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Day 1- Session 3: Precious Metals SectorInvesting in Physical DiamondObjective Capital Global Mining Investment Conference 2010Stationers' Hall, City of London28-29 September 2010Speaker:Saul Singer - Fusion Alternatives
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GLOBAL MININGINVESTMENT CONFERENCE 2010
STATIONERS’ HALL ● CITY OF LONDON ● TUESDAY-WEDNESDAY, 28-29 SEP 2010
www.ObjectiveCapitalConferences.com
Investment Conferences
Investing in Physical DiamondSaul Singer – Chief Investment Officer, Fusion Alternatives
DAY 1 - SESSION 3: PRECIOUS METALS SECTOR
Other sponsors & participating organisations:
GLOBAL MININGINVESTMENT CONFERENCE 2010
Lead sponsors:
Media partners:
Fusion AlternativesInvestment Diamond Specialist
Legal Disclaimer This presentation contains certain forward-looking
information. This information is based on current expectations and assumptions that are subject to a variety of risks and uncertainties that are difficult to predict. Actual results could differ materially from those expressed in any forward-looking statements. Fusion Alternatives assumes no obligation to update these forward-looking statements as a result of new information or future events.
The information presented within this presentation is subject to change without notice. The information is presented as promotional material, Fusion Alternatives holds no responsibility to the accuracy of the information nor shall be held liable for any use, distribution or implementation of this information.
Fusion Alternatives does not intend to provide investment advice through this presentation. The information in this presentation is not to be construed as an offer to buy or sell, or the solicitation for an offer to buy or sell any security or asset. The presentation is for information purposes only and does not constitute a complete service or performance.
ContentExecutive SummaryIndustry overviewDiamonds as an alternative investment
asset classBarriers to entryFusion Alternative productsAbout UsContact information
Executive Summary1. Prices of investment diamonds set to
remain strong into near future – 14%-17% absolute annual returns.
2. Diamond industry far ahead of other commodity or alternative investment markets in terms of pricing and liquidity.
3. Fusion Alternatives offers clients a suite of products facilitating a professional, discrete and efficient exposure to investment diamonds.
INDUSTRY IN TRANSITIONThe diamond industry has
undergone tremendous change and development over the last decade.
Shift from being a supply controlled to a demand driven industry
Transition creates unique opportunities for new ideas/ paradigms to emerge.
Diamond Pipeline
Mining Costs
$6b
Rough Diamond
Production
$12b
Sales to Manuf.Sector
$14b
Polished Exports
From manuf.Sector
$20b
Finished DJ in Wholesale
Market
$35b
DJRetailSales
$70b
Significant value addition
Sources: FA & Idex
Supply Side: Rough Diamond productionHeavily Concentrated
80% of global production controlled by 5 major players.
No world class discovery made this decade.High concentration levels will continueNo significant rise in production in the
near-term.Demand > supply for larger, better
quality diamonds.Diamond production growth
low-to-mid digit range in terms of carats
10%-12% in terms of value
Rough Diamond Production Outlook
00 01 02 03 04 05 06 07 08 09(e)
10(e)
11(e)
12(e)
13(e)
14(e)
15(e)
16(e)
0
5
10
15
20
25
30
0
20
40
60
80
100
120
140
160
180
200
Production by value - $ billion Production by quantity - carats million
($b
)
(Ct
Mil)
Demand sideGlobal demand has trended
upwards for the last 7 years.Demand growth > production
growth.Trend somewhat mitigated by inventory
stockpiles held by major producers Stockpiles now diminished to minimum
working levels Demand Drivers
Growing emerging market demand (Gulf, Chindia and Turkey,).
High-end jewellery marketInternet sales
Global Retail DJ Sales – Demand Side
99 00 01 02 03 04 05 06 07 08 0910
(e)
11(e
)12
(e)
$0
$20
$40
$60
$80
$100
$56 $58$54 $55 $57
$61$65
$68$73
$78
$66
$74$80
$85
($ B
illi
on
s)
Robust upward trend c. 6-8% p.a.
The whole picture: Supply vs. Demand
Source: RBC, Rio Tinto, De Beers, FA
00
01
02
03
04
05
06
07
08
09
10
(e)
11
(e)
12
(e)-35%
-25%
-15%
-5%
5%
15%
25%
35%
-10%
-5%
0%
5%
10%
Diamond Production Growth Diamond Demand Growth
Dia
mo
nd
Pro
du
cti
on
Gro
wth
Dia
mo
nd
De
ma
nd
Gro
wth
Diamonds as an investment asset class
Portable and liquid store of wealth
Stable and accepted monetary value
Traded on numerous physical and screen exchanges around the world
Increasingly standardized pricing & gemological characteristics
Obstacles to the emergence of investment diamonds - solutionsPrice Transparency
Standardized and globally accepted pricing mechanisms, indicators and benchmarks (e.g. Rapaport Price List)
Existence of large physical and virtual/online open secondary markets
LiquiditySophisticated global primary physical markets – NY,
Antwerp, Mumbai, Tel Aviv, Dubai.Online ‘screen trading’ marketsAnnual trade in dealer market $4b
Standardization of asset classesIndependent Gemological Laboratory Grading Reports
Investment DiamondsPolished diamonds with the highest
ranges of homogeneous gemological characteristics. (Round Shape, 1-4ct size, D-H colour, IF-VS2 clarity, +Very Good make, GIA/HRD/GCAL certified)
No strong correlation with other investment class.
Relatively non-volatile price movements
Inelastic downward price sensitivity.
Diversification
Diamonds
DJ-Gold Russell Global
Wine
Diamonds 1
DJ-Gold 0.91 1
Russell Global 0.52 0.47 1
Wine 0.94 0.97 -0.35 1
Based on 10 years of monthly data
Price Movements
Jan-01Jul-01Jan-02Jul-02Jan-03Jul-03Jan-04Jul-04Jan-05Jul-05Jan-06Jul-06Jan-07Jul-07Jan-08Jul-08Jan-09Jul-09Jan-10Jul-10
0
50
100
150
200
250
300
350
400
450
Diamond Price DJ Precious MetalsRussell Global DJAIG
Inde
x Ja
n '9
1=10
0
Investment Diamond Price Expectations
Investment diamonds increased by 20% and 38% in 2007 and 2008 respectively.
Down 12% in 2009 and up 18 percent YTD.
Demand set to outstrip supply into medium-term.
Expected natural price growth rate of investment diamonds into medium-term is 14%-18%.
How To Invest In DiamondsInvestors looking for an exposure
to investment diamonds currently have two choices:
1. Purchase shares of diamond miners
2. Directly purchase and hold diamonds
Purchase Diamond Mining Equities - DisadvantagesMost of the major diamond mines are small
parts of the global mining conglomerates so no significant gearing to diamond price.
Buying shares of small independent producers as a point of entry exposes investors to significant political, topographical and operational risk.
Equities are an imperfect substitute for exposure to the underlying commodity. Diversification benefits are reduced as the equities are correlated with broader share markets.
Direct Purchase of Diamonds - DisadvantagesInvestor is not an expert, very technical
industry so investor might purchase diamonds with inferior investment grade characteristics
Investor has to directly arrange for insurance and storage, which can be quite expensive
Limited portfolio effect as most investor will not be able to purchase large quantities of stones with diverse characteristics
Relatively illiquid for non-industry participants -hard for individual investor to sell at a good price
Emergence of Professional Investment Diamond MarketOver the last 2 years there has
been a number of diamond funds launched.
Predominantly European based ETF funds.
Respective investment managers have erred in product development.
Key to successful diamond investment product is PRICE TRANSPARENCY & LIQUIDITY
Pricing and Valuation of Polished DiamondsThere are thousands of categories of gem-
quality polished diamonds.The Investment Managers will invest in
investment grade diamonds which are grouped into homogeneous categories based on gemological features of the diamond.
Most investment grade diamonds have traditionally been valued in the dealer market by an extrapolation off a generally accepted Price List – i.e. the Rapaport Price List.
The emergence of deep and liquid B2B trading platforms has introduced real-time pricing and valuation data for polished diamonds.
Pricing transparency for polished diamonds is far more advanced than other alternative asset classes which are actively traded for investment purposes (e.g. Art, Wine, Rare Coins, Uranium)
Fusion Alternatives – Breaking the Barriers to Entry
Fusion Alternatives is the only investment manager specializing in diamonds as an alternative investment asset class.
Fusion Alternatives has created a number of different products giving clients a professional, discrete and efficient exposure to investment diamonds.
Products & Services
Managed accountsPrivate viewings and sale of special
investment diamondsFundOnline investment diamond buying
platformInvestment diamond trading deskResearch
About UsNo other investment management team
specializes in diamonds.
Management team fuses experience garnered from professional and investment services together with unprecedented experience within the diamond industry.
Fusion Alternatives’ Advisory Committee consists of leading figures from financial, commodity and diamond industries.
Sound Bites1. Prices of investment diamonds set to
remain strong into near future – demand to continue to outstrip supply.
2. Diamond industry far ahead of other commodity or AI industries in terms of pricing and liquidity. All the pieces of the puzzle exist.
3. Diamonds are set to emerge as a true alternative investment asset class in near future.
4. FA is positioning itself to capitalize on these developments.
Fusion AlternativesTelephone #1: +44-(0)207-183-0244 (UK)
Telephone #2: +1-954-762-7639 (USA)
Email: [email protected]@fusionalternatives.com
Website: www.fusionalternatives.com
Other sponsors & participating organisations:
GLOBAL MININGINVESTMENT CONFERENCE 2010
Lead sponsors:
Media partners: