Operating context

Some of the diamond sector's key trends and the factors that influence our business include:

BROADER ECONOMIC AND SOCIAL TRENDS
Earth Globe Europe-Africa

UNCERTAIN MACROECONOMIC AND SOCIO-POLITICAL CONTEXT
Amidst rising trade tensions and heightened policy uncertainty, global trade growth appears to have slowed.1

Increasing regulatory pressures coupled with rising social tensions place our employees, consumers and host countries under pressure.

Our response
Changes to the political and regulatory environments are closely monitored. Where necessary, we engage in dialogue with the relevant government representatives, building relationships and remaining well-informed of developments in this sphere.

CURRENCY VOLATILITY
While we receive our revenue in US$, we incur costs in local currencies.

The volatility of the local currencies against the dollar may adversely impact our profitability and cash-flow.

Our response
In addition to other risk-reducing factors, it is our policy to hedge a portion of future diamond sales in the short term when appropriate, reducing the risk of currency volatility.

CHANGING TECHNOLOGY
The rapid pace of technological change is creating immense transformations in the way companies operate. Continued digital advancement is affecting all parts of the diamond mining value chain, enabling diamond producers, midstream players and retailers to optimise efficiencies within their operations.

Furthermore, marketing campaigns that use digital technology have proven to deliver superior customer experiences that younger generations seek in making purchasing decisions.2

Our response
We continue to develop technology that enhances our operations, especially with regard to the reduction of diamond breakage.

TRENDS IN THE DIAMOND INDUSTRY
Ring

CHANGING CONSUMER PREFERENCES
Millennials and Generation Z, who value authenticity and individuality, are deeply influenced by their social conscience.
 
As Millennials strengthen their buying power, they become an increasingly influential part of the consumer market, with their preferences directly impacting the demand for our products. In fact, the large retail jewellery stores in China experienced growth as a result of resurging demand from millennial buyers and an increase in self-purchasing.

To remain relevant, the diamond industry must invest in understanding these generations.2

Our response
This changing consumer demographic means that we must adapt our approach to reaching these consumers. Their buying choices also often include responsible purchase choices. (See Increasing awareness for responsibly sourced diamonds.)

SYNTHETIC DIAMONDS
The demand for smaller, low-value natural diamonds is expected to decline in the short term as a result of the increased production of synthetic diamonds.

The long-term effects on natural diamond demand and price will, however, depend on consumers’ perceptions and preferences. Should the industry successfully differentiate natural diamonds, demand is expected to be reasonably protected3.

Our response
Mines, such as our Letšeng mine, which fetch higher prices for larger stones will likely not be negatively affected by the synthetic market. However, we continue to promote the premium brand of our rare, high-value diamonds through brand and marketing campaigns along with a strong focus on mining in such a way as to highlight the value derived for each stakeholder along our value chain.

DEMAND REMAINS UNEVEN

The overall sentiment in the rough and polished diamond markets improved marginally again in 2018 compared to 2017. The fast-paced growth of the US economy, increase in retail demand in China and economic growth in India had a positive influence on the diamond market during the year.

The market for smaller, commercial goods remained under pressure, however, with supply in excess of demand. Conversely, the demand for exceptional diamonds remained robust with Letšeng's high-value production showing less susceptibility to the fluctuating market conditions for smaller, commercial diamonds.

Our response
In response to the depressed market for smaller diamonds, we are pursuing the sale of our Ghaghoo mine.

The Letšeng mine places the Group at the top end of the diamond market in terms of the size and quality of its large diamond production, with its greater than 10-carat diamonds accounting for approximately 80% of its value in 2018.

INCREASING AWARENESS OF THE NEED FOR RESPONSIBLY SOURCED DIAMONDS
Consumers are looking to use their purchasing power to support brands they believe in. Growing importance is placed on the manner in which diamonds are mined.

Our response
We fully support the objectives of the Kimberley Process, which aims to eliminate the global trade in conflict diamonds and adhere strictly to its provisions.

We continue to ensure our diamonds are mined responsibly and focus on robust social and infrastructural development in the areas in which we operate. Through our direct investments in initiatives that create sustainable benefit for our project affected communities, we create awareness of the direct positive impact of our diamonds. Refer to our case study for further details.

1 OECD Interim Economic Outlook, Sept 2018
2 De Beers Group, 2018, The Diamond Insight Report
3 Bain & Company, 2018, Insights Global Diamond Industry Report