Diamond Market Review and Forecast Bank of Montreal Conference Richard Wake-Walker Florida, February 2008 WWW Group of Companies
Diamond Pipeline 2007 ($bn) Mine Production Supply To Manu- facturers Equiva- lent Polished Available For Market Decreased Stocks Increased $0.8 Stocks $1.5 Stronger Prices 1.3% Value Vl of Diamonds Consumed in Jewellery Diamond Jewellery Retail Sales $14.4 2006 $13.1 2005 13.4 $16.6 2006 $14.7 2005 $14.7 $18.3 2006 $19.6 2005 $20.0 Increasing Stocks 2006 $1.5 2005 $1.6 Rising Prices $19.2 2006 $17.7 7 2005 $17.0 $79.3 2006 $74.0 2005 $69.3 2006 3% 2005 8%
2007 compared to 2006 and start t of 2008 Positive 2007 was generally a good year for the industry Rough prices up sharply (+/- 20 % increase or 10% average increase) Reduction in stocks Consumer demand held up Negative 2/3rds reduction in polishing margin to around 10% Success of 2007 for industry based on trading rough not cutting and polishing America? Minimal increase in polished prices (2007 +1.3%,2006 +3%, 2005 +8%) 2008 Surge in Rough Prices (January +/-10%) Spectacular Rough / Polished Tender Prices New highs for Polished index (however briefly)
170 Rough and Polished Prices Jan 2003=100 160 150 140 130 120 110 100 WWW Overall Rough Index PolishedPrices Overall Index 90 2002 2003 2004 2005 2006 2007 2008
140 Rough and Polished Prices (Currency Basket) Jan 2003=100 130 120 110 100 WWW Overall Rough Index Currency Basket PolishedPrices Overall Index Currency Basket 90 2002 2003 2004 2005 2006 2007 2008
140 130 Rough and Polished Prices (Euros) Jan 2003=100 WWW Overall Rough Euro Index PolishedPrices Overall Euro Index 120 110 100 90 80 2002 2003 2004 2005 2006 2007 2008
170 Rough and Polished Prices Jan 2003=100 160 150 140 130 120 110 WWW Overall Rough Index 100 PolishedPrices Overall Index 90 2002 2003 2004 2005 2006 2007 2008
30% Rough and Polished Disparity 20% 10% 0% 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008-10% -20% -30% % Difference betw een Rough and Polished Indices
Source PolishedPrices.com
From History to Forecasts
Key Inputs for Forecasts Segmented supply models Econometric models for 64 countries Models based on IMF World Economic Outlook (This presentation is based upon the January 29 th 2008 Update to the October 2007 Outlook ) Estimates are based on percentage of GDP spent on diamond jewellery PolishedPrices.com The only published polished diamond index based on actual transactions Current weekly average of transactions through Polished prices is +/-7,000 or about +/-$45m.
$22bn Supply and Demand in Rough Terms (at February 2008 values) $20bn Supply Demand $18bn $16bn $14bn $12bn 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Some Immediate Uncertainties/Issues America 45% of the market Recession? China and India not the answer US Dollar (profitability, mining costs etc) Africa Power shortages impact on rough supplies? Impact of Beneficiation Corporate BHP / Rio Tinto Anglo / De Beers Alrosa Producer supplies
150 PolishedPrices Overall Index Jan 2008 Forecast 145 140 135 130 125 Central Forecast Confidence Limits 120 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09
170.0 Rough and Polished Prices Jan 2003=100 160.0 150.00 140.0 130.0 120.00 110.0 100.0 WWW Overall Rough Index PolishedPrices Overall Index 90.00 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
2008 Forecast In this forecast Polished prices will rise this year by 14%, and on average 2008 prices will be 9% above 2007 Rough, on the other hand will on average in 2008 be 10% higher than 2007, however by the end of 2008 prices are 8% below current values This is an overall forecast, different segments rough and polished will perform very differently 2008 has started very well, almost too well..
World Diamond Production 2007 Botswana 22% Angola 6% Namibia 1% Others Botswana 22% Angola 6% Namibia 1% Others Botswana 25% D.R.Congo 7% Australia 3% Others 6% Botswana 25% D.R.Congo 7% Australia 3% Others 6% S.Africa 10% Others 3% 2007 S.Africa 10% Others 3% 2007 25% Namibia 8% 7% 2007 25% Namibia 8% 7% 2007 D.R.Congo 20% Canada 11% 2007 155m cts D.R.Congo 20% Canada 11% 2007 155m cts Russia Angola 11% 2007 $14.4bn Russia Angola 11% 2007 $14.4bn Russia Australia 13% Russia Australia 13% 17% S.Africa Canada 11% 17% S.Africa Canada 11% 14% 14% 12% 12%
De Beers Market Share (production + purchases) 70% 65% 60% 55% Argyle Orapa 3 Plant Gahcho Kue 50% Ekati 45% Diavik Snap Victor 40% 1996 1999 2002 2005 2008 2011 2014 2017
Share of Goods to Market, by Producer Balance Aber BHP Rio Tinto 2007 $14.4bn De Beers Angola Alrosa De Beers* * = Contracted Purchases De Beers excludes Diamdel open market purchases
Share of Retail Market: 2007 Gulf Other Asia RoW India Mainland China 2007 $78.04bn USA Europe Japan
Emerging g Markets: Retail Consumption 8,000 China 7,000 India Far East 6000 6,000 Russia 5,000 4,000 Eastern Europe South America 3,000 2,000 1,0 0 0 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
WWW International Diamond Consultants Independent consultants to the diamond industry Formed January 1996 by Richard Wake- Walker and Charles Wyndham Neil Buxton joined in 1998 Over 100 years industry experience
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Clients including. Aber Diamonds AfriCan Mining Alexkor Alrosa ANZ Bank Archangel Diamond Corp. Ashton Bank of Montreal BM Diamond Corp. Brazilian Diamonds Canaccord CIBC Contact Diamonds Consolidated African Mines DiamonEx European Diamonds Falconbridge Franco Nevada Gem Diamonds Global Witness Kensington Resources Letseng Diamonds Mountain Province Namakwa Diamonds National Bank Financial Norton Rose Partnership Africa Canada Mine Gem MPH Consulting Peregrine Diamonds RBC Rhonda Rio Tinto Scotia Bank Severalmaz Shore Gold SLDC Southern Era Stornoway Tahera Teck Cominco Tiffany & Co Uralkali Winspear
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Associated Companies WWW Diamond Forecasts Ltd. PolishedPrices.com WWW Diamond Tenders Ltd. Websites: www.diamondwww.com www.polishedprices.com
Diamond Market Review and Forecast Bank of Montreal Conference Richard Wake-Walker Florida, February 2008 WWW Group of Companies