The Hindu Business Line : `We want to see India emerge an international diamond trading hub'

Many new mines have emerged. With multiple markets we need to channel roughs into India. The idea is to source roughs directly and sell them in India for beneficiation. — MR PRAVEEN SHANKAR PANDYA, CHAIRMAN, DIAMONDS INDIA LTD

At a time when the diamond industry worldwide is beginning to expand its horizons through forward integration, India, the world's largest manufacturing centre, is seeking to become an international diamond trading hub. Working against this backdrop, rough diamond mining countries are eager to establish forward linkages and to develop the secondary diamond industry for local beneficiation or value-addition. Economies dependent mainly on diamond mining are no longer happy with the incomes from royalties and taxes paid by the mining companies. Further, the emergence of China as a leading manufacturer, behind India, has made procurement of roughs on sustainable basis a concern for Indian manufacturers.

India processes 80 per cent world's roughs in volume terms and 58 per cent in value terms. Last year, world's mine produced 177.9031 million carats of roughs worth $12,480.4453 million. India imported 172.993 million carats of roughs worth $8708.98 million (Rs 38,668.89 crore) last fiscal.

In this scenario the first of its kind trading firm Diamond India Ltd (DIL) has emerged to play the Indian hand. A non-listed company with 60-exporter-members, Diamond India's objective is to source and procure roughs directly from mines and to resell them in India. Imports of roughs by DIL are under the Kimberly Process certification. To understand the role of the company, Business Line spoke to Mr Praveen Shankar Pandya, Chairman, DIL, on various aspects of diamond trade and the role of his outfit.

Excerpts from the interview:

What is the genesis of DIL?

DIL started in September 2006. After several delegations of Gem and Jewellery Export Promotion Council (often led by the government) to various mining countries, there was a felt-need to have one Indian face that would represent the Indian interest in a holistic manner.

So the idea was mooted after the first Mines to Market Conference in 2005. Mining companies also would be happy to deal with an organisation such as DIL instead of individual buyers. DIL can assure more stability in terms of continuity in procuring. They (the mining companies) want someone who will be there through thick and thin, as most small mines do not have any marketing arrangement.

What is the financial structure of the company?

The authorised capital is Rs 250 crore, and issued/subscribed capital Rs 215 crore. We also have an open bank line of Rs 150-200 crore.

What about new membership?

Initially, we took as many as they came. Then we had to cap. So now new membership is not open. Since there was financial participation, not everyone could join. However, we will invite new members when we need the second round of financing. Alternatively, we may also consider an Initial Public Offering. During the first round of subscription, we raised over Rs 215 crore.

However, we are ready to sell roughs to anyone in the industry. The whole idea is to source roughs directly and sell them in India. Thus, DIL performs the two functions of any trading firm — of an intermediary between the mining company and the buyer (diamond manufacturer); and, two, sourcing roughs for its exporter members. We, in the industry, want to see India emerge an international trading hub such as Antwerp (Belgium).

DIL is set to play a role to realise this objective. When you are dealing with countries whose main economic dependence is on diamonds, they have certain expectations and aspirations which individual operations are not capable of meeting.

They need someone who can procure on a sustained basis, almost all qualities and offer some local beneficiation. DIL is in a position to meet these expectations.

How does DIL function, from the negotiations to procurement and distribution?

DIL's directors' work includes studying and contacting the mining companies, understanding the export policies of the origin, exploring the suppliers' willingness to sell diamonds outside their country and so on.

In doing so, the suppliers may want our participation in mining or selling their products. We negotiate to purchase unsold quantities.

Once a long-term deal fructifies, the supply of roughs by the mines under the contract is on monthly basis depending on production.

Would direct procurement by DIL, in effect, mean direct procurement by the exporter-member? Is the price for members and non-members the same?

DIL is commercially run. A percentage of what is procured is reserved for DIL members. The balance is open for sale to anyone with the necessary credentials. Our prices are not unreasonable. Our margins are reasonable compared to what one pays at international trading centres. This is evident from the fact that our goods are sold within two-three days of procurement. The price is the same for members and non-members. But we may offer some nominal discount to a regular member-buyer.

What sort of an arrangement is sought from the miners? Is it only price driven or there are any other incentives?

With different mining companies we have different terms depending on their aspirations for local beneficiation. Negotiation can range from offering to buy roughs on `run of the mine' basis, participate in the production, offer to set-up factories and institutes in partnerships such as cutting, polishing, jewellery making. Investment and joint ventures may be considered in mining operations. Stability in procurement is what any mining company seeks from a buyer.

What is the level of price differential when diamonds are procured directly from the mines? Can you illustrate?

Right now we cannot quantify. But whatever goods are procured we are able to sell immediately. This reflects our price competitiveness. Trading hubs such as Antwerp offer credit facilities too, which we do not. We offer original goods at attractive prices.

As you indicated, DIL is ready to import diamonds worth $1 billion, will this have the effect of breaking a cartel?

The cartel has already been broken. De Beers now only controls 45 per cent of the worlds' roughs. Mining countries such as Russia, Angola, Canada, Congo and South Africa are pursuing marketing on their own. Some are seeking local beneficiation (value-add) through development of secondary diamond industry in their own country. We were happy when De Beers supplied the entire demand for roughs by Indian manufacturers. This had helped in the systematic growth of the Indian industry. Now many new mines have emerged. With multiple markets we need to channel roughs into India. DIL will play a leadership role in this.

You also indicated your preparedness to obtain diamonds on `run of mine' basis? What are the advantages and disadvantages of this practice?

Roughs are procured mainly either on the assortment system of the mines or on `run of mine' basis. In the former, mines have their own system of grading, sizing, valuing and pricing. They offer a lot of their production and quote an amount for the aggregate of the carats in the lot. Procuring on `run of mine' basis is mainly by smaller mines — everything that comes out of the ground is offered to companies such as De Beers and other large traders. We are open to both the systems. It depends on the comfort level of the mines.

Would DIL participate in tender of mines?

The tender system is when the mines offer a part of their production in the market mainly to find out the valuations offered in an open market. This type of procurement would be one time. DIL's philosophy is to enter into long-term contracts with mining companies than one-time tender procurement.

Do you apprehend any particular qualities to invariably form a part of the consignments from the mines?

No. This is where our expertise comes into play. It may take long to get certain grades due to natural shortage. But we want to buy what is saleable.

Can you provide a list of the 60 exporters or mention a few?

No. But I can tell you that some are sight holders — 13 from DTC, six from Rio Tinto, 3 from DHP. Exporter-members of DIL are among the top 200 exporters in the country.

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