The West Coast diamond group is following De Beers’ lead in targeting higher-priced stones, writes Lynda Loxton
West Coast diamond companies have had mixed fortunes in recent years, not least because of the dumping of low-quality diamonds on the world market by Russia.
The agreement reached by De Beers’ Central Selling Organisation (CSO) and Russia in February has since stabilised the situation, but some of the smaller producers are now setting their caps at the higher value end of the market to avoid future problems, while strengthening alternative selling techniques.
This week the Trans Hex Group said it aimed to increase annual diamond production to one million carats or $250-million a year within five years.
The focus would be on “alluvial and shallow marine operations, but opportunities to develop kimberlites and open-pittable gold deposits will be considered”.
It would concentrate on diamond projects that could produce “diamonds in the higher price per carat range — preferably in excess of $200 per carat”.
This was the first time the group quantified production targets and analysts said it indicated that Trans Hex was following the lead of De Beers in concentrating on higher priced quality gems.
In 1994 and 1995, the world market was swamped by poorer quality diamonds. “The shortage of true gem diamonds persists and the expected synchronised growth in the developed world in the second half of 1996 for the first time in years means there will be a persistent disequilibrium to the end of the century,” said an analyst.
Trans Hex has set up a foreign arm, Trans Hex International Limited, in Canada to finance its non- South African exploration projects. It will be funded through the private placement of between Can$20-million and Can$24-million, with Trans Hex holding between 53% and 59% of the issued shares.
It aims to bring “at least one of the existing exploration projects to a feasibility study stage within the next 12 to 15 months”, Trans Hex said.
The exploration projects are in the Central African Republic, Zimbabwe, Namibia, Brazil, Canada, Zaire and Angola. Trans Hex said it spent R26,8-million on the projects in the year to March 31 1996 and would spend R20,6-million this financial year.
Given the volatility of diamond prices, Trans Hex has introduced a tender-based marketing system, which it said was “serving the group well”, enabling it to sell even low-quality diamonds at “satisfactory” prices.
It said the system was “put to its sternest test in the latter part of 1995 when the group had to sell low-quality productions from Swaziland and Zimbabwe in a market where Indian goods were dead in the water.
“A greater number of tenderers than usual were invited and, in the event, a full complement of bids with most satisfactory winning prices were received. At the other extreme, during the virtual frenzy earlier this year for good quality sizes … the biggest marketing problem was to limit the participation of South African tenders to a manageable number.”
The group said that if buoyant gem prices continued and the rand remained weak against the dollar, improved income and earnings per share could be expected in 1997/98.
l The CSO announced an increase in prices this week, with rough gem diamonds up an average 3%. Stones above one carat would cost 7% more, rising progressively according to size.