Zimbabwe Government Charge Diamond Companies with Fraud

Photo by Tsvangirayi Mukwazhi, AP

The Marange diamond fields in Zimbabwe continue to be a source of controversy and alleged corruption. This time the Zimbabwe government has charged a second mining operation with fraud.

Government officials have charged African Consolidated Resources Plc. with unlawfully acquiring diamond claims in Marange by using subsidiary companies that were unregistered at the time, Reuters and other news agencies reports.

Just last week Zimbabwe police arrested six directors linked to a joint venture firm mining diamonds in Marange, also on allegations of fraudulently acquiring the concession. The arrested executives include five officials from the state-owned Zimbabwe Mining Development Corp. and a Zimbabwean representative of its South African partner, Core Mining and Minerals (link unavailable), in the 50-50 diamond mining joint venture, Canadile Miners.

They were arraigned Tuesday and the court is due to give its ruling on their bail request on Wednesday (today), AFP reports.

And of course, last week, Kimberley Process officials failed to agree on whether to allow Zimbabwe to sell gems from Marange, based on continued allegations of human rights abuses and smuggling.

A story in The Zimbabwean newspaper tries to make sense of all of this.

Harry Winston Sales Up While Profits Decline

Harry Winston saw a 98% increase in retail sales.

Harry Winston Diamond Corp. saw its luxury retail sales nearly double along with a modest increase in rough diamond sales, but it wasn’t enough to lift profits for the Toronto-based company.

The company said Wednesday that second quarter consolidated sales increased 44.7 percent percent to 222.4 million year-over year, resulting in a 6 percent increase in gross margin to $72.2 million and an operating profit of $23.1 million, compared to an operating profit of $29.9 million in the comparable quarter of the prior year. Consolidated EBITDA was $43.8 million compared to $49.4 million in the comparable quarter of the prior year.

Despite the sales increase, net profits fell 23 percent to $10 million.

Harry Winston consists of two businesses. The first supplies rough diamonds to the global market from its 40 percent ownership interest in the Diavik Diamond Mine. The company, however, is internationally known for its second business as a premier diamond jeweler and luxury timepiece retailer with salons in key locations throughout the world, including New York, Paris, London, Beijing, Tokyo, Hong Kong and Beverly Hills.

The luxury brand segment reported a 98 percent increase in sales to $132.8 million for the period, year-over-year. At constant exchange rates, the increase was 81 percent. Included in the second quarter was $55.6 million of high-value transactions, which generally carry lower-than-average gross margins. Operating profit was $6.8 million for the quarter compared to $2.3 million in the same quarter of the prior year. EBITDA for the luxury brand segment was $10.1 million compared to $5.5 million in the comparable quarter of the prior year.

“Global retail demand, especially in the emerging economies such as China and India, has delivered both strong retail sales growth and strong rough diamond prices. Seeing through the effect of a small number of high-value, lower margin sales, our own jewelry and timepiece business shows solid growth in both sales and margin in the core bridal, timepiece and designed jewelry segments,” said Robert Gannicott, Harry Winston chairman and CEO.

Meanwhile, sales from its mining segment increased 3 percent to $89.6 million for the second quarter, year-over-year, resulting primarily from a 41 percent increase achieved in rough diamond prices, offset by a 27 percent decrease in volume of carats sold. The mining segment recorded operating profit of $16.3 million compared to $27.6 million in the comparable quarter of the prior year. EBITDA for the mining segment was $33.7 million compared to $44 million in the comparable quarter of the prior year.

“The market price increase in rough diamonds has more than compensated for two complete sales versus three in the comparable prior year quarter as well as the lower quality diamonds mined from the upper part of the current open pit,” Gannicott said

“Looking forward we continue to see strong global jewelry and timepiece demand from China while Japan and the Middle East improve and the U.S. remains subdued. On this basis we expect to continue to grow our own jewelry and timepiece business despite challenging economic conditions in the U.S. and Europe. Although we do not predict further near-term rough diamond market price increases we do see our own rough diamond sales price already improving.”

Alrosa Expects Strong Growth in Diamond Sales for 2010

Russian state diamond monopoly Alrosa said Monday its rough and polished diamond sales should show a year-over-year increase by 50 percent to $3.3 billion by the end of 2010, according to a published report.

In 2009, the company reportedly sold nearly $2.2 billion in diamonds. In the first eight months of 2010, the company sold $2.6 billion, and September sales are expected at $200 million.

Alrosa is one of the world's largest diamond companies, accounting for 25 percent of global production.

Harry Winston Q1 Consolidated Sales Up 26%

Harry Winston salon in Paris

Harry Winston Diamond Corp. seems to have the best of both worlds with its businesses in diamond mining sector and as a luxury jewelry and watch retailer. Both market segments have shown strong growth over the past year and this is continuing as the Toronto-based company reported Wednesday that consolidated sales increased 26 percent for the first quarter of fiscal year 2012. The increase at constant exchange rates was 22 percent.

Luxury brand sales, through its network of salons that sell luxury jewelry and watches in key cities throughout the world, increased 26 percent to $81.9 million for the quarter, ended April 30, primarily driven by stronger high jewelry sales in the United States and higher timepiece sales. The increase at constant exchange rates was 20 percent.

In addition, Harry Winston, which supplies rough diamonds to the global market from its 40 percent ownership interest in the Diavik Diamond Mine in Northwestern Canada, said mining sales increased 27 percent to $62 million, primarily due to higher rough diamond pricing versus the comparable prior year period. Rough diamond output, for the period ended March 31, dropped to 500,000 carats compared to 600,000 carats for the same period last year.

“This quarter's results reflect improving rough diamond prices combined with increasing sales and profit for the luxury brand segment. Both sides of our diamond business are performing well as we continue to achieve premium rough diamond prices and execute our luxury brand strategy,” said Robert Gannicott, Harry Winston Chairman and CEO.

To shore up its stockpile of polished diamonds it uses for luxury jewelry lines and to maximize the continued rise in prices for what many believe is a dwindling resource; Harry Winston in May announced that it is involved in the establishment a polished diamond investment fund. The fund is being managed by Diamond Asset Advisors AG, a Zurich based advisor with a background in both the diamond and financial services sectors. The fund will be structured as a limited partnership, of up to $250 million, offering institutional investors direct exposure to the wholesale market price of polished diamonds.

“Our recently announced relationship with Diamond Asset Advisors in the creation of a polished diamond acquisition fund represents an innovative way for the company to support its luxury brand growth objectives,” Gannicott said.

Other first quarter highlights, include:

* Consolidated EBITDA (earnings before interest taxes depreciation and amortization) in the first quarter of Fiscal 2012 increased 51 percent to $25 million, showing strength in both segments of the business, the company said. In the same period, the mining segment EBITDA increased 48.5 percent to $17.6 million and the luxury brand segment EBITDA increased 57.3 percent to $7.3 million.

* Consolidated operating profit was $4.7 million or double the operating profit of $2.3 million from a year ago, with mining operating profits down $300,000 and luxury brand profits up $2.7 million versus the prior year. Operating profit benefited from higher rough diamond prices and higher high-end jewelry and timepiece sales, the company said.
 
* Consolidated net profit attributable to shareholders for the first quarter was $3.6 million or $0.04 per share compared to net profit attributable to shareholders of $2.1 million or $0.03 per share in the comparable quarter of the prior year.

Swatch Group Acquires Harry Winston’s Luxury Retail Division for $1 Billion

The Swatch Group has acquired the famed Harry Winston luxury diamond jewelry and timepiece retail business for $750 million plus their assumption of up to $250 million of pro forma net debt. When this transaction is completed the company, Harry Winston Diamond Corp., will be solely in the diamond mining and distribution business.

The U.S. based division (Harry Winston Inc.) is a premier diamond jeweler and luxury timepiece retailer with salons in key locations—including New York, Paris, London, Beijing, Shanghai, Hong Kong, Singapore, Tokyo and Beverly Hills. The possible sale of the retail division was the subject of rumors for months, which the company denied in a statement issued in October.

The company’s namesake (Harry Winston, March 1, 1896 – December 28, 1978) founded the company in 1932. He was among the most famous jewelers in the world and the first jeweler to lend jewels to an actress for the Oscars red carpet in 1944. He was also famous for donating the Hope Diamond to the Smithsonian Institution in Washington.

The jeweler was bought by Canadian diamond mining group, Aber Corp., in 2006 to create the Harry Winston Diamond Corp., with divisions in luxury retail and diamond mining, which was listed on the New York Stock Exchange in 2007.

The transaction does not include the Canadian-based diamond mining activities of Harry Winston Diamond Corp., which has a 40 percent ownership interest in the Diavik Diamond Mine and is finalizing the purchase of the Ekati Diamond Mine, including its diamond sorting and sales facilities. Both mines are in the Northwest Territories of Canada.

When the transaction with Swatch is completed, this diamond business will operate under the name: Dominion Diamond Corporation.

Robert Gannicott, Harry Winston chairman and CEO, said changes in both luxury retail and the diamond markets, as well as the need for cash, led to the decision to sell its luxury retail operation.

“At the time that we purchased the Harry Winston brand, resource investment opportunities for diamonds were rare and expensive following the euphoria of the Canadian diamond discoveries, and the involvement of the large international mining companies,” Gannicott said in a statement. “The Harry Winston brand was competitively priced compared with its peers and we could bring diamond expertise and strategic connections to enhance value. Today there is a range of diamond resource opportunities while the value of heritage luxury brands has increased dramatically. This transaction represents a sound return on our original investment. It will leave us well equipped to realize upstream opportunities in an environment where cash has become a strategic resource while preserving and expanding our relationship with the downstream diamond business.”

The Swatch Group, based in Biel, Switzerland, is the world’s leading supplier of finished watches and watch movements and one of the world’s largest buyers of polished diamonds. The two companies said that they will also explore the opportunities for a joint diamond polishing venture bringing together the manufacturing and diamond expertise of the two companies.

“Harry Winston does brilliantly complement the prestige segment of the Group,” said Nayla Hayek, chairwoman of The Swatch Group Ltd. in a separate statement. “We are proud and happy to welcome Harry Winston to the Swatch Group family—diamonds are still a girl’s best friend.”

The transaction is subject to the approval of the different regulatory authorities.

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