Contents - AL-Tax

5.1 Summary of Key Facts 71portion of the Diavik Mine’s production (25% by value) and reduces Tiffany’sdemand for rough channeled through the DTC’s sightholders. The analogous decision by Aber Diamond Corporation (part owner of DiavikDiamond Mines) to purchase Harry Winston, Inc., another prominent U.S. retailjeweler, in 2003, thereby integrating forward from production to retail sales andbypassing the DTC’s single marketing channel.As a result of these developments, the DTC now wields much less control overthe supply side of the rough diamond market than previously. In mid-2004, De Beersannounced that it controlled less than half of all rough diamond production, downfrom 70% 10 years ago. 8 In response, De Beers has stepped up efforts to consolidateits influence via several demand-side measures. Such measures include efforts toinduce retail jewelers to enter into exclusive supply arrangements with the DTC’ssightholders, 9 the creation of the De Beers Forevermark brand of diamonds and thesubsidization of sightholders’ parallel efforts to create valuable brand names andunique proprietary designs.As De Beers’ influence in the rough diamond market has diminished, Rio Tinto,BHP Billiton and the “juniors” (small, independently owned mines) have developednew channels for selling their production. As noted above, Aber Diamond Corporationhas integrated forward into retail sales and thereby established an internal,captive market for a portion of its production. Other producers have entered intoexclusive marketing arrangements with a single buyer. For example, Kimberley DiamondCompany, owner of the Ellendale mine in Australia, entered into an agreementwith The Marketing Company, a syndicate of well-known downstream firms withcutting, polishing, manufacturing and retail operations in Japan, China, Thailand,Belgium, New York and Dubai. 10 Striker Resources NL, owner of the Merlin diamondmine in Western Australia, entered into an exclusive supply agreement withKnightsbridge Corporate for the advance sale of its rough diamonds.Rough diamonds are also sold by tender, whereby the producer provides a smallnumber of prospective buyers with descriptions and preliminary valuations of theparcels on offer for purposes of soliciting bids. The parcels are sold to the highestbidder, typically in a cash transaction. Among others, Kimberley Diamond Companyhas traditionally sold a portion of its Ellendale mine’s production via tender. 11Another route to the disposition of rough diamonds entails selling to a groupof regular buyers, along the lines of the DTC’s sightholder system. For example,Aber Diamond Corporation sells its residual production to approximately 50 designateddealers and manufacturers; these transactions are not governed by a formalsales agreement, in contrast to De Beers’ single channel marketing model. Alrosa8 Bream, Rebecca and Nicol Degli Innocenti, “The Global Search for New Sparkles of Life,”August 23, 2004.9 This allegation is contained in the antitrust complaint filed by the BVGD.10 Ibid.11 See, for example, Kimberley Diamond Company’s Press Release entitled: “Record US$329/ctRealized From Kimberley’s 32nd Diamond Sale,” dated April 19, 2005.