Blackbook Diamond

DIAMONDS



Diamonds command admiration and awe. Rare and precious, they are the
hardest natural material on Earth - 58 times harder, in fact, than any other
known natural substance. It takes immense skill to unleash their fire, yet
even in an uncut state the beauty of diamonds inspires legends.
In early societies, diamonds were often thought to hold miraculous, magical
powers. That no tool could cut them, nor could even the fiercest natural
flame change them, was seen as proof of their supernatural origins. The
indestructible nature of diamonds has made them an enduring symbol of
eternal love.
The word diamond comes from the Greek word adámas, meaning adamant
or unbreakable, and indeed hardness is one of the qualities that has always
made diamonds so valuable. Measured on the Moos hardness scale,
diamonds score a 10, the highest possible rating. Diamonds are also
extremely high in luminescence, the ability to catch the light and sparkle
with different colors. Cut and polished to show off their brilliance, diamonds
have a visual appeal like no other stone.
The Greeks believed diamonds were tears of the Gods, the Romans shards of
stars. Their power to heal, to bestow wisdom, to ward off evil and to seduce
was considered so potent that, at one time, only royalty was permitted to
wear diamonds.
Even in our modern, more rational age, the largest diamonds are still imbued
with unparralleled mystique. The Cullinan Diamond, found in 1905, was as
big as an ostrich egg and weighed more than 3,106 carats. It remains the
largest rough diamond ever found, and two of the nine gems cut from it
adorn the British Crown Jewels. More recently, it took three years for cutters
to transform the De Beers Millennium Star into a 203 carat, totally flawless
pear-shaped diamond, so big and so perfect that experts cannot price it.












JOURNEY

Almost all of the diamonds that exist today began their journey more
than one billion years ago in superheated molten rock and under intense
pressure, hundreds of kilometres below the Earth‘s surface.



Everyone knows that diamonds are among the most precious items on earth.
But not everyone realizes that the journey of this stone is very long and
difficult and lots of efforts are required to develop its beauty from a rough
stone to a beautiful faceted gem.
A diamond‘s story begins deep in the earth – 100 to 200 miles below the
surface. Approximately 3 billion years ago, these stones were formed as a
result of unbelievable heat and pressure placed on carbon crystals.
Blasted to the surface in the magma of vast explosive volcanoes, they sped
upward at the speed of sound, too fast for their unique crystalline structure to
degrade into more stable, common graphite.
As the volcanoes eventually cooled, their hidden lode of diamonds remained
trapped within vast cones of hardened magma known as kimberlite.
Basically diamonds have two main uses: in Jewelry (due to their rarity and
beautiful appearance) and in Industrial Applications (due to their unique
molecular properties). In terms of quantity, about 30% of diamonds are of
gem quality and are distributed to experts for cutting, polishing and jewelry
production. The remaining 70% of diamonds are sold to industries for
cutting, drilling, grinding and polishing in industrial applications.
















THE 4 C’s
Every diamond is different. The 4Cs are a set of objective and
widely accepted standards used by jewellers and gemmologists to compare
diamonds. We first introduced the concept of the 4Cs in 1939 to help
consumers understand the different characteristics of a diamond. Though a
diamond's beauty and value are based on many factors, the 4Cs continue to
provide a common framework through which consumers, jewellery
designers and retailers can talk about diamonds.

CUT

A diamond's cut refers to the quality of the tiny surfaces, or facets, polished
onto its surface. A well-cut diamond reflects light internally from one
mirror-like facet to another and disperses it through the top of the gem. The
facets, known as the crown, culet, table, girdle and pavilion, are arranged
with precise, mathematical proportions to maximise a diamond's fire, life
and brilliance. The cut, the only element of the 4Cs influenced by the human
hand, is often considered the most important. A well-cut diamond may be
given a higher quality or value than one that is larger or of a better colour.

CARAT

Carat is a measure of weight, not size. One carat is equal to 200 milligrams.
The term is derived from the word carob; carob seeds were used as a
reference for diamond weight in the ancient world. Because larger diamonds
are rare, they are more valuable than the equivalent weight in several smaller
diamonds. A 1-carat diamond will generally cost more than two 1/2 carat
diamonds, assuming all other qualities are equal.

COLOUR

White or colourless diamonds actually occur in a range of shades - from
truly colourless to off-white. They are graded on a colour scale from D
(colourless) to Z. The differences between one shade and the next are very
subtle, so grading is done under controlled lighting, using a master diamond
sample set for comparison and accuracy. Natural diamonds also occur in
shades of blue, green, yellow-orange, pink, red, and even black. Known as
'coloured fancies', these stones are extremely rare and valuable. They are
graded according to the intensity of their colour.





CLARITY
Clarity refers to the presence of inclusions in a diamond. These are naturally
occurring features - wisps of minerals, uncrystallised carbon, tiny fractures -
formed deep within the diamond when it was first created. Though usually
invisible to the naked eye, they can influence the way light is reflected and
refracted. A gemmologist will examine a diamond under 10x magnification
before assigning a clarity grade from F (Flawless) to I (Included). The grade
may also indicate whether the inclusion is near the centre of the stone or
along its girdle, or outer edge.





DIAMDEL

Diamdel is the world‘s leader in the online auctioning of rough diamonds.
We pioneered the approach in 2008 when we broke with 44 years of
traditional direct sales to hold the diamond industry's first online
international auction sale.
Since then we have built on our capability, marketing all categories of rough
diamonds to bidders all over the world, using a broad repertoire of auction
designs.
Wholly owned by De Beers, Diamdel operates independently. Through our
safe, fair and transparent online environment, buyers from more than 600
registered businesses, seeking all grades of rough diamonds - from smalls,
grainers and near gem quality to +2 carats and large goods - can source what
they need at prices they determine.
With sales offices in Antwerp, Tel Aviv, Dubai and Hong Kong, our
Diamdel staff support online customers with information, sales completions
and follow through.

ELEMENT SIX
As diamonds are a miracle of nature, so synthetics are a triumph of science.


Element Six is the global leader in the design, development and production
of synthetic diamond supermaterials. Part of the De Beers Group, Element
Six is an independently managed global company with its head office
registered in Luxembourg, and primary manufacturing facilities in Ireland,
China, Germany, Sweden, South Africa and the UK.

For over 50 years, the core business has remained the synthesis and
processing of synthetic diamond supermaterials, a term which includes
manufactured synthetic diamond and other supermaterials such as cubic
boron nitride, tungsten carbide and silicon cemented diamond. While
synthetic diamond is well known as the planet‘s hardest known material, it
has many extreme properties and is one of the most useful and remarkable
materials. It is from carbon therefore, the sixth element of the periodic table,
that the business takes its name: Element Six.

Element Six‘s mission is to deliver extreme performance for end users
through innovative super material solutions. Element Six focuses on close
strategic development partnerships with customers to deliver customized,
innovative high performance products. The business consistently strives to
provide excellent customer service and continuous productivity
enhancement.

Element Six is made up of two businesses; Technologies and Ventures,
which are 100% owned by the De Beers Group; and Abrasives, which is
~60% owned by the De Beers Group, with Umicore, a major global
materials group, owning the remaining ~40%.















EXPLORATION

It takes years of searching, cutting edge science and sophisticated
technology, coupled with traditional mining know-how to find diamonds.
We explore in two stages, each supported by extensive field and laboratory
resources.




Early stage exploration - In the reconnaissance and discovery phases, we
decide where to explore and identify targets for further analysis by:
Conducting geophysical studies from the surface
Sampling soil and stream sediments for indicator minerals
Drilling to extract materials for examination

Advanced exploration - Not every discovery is an economically viable
kimberlite – in fact, the vast majority are not. We use the following
advanced techniques to determine which ones are.
Microdiamond analysis uses the size, frequency and distribution of tiny
diamonds to assess potential and prioritise projects

Macrodiamond analysis extracts diamonds from bulk samples to determine
grade and estimated value

Unparalleled diamond exploration experience, geological and mineral
expertise and globally benchmarked laboratory services support our
exploration activities.

EXPLORATION ACTIVITIES

We continually seek out new diamond deposits, investigate the outer limits
of our existing mines and analyse former mines to see if new technologies
can economically recover additional diamonds. Our current activities
include:
Angola - Early and advanced stage exploration



Botswana - Geophysical surveys and drilling of selected targets near the
Orapa Mine



Canada - Deposit assessment drilling of two satellite pipes in the Victor
cluster



South Africa and India - Technical reviews of data to define high priority
target areas





MINING METHODS

Each diamond deposit is different, which means our approach at each of our
operations must be different - tailored to the geology and conditions we find.
We use four different mining methods to access diamonds across of variety
of geological conditions:

1- Open Pit Mining
Trucks bringing ore back to be processed open pit mine in Botswana
Of all the methods we use to recover diamonds, open-pit mining is the most
common. We use open-pit mining when diamond ore appears near the
surface or is covered by a relatively thin layer of sand, cinder or gravel.





Our open-pit mines - in Botswana, Canada and South Africa - are impressive
feats of engineering, traversed by a variety of Earth moving machinery,
hydraulic shovels and trucks with 250 tonne payloads. The layout of each
mine depends on the size and shape of the diamond deposit as well as the
characteristics of the host rock. When an open-pit mine reaches a certain
depth, we may continue to mine the kimberlite pipe by constructing an
underground mine.






2- Underground Mining

Underground mining is probably the most technically complex of the
methods we use to extract ore and recover diamonds at our land based
operations. The choice of method used depends on the nature, shape and size
of the kimberlite deposit and the characteristics of the surrounding rock.

Diamonds are mined underground when:

Open pit mining becomes uneconomic - As the open-pit excavation around
a kimberlite pipe goes deeper, we balance the cost of waste removal with the
rate of diamond recovery. At an appropriate point in the life of the mine, if
the pipe continues to produce a high quality diamonds, and is of a suitable
structure, we may decide to mine it underground. Debswana‘sJwaneng
Mine in Botswana and DBCM‘s Venetia Mine in South Africa are likely to
―go underground‖ at some time in the future.



The kimberlite deposit is not vertical - Kimberlite is usually found in cone
shaped, vertical pipes, widening toward the surface, reflecting their volcanic
origins. Occasionally, horizontal and sloping deposits are discovered, where
weaknesses in the structure of the host rock has allowed the kimberlite to
form branches and dykes. If these occur at sufficient depth, we mine them
underground. De Beers Canada‘s Snap Lake Mine, in Canada's Northwest
Territories, has this kind of deposit.







3- Marine Mining

The Orange River that carried diamonds from the centre of South Africa to
the Atlantic Coast millions of years ago also deposited its precious cargo
across the ocean floor.
We mine diamonds from the seabed at depths of 90 to 140 metres. Our fleet
of five specialised marine mining vessels are nothing less than full mining
operations at sea; with each one capable of screening material recovered
from the ocean floor. We then airlift the resulting diamond rich concentrate
by helicopter for further processing on shore.
Backed by long-term investment and innovative technology, marine
diamond mining in Namibia has recently reached a milestone - surpassing
the annual volumes produced by the country‘s land-based diamond mining
activities. We use two different methods for our marine operations off the
south west coast of Namibia:



Horizontal marine mining - A remarkable seabed crawler, which uses
flexible hoses along the ocean floor, to bring diamond bearing gravels to the
surface.

Vertical marine mining - We use a large-diameter drill to bring diamond-
bearing gravels to the surface. While not able to cover the same surface
area, the drill is able to find diamonds at greater depths then the crawler.

Debmarine Namibia's environmental research focuses on greater knowledge
of the natural variability of the environment, understanding the
consequences of marine mining, and monitoring changes over time.



4- Alluvial Mining

Alluvial diamonds reached their current resting place after being carried by
wind and water down rivers over millions of years. Deposits of the resulting
alluvial diamonds stretch north from the Orange River Delta along the west
coast of Namibia.

Our alluvial mining operations, in partnership with the Namibian
government, involve four stages:

Exposing diamonds - Diamond ore is buried under as much as 40m of sand,
gravel and cement-like conglomerate. We use a variety of industrial large
scale methods to remove this material, known as overburden.

Holding back the sea - Alluvial mining takes place near rivers and the
ocean, so holding back the sea is an essential part of our work before we can
excavate diamond ore. In Namibia, where, in places, we mine 19m below
sea level, we build seawalls from the excavated overburden. At the end of
the mine's useful life, the ocean will quickly reclaim this land.

Excavation - Once the bedrock is exposed and cleaned, we excavate
diamond bearing ore for processing.

Processing - We crush the ore to liberate the diamond concentrate at its
core. The final concentrate, less than one percent of the original material,
goes on to a central plant where diamonds can be seen for the first time.





MINING OPERATIONS

Where we mine
From our first South African mines, established in 1888, our mining
operations have spread into the diamond rich countries of the west coast of
southern Africa and, half a world away, to the frozen tundra of Canada's
Northwest Territories.

Currently we have mining operations in:


1 Debswana



A 50/50 joint venture partnership with the Government of the Republic of
Botswana to mine the country's diamonds

Our partnership with Botswana, which is in its fifth decade, has contributed
to the transformation of an essentially agricultural country into a nation with
one of the highest economic growth rates in the world. Recognised as one of
the most successful public-private partnerships in the world, Debswana has
become part of the fabric of Botswana, enabling her people to unlock the
value of their precious natural resource and the potential of their country.

The search for diamonds in Botswana began with the discovery of three
small alluvial diamonds along the Motloutse River in 1955. It was not until
1967 that our geologists, exploring near the village of Letlhakane, found the
quantities of elemenite and garnets that indicated the presence of diamond-
rich ores.

Debswana was formed in 1978, as a partnership between Botswana and De
Beers to mine Botswana‘s diamonds. Today, Debswana boasts four open-pit
mines: Jwaneng, Orapa, Letlhakane and Damtshaa. Jwaneng is the world‘s
richest diamond mine and Orapa is the world‘s largest open-pit diamond
mine.

Debswana has been recognised by leaders around the world for how a true
partnership between a well-managed government and a commercial
enterprise can create value for both the country and the product.





Debswana at a Glance

The world's largest diamond producer by value
Contributes approximately 30% of Botswana's GDP, 50% of Government‘s
revenues, and is the country's main foreign exchange generator
Jwaneng, the world's richest diamond mine by value, is on its way to
becoming one of only a handful of super-pits in the world
Orapa, with the world's second largest diamond-producing kimberlite pipe,
is the world's largest open-pit diamond mine
Debswana is Botswana‘s largest private employer, with 95% of the staff
made up of Botswana citizens

Debswanas' four mines are:

Jwaneng



Jwaneng may mean "a place of small stones" in Setswana, but this mine's
significance De Beers and to the people of Botswana is unparalleled. The
world's richest diamond mine by value.

Lethakane



Letlhakane, which means "little reeds" in Setswana, is within the
Orapakimberlite area. It is the deepest of the Debswana mines.

Orapa



Orapa, which means "the resting place of lions" in Setswana, is our oldest
operating mine in Botswana and the largest open pit diamond mine in the
world.

Damtshaa



In 2003 Damtshaa, which means ‗water for tortoises‘ in Setswana, became
Debswana‘s youngest mine .

2 Namdeb Holdings



A 50/50 joint venture partnership with the Government of the Republic of
Namibia.

Diamonds have been part of Namibia‘s economy for more than 100 years.
First discovered by a railroad worker named ZachariaLewala near Lüderitz
in 1908, they prompted a diamond "rush‖.

The deposits along Namibia's coast and ancient river beds are so rich that
early prospectors could sometimes find stones glittering on the sandy surface
of valley floors.

Today, finding, recovering and processing diamonds is more complex, but
Namibia's resource of very high quality diamonds remains substantial. We
conduct land-based alluvial mining operations in Namibia's Northern and
Southern Coastal Regions, and marine-based mining in the Atlantic Ocean
off the Namibian Coast.

Since being established in 1994, our equal partnership with the Namibian
Government has added more to the country's GDP than all other mining
activities combined.

Namdeb‘s rich history goes as far back as 1920 when diamond-mining
companies along the Orange River were amalgamated to form Consolidated
Diamond Mines (CDM). In 1994 CDM entered into a new partnership with
the Namibian Government and Namdeb was formed.

In 2011, the ownership structure for Namdeb changed when the Government
of the Republic of Namibia and De Beers signed a new structure agreement
which rearranged and equalised the shareholding structure of Namdeb and
De Beers Marine Namibia.

Approximately 1 600 employees are employed. As Namdeb continues to
build its skills base, there remains a commitment to increase the number of
female employees within an industry that is traditionally male-dominated.

Namdeb Holdings at a Glance

Largest producer of gem quality diamonds in Namibia - 95% of the
diamonds we produce are gem quality, averaging the highest per carat value
of any diamonds in the world.

Second largest employer in Namibia, and largest taxpayer.

Namibia's biggest foreign exchange generator, contributing one in every five
Namibian dollars of foreign earnings.

Alluvial and marine mining activities cover 15,789 square kilometres and
include nine mining licences.

NamGem, our wholly-owned subsidiary, was Namibia's first diamond
cutting and polishing company.

Namdeb Foundation contribute towards sustainable socio-economic
development in Namibia.

Namdeb is a significant contributor to the Namibian economy and as a
glittering corporate citizen, the company has contributed more to the
national GDP than all other mining activities combined.

With the focus to sustain mining operations to 2050 and beyond, Namdeb
remains committed in being the pride of Namibia‘s Mining.











3 De Beers Canada



A wholly owned subsidiary of the De Beers Group

We began diamond exploration in Canada in the 1960s, as a small group of
geologists. Today we have two producing mines and an advanced
exploration project called GahchoKué.
We operate in northern Ontario and the Northwest Territories, which are
environmentally delicate, sparsely populated regions that have been
carefully husbanded by native Aboriginal communities for generations. So
we pay particular attention to respecting our surroundings and working with
local communities to create a legacy worthy of diamonds.

De Beers Canada at a Glance
Underground mining at Snap Lake Mine in the Northwest Territories

Open-pit mining at Victor Mine in northern Ontario

10% of Snap Lake and Victor diamonds made available to local
manufacturers

GahchoKué Project in the Northwest Territories is a joint-venture with
Mountain Province Diamonds (51% De Beers/49% Mountain Province
Diamonds)

Further exploration targeted around the Victor Mine

Licence area 7236 hectares



4 De Beers Consolidated Mines



A partnership between De Beers and Broad Based Black Economic
Empowerment (BBBEE) entity, Ponahalo Holdings Limited (74:26).

De Beers Consolidated Mines (DBCM) is the pioneer of the South African
diamond industry and where the De Beers story began. Formed in 1888, in
Kimberley, South Africa, today, DBCM is South Africa's largest rough
diamond producer.

Through its partnership with Ponahalo Holdings, DBCM reflects a wide
range of South African communities including our own employees and
retired workers, gender based and disability groups and leading
empowerment business people.

DBCM at a Glance

South Africa's largest diamond producer

Two mining operations, Venetia and Voorspoed, and surface diamond
recovery at Kimberley
- Venetia, South Africa's largest diamond mine, produces 40% of the
country's annual production
- Voorspoed, one of South Africa's newest mines, is an occasional source of
large and exotic coloured diamonds

We help to manage the Big Hole at Kimberley, a major tourist attraction in
the area a total of 1,007,676 hectares under licence. De Beers Consolidated
Mines Ltd. reported production results for the first half of 2012. For the first
half of 2012, the company produced 13.4 million carats of diamonds, down
from 15.5 million carats produced during the corresponding period of 2011.
DIAMOND PROCESSING



Processing diamondiferous ore and Diamond Value Management, the
strategy that guides our operations, are inextricably linked. Both aim to
maximise the value and life of our diamonds.
The method we choose to release diamonds from their surrounding ore -
usually kimberlite - depends on the properties of both diamonds and of the
host rock.

Crushing

We break and fracture the ore (the technical term for this is comminution)
using crushing and milling processes to reduce the particles fed into our
automated facilities and "liberate" diamonds.

Concentration

Diamonds are heavier than the material that surrounds them. Once the ore
has been crushed to a manageable size, we mix it with a slurry made of
finely ground ferrosilicon prepared to a specified density. In a method
known as Dense Medium Separation (DMS) that exploits the relative
densities of different materials, we apply centrifugal force to the mixture to
separate a diamond-rich concentrate. Downstream, we recover the
ferrosilicon for re-use.

At this point, we usually repeat the crushing and concentration stages to free
more, usually smaller, diamonds.


A piece of kimberlite with an exposed diamond




The process of recovering diamonds from kimberlite begins


Recovery

Diamonds have several remarkable properties that we're able to exploit to
recover them from the stream of prepared concentrate. They emit light under
X-rays enabling us to detect and separate them. They repel water and are
attracted to grease. When we mix the concentrate with water and pass it over
a grease belt, the diamonds adhere to the grease. And they fluoresce under
the laser sorters we use to further concentrate the processing stream.





MINING TECHNOLOGY



De Beers is the global leader in diamond technology. By investing in cutting
edge research and development through our technology arm, DebTech, we
are able to maximise the value and life of our resource.


DebTech has developed and provided diamond mining and sorting
technology since 1979. The company develops, commercialises and supports
specialist systems and techniques to:

Automate mining processes

Remotely monitor process and equipment performance

Facilitate marine mining

Ensure efficient diamond sorting



SUPPLY VERSUS PROFIT

The first half of 2012 ended in a state of despair for the diamond industry.
Prices have softened and trading is muted all around. De Beers and
ALOSA have reduced supplies but maintained high prices, despite that
liquidity in the manufacturing sector has tightened.

While sightholders have been bent on maintaining their long-term
relationship with De Beers by taking its high-priced goods, they finally came
to their senses at the June Diamond Trading Company DTC sight by
refusing their allotments. They have recognized that they can no longer
sacrifice short-term profitability for the promise of long-term supply.

Manufacturers must be sure that they can profit on the rough they buy in the
second half of the year if the industry is to avoid a prolonged crisis. Prices at
DTC and ALOSA, the two largest rough suppliers, are unsustainably high,
reflected by the fact that sightholders rejected the DTC goods in June.

ALOSA‘s management recently told analysts that its prices were stable in
the second quarter of 2012 and that it expects they will remain at these levels
for the remainder of the year. ALOSA prices rose 5 percent in the first
quarter.

DTC this week responded to the situation by informing sightholders they can
defer up to 50 percent of their next sight allocation provided they take the
goods before March 2013, when the current intention to offer ITO program
expires. This action will enable DTC to continue to hold its prices firm in the
short term. By ―enabling‖ the deferments, DTC is essentially telling
sightholders they can reject the goods at these prices, but these prices will
remain.

However, price pressures will persist as long as manufacturers are unable to
profit on their rough. Soon enough, sightholders will demand that DTC
accompany its lower supplies with cheaper prices. As Des Kilalea, an
analyst at BC Capital Markets, stressed, ―It is hard at this stage to see
sightholders willingly taking more rough post July unless the world looks
healthier and rough prices are more economic to process.‖

Rapaport Group has long maintained that price volatility is to be expected
and accepted as a normal part of doing business.

―Firms should develop strategies for dealing with downward moving
markets. Smart sellers recognize that inventory cost should be based on
replacement cost rather than historic cost. They remain profitable and
support market prices by selling cheap and buying cheaper. Lower prices are
a healthy part of the economic cycle as they create excellent buying
opportunities and higher profits for smart buyers who ensure that diamonds
remain an excellent value in uncertain times,‖ said Martin apaport,
Chairman of the Rapaport Group.

In fact, the mood in the diamond industry has turned quite pessimistic in the
past few weeks, and expectations for the second half of the year continue to
diminish.

Certainly the diamond market dynamics have changed. The U.S. has proved
to be a mainstay of stability, even as demand there is selective, while luxury
purchases in the growth markets of China and India have slowed.

These undercurrents were evident at the June trade shows in Las Vegas and
this past week‘s smaller Hong Kong Jewellery Gem Fair. The glum
outlook has resonated through the trading halls in Mumbai, Antwerp and
amat Gan.

The subdued atmosphere marks a significant difference from the first half of
2011 when dealer trading was in overdrive and Indian and Chinese polished
buying accelerated. Back then, a seller‘s market prevailed as U.S. retailers
played catch up with their Asian counterparts who were prepared to pay
higher prices as they competed for goods.

While easy credit to Indian buyers drove up prices throughout the pipeline
last year, the market has now turned as that easy access to cash has
disappeared.

Indian liquidity has depleted for a number of reasons. Consumer confidence
is down, government support is weak, inflation is rising and its currency
depreciating. In contrast to 2008-09, when domestic demand sheltered the
Indian industry from the global economic crisis, the local economy today is
serving to aggravate the uncertainty.

The dramatic devaluation of the rupee, which has lost about 25 percent in
value from one year ago, has stifled diamond trading. Indian industry‘s
rupee-held debt has become more expensive to pay back, while bank credit,
which was too loose for a number of years, has tightened. One banker
toldRapaport News that they are viewing new proposals with greater caution
as the market has weakened. Traders in Israel and Antwerp are also feeling
the credit pinch.

Polished prices have declined in the second quarter of 2012, as they did in
the first quarter. The apNet Diamond Index API for 1-carat diamonds is
expected to have fallen by 3 percent to 4 percent during the first half of the
year when final data is published next week.

The steepest decline emerged from mid-May to the present, reflecting the
caution that has enveloped the market in the past month.

Polished dealers are sniffing for bargains, while retail and wholesale buyers
– taking their cues from the weak economy - are still willing to hold back on
their purchases as they expect further price declines. Cash-strapped suppliers
have signaled a willingness to sell cheaper as they try to rejuvenate turnover.

These trends are bound to continue in the coming months as the trade works
to stimulate its profit margins. Increasingly, suppliers will sell cheap in order
to buy cheaper, and innovate to add value and spur profits.

Sightholders will leave goods on the table even beyond the July deferral
window if DTC prices do not reflect the market. While De Beers and
ALOSA appear intent to keep their goods in the ground and wait for
market prices to catch up to their own, the opposite will prove true.

As the trade expects the second half of 2012 to be as challenging as the first,
the downward market presents an opportunity for shrewd diamond cutters to
profit – as long as they have the courage to enforce just that. The long term
supply promise means little if they can‘t make money today.

DTC explained that its level of supply to each sightholder is determined by
the sightholder‘s relative score on its contract proposal questionnaire,
combined with DTC‘s forecast availability in each category of rough
diamonds.
Shine noted that the most significant element of the new supply of choice
contract will be that

DTC has adopted a dynamic distribution policy whereby companies buying
goods from Diamdel may still be invited to apply for a sightholder supply
contract after March. The invitation will be based on their demonstrating
strong demand for a particular category of goods and subject to
DTC forecasted availability.

Still, she stressed that the company is committed to the supplier of contract
system and dismissed concerns that arose since Anglo American agreed to
raise its stake in De Beers from 40 percent to 85 percent, that De Beers will
reconsider its sales mechanisms beyond the coming three year contract.

Monitoring Ends for Zimbabwe, South Africa to Take Over Kimberley
Process

The Kimberley Process' plenary in Washington D.C. concluded today with
the organization ending its monitoring on Zimbabwe and agreeing to add an
administrative support team. Kimberley Process chair Gillian Milovanovic,
who steps down as chair at the end of the year as chairmanship transitions to
South Africa on January 1, said that Zimbabwe had completed what was
required and that the monitoring team had only been approved for a specific
period of time.

"Zimbabwe was reintegrated in Kinshasa in 2011 with a regime of
monitoring, which was voted for a period of one year. Over the course of
that year, Zimbabwe put in a significant good faith effort — it did, in the
opinion of the monitors who went to Zimbabwe on repeated occasions, put
in good effort — and did achieve most of the things it needed to achieve and
in some cases did better than one could have hoped for," Milovanovic said.

While declaring that "the special monitoring regime is no longer in effect"
for Zimbabwe, Milovanovic noted that the process the Kimberley Process
placed upon Zimbabwe had given the country "a good record on which to
base itself." She added that good governance set in Zimbabwe in this year
was already paying tangible dividends, including in the country's
―willingness to abide by such things as accesses to Marange fields by non-
governmental organizations (NGOs).

The handling of Zimbabwe's compliance, she explained, showed that "the
Kimberley Process has demonstrated it can act and do something concrete
and do it on a non-punitive and developmental and assisting manner.

"What it means is the same as it has meant before — the Kimberley Process,
as a result of this monitoring, has determined which sites are fully compliant
and in terms of Zimbabwe being eligible to issue Kimberley Process
certificates they are able to do so," Milovanovic (pictured) said.

Although civil society member, Partnership African Canada (PAC),
accepted the Kimberley Process' stance on Zimbabwe and its admittance into
a number of working groups such as the Working Group on Monitoring, the
Committee on Rules and Procedures and the Working Group of Diamond
Experts, it still had reservations about the nation's handling of its diamond
revenue.

"We recognize the agreement on Zimbabwe, but we have concerns about
revenue transparency," said Alan Martin, the director of research for PAC.
"Lost diamond revenue is a real problem."

Martin also criticized the Kimberley Process for its limited focus on
Zimbabwe. "We are troubled by the fact that the Kimberley Process
recognizes, but fails, to enshrine transparency and good governance."

He also said that PAC was troubled by "the obstructionist behavior by
several participants" at the Kimberley Process, noting that "ultimately this
approach undermines the Kimberley Process further and their best interest."

Martin's view was shared by Zimbabwean diamond expert, human rights
activist, and founder of the Zimbabwe-based Center for Research &
Development, FaraiMaguwu.

"The Kimberley Process is happy and satisfied that all issues relating to
Zimbabwe have been addressed. In my view, there ought to be some
connection between Kimberley Process compliance and revenue
transparency,'' said Maguwu. ''While this is regarded as a non-issue, I
believe the Kimberley Process ought to ensure that diamond revenues are
properly accounted for. Reconciling diamond production, exports, sales and
revenues will end suspicion, speculation and mistrust, which, if not handled
properly, can result in violent conflict."

Limited Mandate

Milovanovic respectfully disagreed with Martin's criticism. "There are
number of things that Alan has said that perhaps approach some as
extremely negative, but there are a number of things that are simply a matter
of fact — revenue transparency discussions are not a part of the Kimberley
Process," she said.

Milovanovic added that "our intention has been to recognize that the
Kimberley Process is not going to do everything — it's not an organization,
it‘s a process, its capacities are limited."
Part of the role of organization, she explained, was to "bring together other
organizations to cooperate with issues outside of the mandate of the
Kimberley Process.

"Some aspects are specifically the responsibility of the Kimberley Process
and some the responsibility of others," she said. While diamond revenue
transparency is important, she declared, ''There are a range of organizations
in existence that are working on this problem."
CONFLICT DIAMONDS



De Beers plays an active role in the Kimberley Process which aims to
eliminate conflict diamonds from the legitimate diamond supply chain.

The United Nations defines conflict diamonds as those ―that originate from
areas controlled by forces or factions opposed to legitimate and
internationally recognised government, and are used to fund military action
in opposition to those governments, or in contravention of the Security
Council‖.

In May 2000, diamond-producing states met in Kimberley, South Africa, to
discuss ways to stop trade in conflict diamonds and ensure that diamond
purchases were not funding violence. Since then, De Beers has been an
active participant in the Kimberley Process, bringing together members of
the diamond industry and working with them to ensure the Kimberley
process is continuously strengthened.

Today, the Kimberley Process ensures that more than 99% of the global
production of rough diamonds is certified to be from conflict free sources.











How the Kimberley Process works

The Kimberley Process, and its certification scheme, is an international
government-led cross-sector initiative, which draws on the contribution of
both the diamond industry and civil society.

States participating in the Kimberley Process have to meet minimum
requirements through the enactment of national legislation and ensure
relevant institutions meet certain standards and processes. This includes
import and export institutions as well as internal controls. Member states
must also commit to full and transparent exchange of statistical data.



The Kimberley Process Certification Scheme requires rough diamonds to be
transported in sealed, tamper-free containers accompanied by forgery-
resistant certificates.

Issued by the exporting country‘s government, each certificate has a unique
serial number. They are backed by a system of internal controls in the
producing countries, as well as those countries that trade, cut and polish
rough diamonds.

The System of Warranties

The System of Warranties is a business to business scheme that applies to
both rough and polished diamonds. It requires companies to implement a
system that ensures all invoices for the sale of diamonds, and jewellery
containing diamonds, include a written assurance, ‗based on personal
knowledge and/or written guarantees,‘ that the diamonds are conflict free.
Records of all warranty invoices given and received must be kept and
externally audited on an annual basis.
DIAMOND INDUSTRY FINANCING

Diamond production and manufacturing are capital-intensive segments of
the value chain that require significant funding, particularly for the smaller
players. At either end of the chain—producing and retailing—players can
generally gain access to financing without difficulty. They can obtain loans,
issue equity or even tap government sources.Players in the middle of the
chain, however, have a much harder time. Access to working capital is
essential to keeping their businesses going, but these small enterprises
typically have no assets to use as collateral, so traditional finance approaches
will not work. This is where the ―diamond banks‖ step in.

Diamond banks provide two main types of working capital financing:
accounts receivable and loans. Two banks stand out in this arena: ABN
AMRO, a Dutch bank that focuses on large companies, and the Belgian bank
ADB (Antwerp Diamond Bank), which specializes in midsize companies.
Each controls a significant share of the market. Other players include the
nearly 60 Indian banks that serve the growing market in that country. The
Indian government gives these banks preferential interest rates and subsidies
in order to promote the diamond industry.

When credit availability came under intense pressure during the recent
economic crisis, some observers questioned whether the diamond industry
would become too highly leveraged. During the crisis, the leverage ratio did
rise sharply. Much of the debt burden was carried by players in the middle of
the chain, including the small-scale cutters and polishers that are required to
pay cash for rough diamonds, sometimes even before they take delivery.
These cutters and polishers in turn provide credit lines to jewelry
manufacturers and retailers, which often do not pay it back until the
diamonds are sold. During the economic crisis, many of these cutters and
polishers found themselves squeezed from both sides and unable to pay off
their debt.

As a result of the squeeze, many of the players in the middle trimmed their
inventory and tightened their credit requirements. In some cases private
families, especially in India, injected their own capital into their businesses.

Overall the crisis had a beneficial impact in that the industry became more
prudent in its use of financing. The leverage ratios have returned to pre-crisis
levels, and a consensus has emerged that debt levels in the industry have
returned to historical levels. Demand for jewelry continues to rebound,
prompting many observers to conclude that the industry has weathered the
crisis well.
ASM

The one bright spot of the plenary was that it did achieve adoption of an
Administrative Support Mechanism (ASM), which will be provided by the
World Diamond Council (WDC), said Milovanovic.

The Kimberley Process agreed to allow the WDC to host the new ASM for a
full year, starting on January 1, 2013, though it also affirmed restrictions on
individuals working in the ASM from engaging in any Kimberley Process
committee work. An evaluation of the ASM was scheduled for the 2013
intercessional meeting mid-year, although that could be changed by the new
chair.

Eli Izhakoff, the president of the WDC, noted that the, "ASM is something
that the industry has advocated for a long time. It was finally approved and
we are looking forward to providing much needed support to the chair, and
especially to the incoming chair -- should it ask for it."



In his opening speech to the plenary on Tuesday, Izhakoff explained that the
ASM "will provide logistic, organizational and communications support to
the Kimberley Process on an ongoing basis.'' He went on to explain that the
WDC's management of the ASM will be done "with the collaboration of
four of our members, which include the Gem & Jewelry Export Promotion
Council of India, the Israel Diamond Institute, the Antwerp World Diamond
Center and the Diamond House of the Government of Ghana."

Izhakoff added, "The management of the ASM will be, in the very best of a
Kimberley Process traditions, an international cooperative effort, joining
East with West and North with South. And, as one should expect, it will
have a strong African component."



CONCLUSION

This report aims to start stripping away some of the mystery surrounding the
global diamond industry by explaining the significant historical
developments and illuminating the major trends shaping the economic
outlook. Although some parts of the industry—pricing, in particular—
remain obscure, the report provides macroeconomic and industry-specific
data to support an economic forecast of the supply and demand for the
coming decade. As long as major global financial turmoil over an extended
period does not force consumers to significantly change their purchasing
habits, global demand is set to outstrip supply in the long run, and the future
of the diamond business looks bright.

The extraction starts with mining, and ends with consumers buying the
products, whether its for jewellery or for industrial purposes. Either way, the
diamond is carried along from the toughened ground, towards us as people.

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produce at this rate, and expect to be continually producing for this rate for ,
this seems like a very, viable source of mining diamonds.

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and has standards that are impressive in every factor.

This is easily a very sustainable resource, and will be available for
generations.
Equitability wise, the trade and labour areas of DiavikDiamondsarevery fair.