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WHAT ARE YOUR KEY CONCERNS REGARDING THE FINANCIAL
HEALTH OF THE MIDSTREAM?
There is general lack of transparency in business
practices and quality of reported financials across
the midstream, leading to a loss of trust. This is
compounded by the fact that the midstream is highly
levered. Banks are therefore being more critical and
thorough with funding decisions, and looking for a
greater level of security against their loans.
HOW DO YOU THINK THE MIDSTREAM CAN ADDRESS THESE
CONCERNS FOR THE FUTURE? WHO HAS BETTER ACCESS TO
FUNDING AND WHY?
When approaching financing decisions, we assess the
‘bankability’ of the clients – whether their business is
in good financial health with transparent business
plans, if they apply IFRS or equivalent GAAP
standards especially when reporting receivables and
inventory, and streamlining processes such as the
removal of inventory round-tripping. Financiers
reward sound fiscal management and good
compliance by providing better lending conditions
and more favourable rates. I also believe in openness
between banks and their clients in order to work
through any issues – which in the end comes back to
the importance of transparency.
WHICH DO YOU BELIEVE ARE THE MOST SUCCESSFUL PLAYERS
IN THIS INDUSTRY AND WHAT ARE THEY DOING THAT IS
MAKING THEM SUCCESSFUL?
In an increasingly competitive landscape,
competitors have to adopt strategies to ensure
survival and sustainability. Sustainability, in
my opinion, is the right to exist. This is achieved
by being prepared to compete in a saturated
space with dynamic and flexible business plans,
investment in infrastructure and technology and
diversification. Some successful players have shown
innovative manufacturing and cutting strategies
to produce greater yields as well as developing a
unique product.
DO YOU EXPECT CONSOLIDATION GOING FORWARD?
The rate of change is still very slow, so I do not
envisage much consolidation in the next five years
or so. However, I do see the competitive landscape
getting tougher, which will lead to those less
sustainable businesses disappearing.
Q
Q
Q
Q
Many midstream companies now also offer a
consumer branded proposition that creates a
unique identity around the precision cuts they
manufacture. These include Leo Schachter with
the Leo cut, Exelco with Tolkowsky and Crossworks
with the Ideal Square and Ideal Cushion.
THERE WILL BE A CONTINUED PUSH FOR IN-COUNTRY
BENEFICIATION
When it comes to the geographical location of cutting
and polishing, the move towards low-cost centres in
India and the Far East is likely to have reached its
peak. Over recent years, producing countries such
as Botswana, South Africa and Namibia have been
striving for increased domestic beneficiation, leading
to some cutting and polishing jobs migrating to
those countries.
Diamonds are critical to the economies of some
producing nations. In Botswana, for example,
diamonds represent more than one quarter of GDP
18
and over three-quarters of overall exports
19
, whereas
in Namibia they represent eight per cent of GDP
20
,
and almost 20 per cent of exports
21
(see Fig. 18).
However, diamond mining in itself only creates a
limited number of jobs (as is also the case with other
types of mining) since it is capital-intensive rather
than labour-intensive.
FIG. 18:
DIAMONDS’ SHARE OF GDP IN KEY
PRODUCING COUNTRIES IN 2013
Source: The World Bank; Kimberley Process Statistics; De Beers analysis
Per cent
10
60
70
80
50
0
30
40
20
26
8
76
19
Diamond production, by
value, as per cent of GDP
Diamond exports, by value,
as per cent of total exports
Namibia
Botswana