De Beers CEO Philippe Mellier.  Picture: SIMON DAWSON/BLOOMBERG
De Beers CEO Philippe Mellier. Picture: SIMON DAWSON/BLOOMBERG

DE BEERS, the largest producer of rough diamonds by value, would in coming weeks change the contracts it had with its buyers — or "sightholders" — making sure it could be more flexible when it came to sales, but also ensuring it had only the best clients, CEO Philippe Mellier said on Friday.

De Beers was also looking for ways to add more value to its production, he said, but this was unlikely to include plans to cut and polish the stones it produced.

The company, 85% owned by Anglo American, drives revenue generation with its Forevermark brand, one of the world’s leading diamond brands and one De Beers aimed to make the best within five years, Mr Mellier said in an interview with Business Day.

De Beers sells 10% of its diamonds in auctions and the balance through sights, the focus of adjusted contracts that have been the subject of talks between De Beers and about 80 clients. Those wishing to be sightholders with the new three-year contracts starting next April must apply from July.

"We will launch the new formula for the contracts in July," Mr Mellier said. "The principle is that the way these contracts work will be substantially different. We will finalise the terms and conditions of the contracts in a couple of weeks from now.

"The contracts we have now were designed 10 years ago and do not take into account the growth and volatility of the market, the competition and consolidation. It is very rigid and cumbersome and, at the same time, the financial aspect of the marketplace and the companies has changed because of the global financial crisis," he said.

"We want a simpler but more efficient process. We want the crème de la crème, the top guys from a financial point of view. If you tick the financial boxes, you can apply; if you don’t tick them, there’s no need to apply."

According to the De Beers website, "applicants must demonstrate good financial standing and reliability, have an excellent business reputation and fully comply with our best practice principles".

De Beers will be far more flexible in the diamonds it offers in boxes to clients, changing the mix on offer according to clients’ business requirements. "We want to be far more responsive to the market’s demands," Mr Mellier said. "We want to ensure the right goods are landing in the right hands as quickly as possible."

De Beers expects global rough diamond demand to grow between 4% and 5% this year compared to less than 3% last year and 2% a year earlier. De Beers ramped up production 12% last year to 31.2-million carats. It had operating profit of $1bn, a 112% increase, and contributed 15% of Anglo’s operating profit.

De Beers will start production of 5-million carats a year at the Gahcho Kue mine in Canada from September 2016. It is the 51% partner and operator in the project, so 2.55-million carats will be for its account for the 11-year life of the project. Mr Mellier declined to say what the capital budget was for the project, which is 80km from De Beers’ Snap Lake mine, but market estimates are about $850m.

He is confident that all the land, water and other permits needed to start the mine will be finalised before year-end, allowing De Beers and Mountain Province Diamonds to use frozen lakes and rivers as roads to haul material to the project. The partners have a temporary permit to start work on infrastructure.

Indigenous communities have raised concerns that De Beers will implement only the minimum environmental protection required of it and would like it to go a bit further, according to news reports in Canada. Mr Mellier said these concerns were part of the engagement around developing a new mining project and would not delay the start-up date.

Being part of the Anglo group of companies, De Beers is working with Anglo American Platinum in a project to underpin jewellery demand for platinum by linking it to engagements, weddings and declarations of love, meaning sales will be relatively resistant to upticks in the price.

De Beers has forged the diamond brand to be fairly price-inelastic by undertaking just such a marketing programme. While Forevermark has become about the No3 diamond brand in the world in just three years, the intention was to make it the leading brand within four years, Mr Mellier said. This would offset the threat posed by cheaper man-made or synthetic diamonds.