around 1 million carats per year.

Venezuela voluntarily withdraws from the Kimberley Process

The inter-sessional meeting of the Kimberley Process Certification Scheme ended Thursday in New Delhi with Venezuela agreeing to withdraw from the KP for two years.

KP Chairman Rahul Khullar announced that Venezuela will not export rough diamonds for the next two years, and that a KP team will visit Venezuela to assess the situation and prepare a report before the next plenary meeting in November.

Meanwhile, India called for a crackdown on fake KP diamond certificates.

Earlier this month several NGOs called for the expulsion of Venezuela from the Kimberley Process due to noncompliance and continued refusal to allow teams from KP member countries to inspect Venezuela's diamond industry. The county produces an estimated 150,000 carats of diamonds annually, but has reported no official exports after January 2005.

Venezuela's diamond deposits are found in Bolivar State. Diamond mining is carried out by teams of small-scale miners. Partnership Africa Canada said the small miners are supposed to belong to co-operatives, which are required to submit a monthly report to the regional mining officials of the co-operative's production. "Good as this sounds in theory, in practice co-operative members largely co-operate in hiding their production, so that little in the way of taxes ever finds its way to the government," according to PAC.

From Tuesday through Thursday India hosted 200 delegates representing 35 countries to review the progress of the Kimberley Process. India's Commerce Secretary G.K. Pillai urged members to "find a solution to the problem of KP certificates. It undermines the very core of what KPCS wants to achieve. The problem must be addressed."

Pillai said India's diamond industry has provided jobs to more than 1 million people and had a 60% share of the world's polished diamond industry by value and about 82% by volume.

Story Dorothy Kosich from The International Business Times

Diamond market strong despite external pressures

To paraphrase a former director of the Diamond Trading Company (the wing of DeBeers responsible for selling rough diamonds): The demand for diamonds is driven by two factors: greed and vanity. We do not foresee a shortage of either in the future.

There has been some talk of late of rising diamond prices. Part of this is that diamonds, like almost all commodities, are priced in US dollars. As the dollar goes down the price goes up. Most economists would agree that the US dollar is falling relative to the other major currencies. This situation is different from a few years ago, when South African producers were closing mines, some in part due to end of mine life, but also in part due to a strong Rand versus the US dollar.

According to Mr. Laboucan Prolific analyst diamonds will continue to see strong demand. In particular the emerging upper-class of very populous countries (China and India) will continue to be a growing market for luxury goods, one that will outstrip that of the U.S. Even if only 1% of the 2.4 billion people living China and India make it to the high disposable income level to afford luxury goods in the next ten years, that is a new crop of 24 million consumers - a number a little short of the population of Canada.

The problem with diamonds is that they are not just any other commodity. Gemstones are evaluated individually based on a number of characteristics unique to each individual stone. It can be difficult to determine if prices for diamonds are increasing due to this increased complexity. Mr. Laboucan alludes to this by mentioning the fact that companies producing larger/high quality diamonds will always see strong business as such goods are for the “ultra-rich” and immune to economic swings. The market for smaller/lower quality diamonds is more sensitive to economic pressures and is mainly a function of the level of disposable income possessed by the upper-middle class. This brings us back to the emerging middle class in the BRIC countries, the potential size of which could very well dwarf that of North America, and possibly even Europe as well. Should the economies of these countries continue to grow, the above scenario becomes a strong possibility. Even with signs of slowdown in China, other growing countries such as India, Brazil, Russia, South Africa, and Turkey will pull up the slack.

With these fundamentals in mind, a cautious investor should be able to pick the most promising diamond companies now, when they are cheap. Assuming due diligence has been properly performed, strong gains could be reaped in the market within a few years time.

SA Proposing 2.2 - 3.3% Rough Diamond Royalty

Following continuing appeals by some of South Africa’s largest mining firms, the National Treasury agreed to adjust the way it calculates new mining taxes, Bloomberg reports.

Royalty rates on rough diamonds and other unrefined products will be 2.2 to 3.3 percent with a levy of as much as 7 percent, the Treasury said Tuesday in a written submission to parliament.

Last March, diamond miner De Beers warned that the company would be subjected to an “unfair form of double taxation,” affecting the Finsch diamond mine, due to the combined new draft of the Royalty Bill with the Mineral and Petroleum Resources Development Act.

The Ministry of Mines and Energy has rejected De Beers’ assertion.

In recent weeks multi commodity miner Anglo American and other mining companies warned that the royalty could deter investment.

In general, royalty rates will range from 0.5 percent to 7 percent of sales, after certain costs, and will depend on what miners produce as well as profitability, the Treasury announced.

The tax on refined products such as gold will range between 1.7 and 2.5 percent, with a 5 percent cap.

The new tax formula will allow depreciation and amortization to be deducted.