Diamond giant De Beers could extract the best value from its newly-opened Snap Lake and Victor mines, in Canada, by moving downstream and marketing the high-value stones produced at the mines as specifically Canadian-sourced gems through luxury outlets, suggests independent analyst John Kaiser.

Kaiser, who is also publisher and editor of Kaiser Bottom-Fish Online, is sceptical about the long-term viability of both mines, and Snap Lake, in the Northwest Territories, in particular, if looked at from the perspective of De Beers' traditional role as a rough diamonds producer.

“At present, costs at Snap Lake nearly match expected revenues, so keeping this operation going hinges on hopes that diamond prices will increase faster than costs,” he comments.

Although Victor also looks marginal, based on high capital costs and projected values, the mine produced particularly high-quality diamonds during bulk sampling, which could keep the operation in the black if the quality in the larger stones does not deteriorate.

Earlier this year, De Beers recorded a $965-million write-down of its Canadian assets, citing a strengthening Canadian dollar and rising input costs.

The diamond giant currently sells its diamonds to preapproved buyers, or 'sightholders' through its marketing arm, the Diamond Trading Company (DTC). It has also agreed to sell 10% of the diamonds produced at both Snap Lake and Victor to government-selected local manufacturers, on condition that they meet the DTC's requirements.

However, Kaiser believes that De Beers could achieve much bigger profits on production from Snap Lake, Victor and, in the future, the Gahcho Kue project, by branding and marketing its Canadian-sourced diamonds as high-end collectibles through luxury outlets.

“These are diamonds that are being produced through the toughest environmental standards in the world and are about as conflict-free as you can get,” he comments.

The government of the Northwest Territories, where BHP Billiton opened the country's first gem mine in 1998, has already done a lot of the legwork in this regard, in marketing its 'government certified' Canadian Arctic diamonds.

Kaiser also points out that De Beers has now resolved its antitrust problems at both the government and civil level, “and is now free to establish De Beers luxury outlets in the US”.

Further, by seeking to brand its Canadian-sourced gems, De Beers could gain an advantage against the looming threat of synthetic gem diamonds.

Because the Kimberley Process, which was set up to stem the flow of so-called 'blood diamonds', requires diamonds to be sold with a source certificate, marketers can use this as a way of maintaining the superiority of their product. Kaiser suggests.

“From a marketing perspective, which diamond will command a higher price...the one in a blue Tiffany box at the bottom of which it says 'Made in China', or the one where it says 'Mined from Victor'?”

“So, if it comes to this, what will De Beers do with its Canadian diamonds? Throw them into a box of generic diamonds offered to the dealers in Antwerp?”

Snap Lake and Victor are De Beers' first mines outside Africa.

Snap Lake will produce 1,4-million carats a year for 20 years, and Victor is expected to deliver 600 000 ct for a mine life of 12 years.

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