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Gold/Mining/Energy : Winspear Resources
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To: Letmebe Frank who wrote (21879)6/25/1999 4:55:00 PM
From: Cutz  Read Replies (2) of 26850
 
First of all: Thanks to teevee and yourself for the praise. Secondly: yes I do have experience in the diamond cutting business and also in mining exploration with a geological background.

With regards to your request: DeBeers is a very necessary part of the diamond world. The monopolistic and price-fixing reputation that the company has gained is true, but also unfair. Without their actions the diamond market would not be anywhere as healthy as it is and most of us wouldn't be spending our time discussing the subject. One of the ways DeBeers keeps the price of diamonds up is to "Starve the Market", this is done by reducing the amount and quality and quality of diamonds that they supply to their core clients (sight holders). This action allows the retail supply to dry up, thus forcing the wholesale and retail ends to pay more for the goods that their customer bases require and so on down the line.
We saw what happened to the small Indian quality goods (smaller lower quality) when Argyle (RTZ) announced that they were going to sell direct to clients and bypass the CSO. The drop in price was somewhere around 30%. The prices have since adjusted and the only ones who made a real profit were the rough dealers and possibly the manufacturers.
DeBeers' strategy involves both the above practice and also an extremely aggressive advertising campaign (as we have no doubt all seen). Unless the entire market changes and accepts synthetic diamonds the fact is that natural diamonds are a finite resource. This fact with the aggressive marketing of diamonds in new markets (i.e. China) shows us that DeBeers is a very forward looking entity. The importance of new mining regions such as the NWT must be of great concern to DeBeers and the CSO as they can create new rough sources for manufacturers to rely on.

With respect to possible take-over bids for WSP the only two possibilities are DeBeers and RTZ, as they are the only companies with the experience, and deep enough pockets, to acquire such an asset. DeBeers to hold the rough, RTZ to expand their operations further to include larger, better quality rough and hence expand their client base.

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