Some Privacy, Please...
February 06, 03When BHP-Billiton ceased the marketing of 35 percent of its Ekati mine through the DTC, some $150 million plus worth of rough (per year) became available for marketing through new core clients. After carefully considering dozens of applications, BHP-Billiton has now added six more companies to its exclusive client list.
Terry Janes, BHP-Billiton's vice president, has indicated that the company is not interested in publicizing the names, will not make any announcement and will neither deny nor confirm market rumors. (Nonetheless, no more than a stroll along the Hoveniersstraat is needed to get a solid, accurate list.) While respecting the privacy of the commercial relations between BHP-Billiton and its clients, the list nevertheless requires some observations, since this is a first test of the marketing approach adopted by the rough producer in the middle of last year.
BHP-Billiton has stated that it is interested in downstream involvement. It has invited companies to submit proposals that envisaged BHP-Billiton in a role that may be more than just the supplier of rough.
Though there were certain similarities between the expectations BHP-Billiton holds of its new clients and the Supplier of Choice criteria of the DTC, the company has retained greater flexibility in its own decision-making process. It is also not encumbered by an Ombudsman or a European Commission watching over the company's shoulders.
Therefore, the choices are certainly of considerable interest, especially in order to understand the direction in which the company may be going. The most fascinating aspect is that each and every company added to the list is also a major DTC sightholder! That's quite different from its earlier core-list which contained fewer and in some respects, a group of "less heavy" DTC clients. The additions include two Indian dealers with substantial downstream involvement and a Belgian rough dealer who represents one of the DTC's more publicized success stories on a strategic downstream partnership. The remaining companies are international players who are best known for their outstanding manufacturing qualities.
With possibly one exception (which may well be because of this writer's ignorance), each of the new clients seems to belong to the few dozen largest diamond manufacturing and trading companies in the world. It is clear that BHP-Billiton wants to deal with the "big guys". If one asks, "does size matter?" - the answer given by the Ekati miner is clear.
The most fascinating aspect, however, remains the fact that these are all sightholders - and major ones. This has many implications. If the main rough producers had each maintained their own select client list, with minimal overlap, the industry consolidation towards which we are heading would have been "broader" at the top of the pyramid. When all major rough suppliers consider the same or a similar group of customers as their core clients, preferred customers, sightholders, or whatever they may call them, the consolidation process will be greatly expedited. At Rio Tinto, for example, for very strong historical reasons (related to its 1996 breakaway from the DTC) there traditionally has been very little overlap. That's true even today.
There is also another way to look at the BHP-Billiton choices: hitherto, this 35 percent part of the Ekati mine was marketed solely through the DTC to DTC sightholders. The distribution channel may have been changed but otherwise that "status quo" has remained as is. The additional rough available to the market is not being directed to players who did not belong to the "traditional group" of recipients of this part of the Ekati rough. It's a most fascinating choice. As BHP-Billiton didn't feel constraints, it also didn't wait for the DTC decisions on its own future client lists - it simply did not seem to have been a consideration.
Out of respect for the commercial privacy of the firms involved we will, for the time being, refrain from publicizing the exact names - we have little doubt, however, that one way or the other, they will become part of the public domain in the days ahead. We wish the new clients and their suppliers all the best.