Saul Singer: Investing in Physical Diamond (Day 1 - Session 3: Precious Metals Sector)


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Day 1- Session 3: Precious Metals Sector

Investing in Physical Diamond

Objective Capital Global Mining Investment Conference 2010
Stationers' Hall, City of London
28-29 September 2010
Saul Singer - Fusion Alternatives

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Saul Singer: Investing in Physical Diamond (Day 1 - Session 3: Precious Metals Sector)

  1. 1. day 1 - session 3: Precious Metals sector<br />Investing in Physical DiamondSaul Singer – Chief Investment Officer, Fusion Alternatives<br />
  2. 2. GLOBAL MININGINVESTMENT CONFERENCE 2010<br />Lead sponsors:<br />Media partners:<br />Other sponsors & participating organisations:<br />
  3. 3. Fusion AlternativesInvestment Diamond Specialist<br />
  4. 4. Legal Disclaimer<br />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. <br />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. <br />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. <br />
  5. 5. Content<br />Executive Summary<br />Industry overview<br />Diamonds as an alternative investment asset class<br />Barriers to entry<br />Fusion Alternative products<br />About Us<br />Contact information<br />
  6. 6. Executive Summary<br />Prices of investment diamonds set to remain strong into near future – 14%-17% absolute annual returns.<br />Diamond industry far ahead of other commodity or alternative investment markets in terms of pricing and liquidity. <br />Fusion Alternatives offers clients a suite of products facilitating a professional, discrete and efficient exposure to investment diamonds.<br />
  7. 7. INDUSTRY IN TRANSITION<br />The diamond industry has undergone tremendous change and development over the last decade.<br />Shift from being a supply controlled to a demand driven industry<br />Transition creates unique opportunities for new ideas/ paradigms to emerge.<br />
  8. 8. Diamond Pipeline<br />Mining <br />Costs<br />Rough <br />Diamond <br />Production<br />Sales to <br />Manuf.<br />Sector<br />Polished <br />Exports<br />From manuf.<br />Sector<br />Finished DJ <br />in Wholesale <br />Market<br />DJ<br />Retail<br />Sales<br />$6b<br />$12b<br />$14b<br />$20b<br />$35b<br />$70b<br />Significant value addition<br />Sources: FA & Idex<br />
  9. 9. Supply Side: Rough Diamond production<br />Heavily Concentrated<br /><ul><li>80% of global production controlled by 5 major players.</li></ul>No world class discovery made this decade.<br /><ul><li>High concentration levels will continue
  10. 10. No significant rise in production in the near-term.</li></ul>Demand > supply for larger, better quality diamonds.<br />Diamond production growth <br />low-to-mid digit range in terms of carats<br />10%-12% in terms of value<br />
  11. 11. Rough Diamond Production Outlook<br />
  12. 12. Demand side<br />Global demand has trended upwards for the last 7 years.<br />Demand growth > production growth.<br />Trend somewhat mitigated by inventory stockpiles held by major producers <br />Stockpiles now diminished to minimum working levels <br />Demand Drivers<br />Growing emerging market demand (Gulf, Chindia and Turkey,).<br />High-end jewellery market<br />Internet sales<br />
  13. 13. Global Retail DJ Sales – Demand Side<br />Robust upward trend c. 6-8% p.a.<br />
  14. 14. The whole picture: Supply vs. Demand<br />Source: RBC, Rio Tinto, De Beers, FA<br />
  15. 15. Diamonds as an investment asset class<br />Portable and liquid store of wealth<br />Stable and accepted monetary value<br />Traded on numerous physical and screen exchanges around the world<br />Increasingly standardized pricing & gemological characteristics<br />
  16. 16. Obstacles to the emergence of investment diamonds - solutions<br /><ul><li>Price Transparency
  17. 17. Standardized and globally accepted pricing mechanisms, indicators and benchmarks (e.g. Rapaport Price List)
  18. 18. Existence of large physical and virtual/online open secondary markets
  19. 19. Liquidity
  20. 20. Sophisticated global primary physical markets – NY, Antwerp, Mumbai, Tel Aviv, Dubai.
  21. 21. Online ‘screen trading’ markets
  22. 22. Annual trade in dealer market $4b
  23. 23. Standardization of asset classes
  24. 24. Independent Gemological Laboratory Grading Reports</li></li></ul><li>Investment Diamonds<br />Polished 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)<br />No strong correlation with other investment class.<br />Relatively non-volatile price movements<br />Inelastic downward price sensitivity.<br />
  25. 25. Diversification<br />Based on 10 years of monthly data<br />
  26. 26. Price Movements<br />
  27. 27. Investment Diamond Price Expectations<br /><ul><li>Investment diamonds increased by 20% and 38% in 2007 and 2008 respectively.
  28. 28. Down 12% in 2009 and up 18 percent YTD.
  29. 29. Demand set to outstrip supply into medium-term.
  30. 30. Expected natural price growth rate of investment diamonds into medium-term is 14%-18%. </li></li></ul><li>How To Invest In Diamonds<br />Investors looking for an exposure to investment diamonds currently have two choices:<br />Purchase shares of diamond miners<br />Directly purchase and hold diamonds<br />
  31. 31. Purchase Diamond Mining Equities - Disadvantages<br />Most of the major diamond mines are small parts of the global mining conglomerates so no significant gearing to diamond price. <br />Buying shares of small independent producers as a point of entry exposes investors to significant political, topographical and operational risk.<br />Equities are an imperfect substitute for exposure to the underlying commodity. Diversification benefits are reduced as the equities are correlated with broader share markets. <br />
  32. 32. Direct Purchase of Diamonds - Disadvantages<br />Investor is not an expert, very technical industry so investor might purchase diamonds with inferior investment grade characteristics<br />Investor has to directly arrange for insurance and storage, which can be quite expensive<br />Limited portfolio effect as most investor will not be able to purchase large quantities of stones with diverse characteristics<br />Relatively illiquid for non-industry participants -hard for individual investor to sell at a good price<br />
  33. 33. Emergence of Professional Investment Diamond Market<br />Over the last 2 years there has been a number of diamond funds launched.<br />Predominantly European based ETF funds.<br />Respective investment managers have erred in product development. <br />Key to successful diamond investment product is PRICE TRANSPARENCY & LIQUIDITY<br />
  34. 34. Pricing and Valuation of Polished Diamonds<br />There are thousands of categories of gem-quality polished diamonds.<br />The Investment Managers will invest in investment grade diamonds which are grouped into homogeneous categories based on gemological features of the diamond.<br />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.<br /> The emergence of deep and liquid B2B trading platforms has introduced real-time pricing and valuation data for polished diamonds.<br />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)<br />
  35. 35. Fusion Alternatives – Breaking the Barriers to Entry<br />Fusion Alternatives is the only investment manager specializing in diamonds as an alternative investment asset class.<br />Fusion Alternatives has created a number of different products giving clients a professional, discrete and efficient exposure to investment diamonds.<br />
  36. 36. Products & Services<br />Managed accounts<br />Private viewings and sale of special investment diamonds<br />Fund<br />Online investment diamond buying platform<br />Investment diamond trading desk<br />Research<br />
  37. 37. About Us<br />No other investment management team specializes in diamonds.<br />Management team fuses experience garnered from professional and investment services together with unprecedented experience within the diamond industry.<br />Fusion Alternatives’ Advisory Committee consists of leading figures from financial, commodity and diamond industries.<br />
  38. 38. Sound Bites<br />Prices of investment diamonds set to remain strong into near future – demand to continue to outstrip supply.<br />Diamond industry far ahead of other commodity or AI industries in terms of pricing and liquidity. All the pieces of the puzzle exist. <br />Diamonds are set to emerge as a true alternative investment asset class in near future.<br />FA is positioning itself to capitalize on these developments.<br />
  39. 39. Fusion Alternatives<br />Telephone #1: +44-(0)207-183-0244 (UK)<br />Telephone #2: +1-954-762-7639 (USA)<br />Email:<br /><br /><br />
  40. 40. GLOBAL MININGINVESTMENT CONFERENCE 2010<br />Lead sponsors:<br />Media partners:<br />Other sponsors & participating organisations:<br />