"De Beers challenges on the regulatory front are enormous," said Des Kilalea at Nedcor Securities in Johannesburg. "They have to adapt their business model to the demands of Southern African regulatory and legal changes as well as the challenge of expanding production to meet demand. And while the LVMH joint venture may have opened its third store, the restrictions under which it must operate in terms of supply make it more difficult," said Kilalea.
In a move that highlights Botswanas growing independence, the government last week awarded licenses to three customers of De Beers despite a shortlist of customers produced earlier by the South African company for potential cutting licenses. Currently, De Beers centralises its distribution at the Diamond Trading Company (DTC) in London. However the move to Botswana and the pressures in South Africa to supply more rough diamonds to the local industry have jeopardized the repeatedly stated objectivity of Supplier of Choice.
De Beers record sales were estimated around $6.4 - $6.6 billion for 2005, or even higher. Some warn about some tough challenges the company faces on the regulatory front next year. De Beerss carefully crafted Supplier of Choice policy, based on consistent supplies and objective criteria for all its clients to comply with EC antitrust laws has become increasingly blurred following an agreement with the Botswana government to move its distribution arm to the capital Gaborone.
Sources close to the protracted negotiations with the European Commission competition authorities suggest the Commission is proposing the termination of the trade contract between De Beers and state-diamond Company Alrosa starting from the beginning of 2009. The decision will follow a fresh round of talks after it emerged and the Commission had suggested a reduction to nil by the end of December 2007. Analysts and industry observers are looking at 2007 when the management contract of the Oppenheimer family ends. Some say this could mean De Beers will have to give up its complex sightholder system to sell its diamonds.
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