Chinese authorities have detained 21 Indians for smuggling diamonds. Another war in the offing?

By Kishori Krishnan Exclusive To Diamond Investing News

Close on the heels of Google threatening to walk out of China, diamond businessmen from India are contemplating winding up their China operations. Some 21 Indians were detained on January 8 by Chinese authorities on charges of illegally transporting diamonds from Hong Kong to Shenzhen.

India’s Gems & Jewellery Export Promotion Council (GJEPC) is said to be seriously considering pulling out of its China-based diamond cutting and polishing business and to relocate its activities to Hong Kong.

The Shenzhen incident has stunned diamond traders in India – the leading foreign presence at the Shanghai Diamond Exchange. The 21 men, mostly from the western Indian state of Gujarat, were charged with illegally transporting the gems from Hong Kong to the south China boomtown of Shenzhen.

External Affairs Minister SM Krishna has said that New Delhi would provide assistance to the 21 diamond merchants and that their rights would be safeguaraded.

Several diamond businessmen who had planned to expand their business in China are now doing a rethink, while awaiting the developments in the case involving the detention of the 21 diamond businessmen.

The arrests by Beijing has come in the wake of three Chinese engineers detained by India in Chhattisgarh in connection with a chimney crash at the BALCO (Bharat Aluminium Company Ltd) plant in Korba, where around 41 were workers were killed in September last year.

The Indians were reportedly part of a raid in which 50 people, including 35 foreigners were arrested in the southern Chinese city of Shenzhen.

The arrests reportedly came after a two-month investigation into a diamond smuggling ring which operated between Hong Kong and Shenzhen, in China’s Guangdong province.

Shenzhen media says a Chinese man was stopped by customs in the Hong Kong border and found to be carrying three bags of diamonds. His arrest was followed rapidly by the arrest of three Indian nationals, and then a raid in which 50 people were detained, noted media reports.

The crackdown comes close on the heels of the Google-China cyber espionage saga, which is still fresh in consumers minds.

Surat Diamond Association (SDA) vice-president Dinesh Nawadia said in a report: “We have come to know that many diamond businessmen of Surat, who had outlets at Shenzhen in China, have decided to reduce or shutdown their operations. The demand for diamonds will remain and those interested will come down to India.”

Relocating the Indian business to Hong Kong would also prove profitable. Diamond imports into China come with a 4 per cent duty for members of the Shanghai Diamond Exchange and 18 per cent for non-members, while diamond imports into Hong Kong have no such duty attached to them.

Interest strong

With the US market showing the first signs of recovery, demand for diamonds remains strong from both China and India.

And with demand expected to double by 2020, production is bound to increase, according to the Angolan News Agency (ANGOP), which quoted a top official of Angola’s diamond-mining company, Escom, as saying.

According to analysts, current world diamond production was 163 million carats and the value of production was an estimated US$ 12.7 billion.

Doubling of production would be a result of a rise in China’s market share to 10 per cent and increasing demand from India by 2015, as well as from retailers and long-term acquisition contracts.

Reports indicate that lack of top quality diamonds could lead to some price instability in the long term, but engage newer consumers.

Company News

Also recording an increase in demand for rough diamonds is the United Selling Organization of Russian diamond miner Alrosa (USO), which has noticed the change in the first weeks of 2010, and is expecting sales to exceed $300 million in January due to the increase.

Fyodor Andreev, President of Alrosa, has instructed the USO to develop a program of geographical diversification of the company’s sales operations, in particular through extended presence in dynamic new markets, primarily in India and China.

The firm has also initiated the conversion of foreign-based ARCOS network subsidiaries into full-fledged rough and polished trading offices.

In January, the Alrosa Group expects the total proceeds from core product sales (that is sales of rough and polished diamonds) to amount to over US$ 300 million.

If this positive demand dynamics holds, Alrosa does not plan any rough sales to Gokhran of Russia in current Q1.

Mining group Petra Diamonds has also noted the growing demand. Remember Petra? Notable sales during the period included a 168 carat white diamond from its Cullinan business which fetched $6.3 million.

“As we enter 2010 [we believe] the market to be in a much stronger position, particularly given that retailers and cutting centres will soon need to replenish their inventories in order to satisfy increased demand as global economic recovery continues,” an official of the company told the Guardian newspaper.

Petra said it was on track to reach its production target of 1.2m carats for 2010, with sales and production for the second half of 2009 up 43 per cent and 12 per cent respectively.

In the midst of all this comes news that Toronto-based Tahera Diamond Corp, which opened Nunavut’s first and only diamond mine to date, has officially put the defunct facility and related assets up for sale.

The company announced late Monday that it has received the approvals it needed to sell the Jericho mine. Tahera opened the Jericho mine in western Nunavut in 2006,   touting it as Nunavut’s first and only producing diamond mine.

The question doing the rounds is why is Teck Cominco, not interested? The latter put up quite a bit of money in the project.

In December 2006, Tahera Diamond completed a strategic alliance with Teck Cominco Limited, whereby Teck Cominco purchased, on a private placement basis, 30 million units of Tahera at a price of $1.00 per unit for gross proceeds of $30 million.

Wouldn’t this be the right time for the company to recoup its loses by buying it from the receiverat a discount?

Renewed interest in the sector has ensured that Toronto-based junior miner Tiomin Resources Inc (TSX:TIO) has reached an agreement to acquire Vaaldiam Resources Ltd (TSX:VAA) in an all-share deal worth approximately $8.3 million.

The new subsidiary will be a Brazil-focused diamond producer with a strong balance sheet and production of 20,000 carats this year and 40,000 carats by 2011.


S&P 5004280.15+72.88


Heating Oil3.50-0.01
Natural Gas8.61-0.16