De Beers might "significantly reduce" its number of sightholders and could be introducing changes to the way it allocates and sells its rough diamonds, according to Thomas Biesheuvel of Bloomberg. The miner's current six-year contract with buyers expires at the end of 2020.
The sources for the story are anonymous and De Beers said that no final decisions had been made, but Biesheuvel cites frustration among the long-term clients, many of which struggled over the course of a very challenging 2019, Many of De Beers' sightholders are manufacturers, and they were hit the hardest this past year as they found themselves with large stockpiles of hard-to-move polished diamonds, and thus with less need for new rough to polish. Unfortunately for them, De Beers typically does not take current need into account when selling its goods to contracted buyers, as the allocation of diamonds they receive is contractually established. De Beers did allow greater purchasing flexibility this year when the going got very rough, allowing buyers to defer and reject larger amounts of stones than usual, but they did not lower their prices until late in the year, which further squeezed the manufacturers' already thin margins.
"By reducing the number of its customers," Bieshuevel writes, "the company could help strengthen the remaining businesses." De Beers currently has about 80 sightholders, depending on how one counts those companies with different branches in several countries, and 12 'accredited buyers' - a category of regular customer introduced in 2015, which must have the same standard of financial probity as Sightholders but do not need to commit to the same level of spending (see their customer director here). De Beers will meet their buyers next week in Botswana for the company’s first sale of the year. Sources said they have been told to expect an update on possible changes during the gathering.
“We will be communicating directly with customers in the coming months about the new contract, which will focus on maximising the opportunities in the new diamond world,” the company said in a statement. Biesheuvel notes a "key point of contention is De Beers’s policy of allocating more diamonds to sightholders that have bought large amounts previously. It’s designed to reward the strongest buyers, but some in the industry suspect it’s resulted in irrational buying and dumping of stones, especially after De Beers allowed more flexibility in sales last year. De Beers has indicated it could change the allocation criteria to be more subjective, the people said."
Source: The Diamond Loupe
De Beers, Sightholders, Buyers Club, Rough diamond, rough sales, Bloomberg