| February 20th, 2014


My senses have been sufficiently deadened not to be surprised to read that Jamie Dimon of JP Morgan is only going to be paid $20 million for his contribution to wealth creation in 2013.

This figure is only a modest 74% increase over 2012 and is due recognition of the fact that his organisation has had to pay nigh on $20 billion in fines in the past year.

I wonder what his pay would have been if JP Morgan only had had to pay $40 billion in fines?

Still in our own small (diamond) way, I have been perplexed over the years how the directors of Gem Diamonds continue to be paid so handsomely for their successful exercise in wealth destruction.

Maybe Gem’s annual results might surprise us, but the share price languishing around £1.60 after a bit of spurt, is oh so very far away from their listing price of £9 some seven years ago and that is forgetting the 100% dilution they had to go through to keep themselves afloat by raising $100 million not that long ago.

What has surprised me is what I have learnt about what was said at the annual De Beers cocktail party held for the first time in Gaborone.

I thought that that I was pretty immune from any sense of shock from that organisation, but as usual, I was wrong.

Something eminently sensible was said.

Once and for all we have got rid of all that guff about family members and it appears that, at last, Monsieur Mellier might be actually breathing life into that beached whale of an organisation.

Some chap contacted me purring over the fact that Mellier had categorically stated that De Beers were committed to the sightholder system, which was supposed to fill me with gloom.

My reaction was rather as Saki put it, a bovine sort of ragging suggesting a cow buzzing around a gadfly and thinking it was teasing it.

As far as I am concerned, you can call anything you like and if Mellier is true to his word, or to be more precise, if he is true to the detail that Paul Rowley, the new head of sales, gave, then I for one am not against a ‘sightholder’ system.

In essence, what I read into what I have been told and read, is that the new conditions for the sightholder system are so far removed from what was the intellectually corrupt previous system, that one is looking to all intents and purposes at a clean sheet of paper.

The caveat is of course if De Beers actually does what it says it will.

Inter alia, companies are going to have to submit annual unqualified accounts signed off by approved auditors.

Companies are not going to be assessed on a comparative basis, which was one of the wackiest and most devious aspects of the current Supplier of Choice system.

I have often banged on about how crazy it is that the DTC set itself up to be judge and jury over the comparative merits of one company over another; a fact that becomes even more startlingly outrageous when now we are told that qualified audit reports from any auditor were acceptable.

Without going into all the detail, sightholders are going to have to track the cost and value of their inventory at all times, the next thing we might hear about is that they might pay some tax…, but I do not want to overreach any expectations.

One other fun detail is that De Beers will set a maximum debt to equity ratio.

If this is actually implemented, there must be quite a few current sightholders, and that includes some of the largest, who must be feeling a bit green about the gills.

Another remarkable piece of common sense has also been pulled from the hat of surprises.

Sightholders are no longer going to be sightholders of the DTC, but sightholders of the De Beers Group of Companies.

I still recall that sunny July day in London in 2000 when Stephen Lussier got on the stage at Sadlers Wells to tell the gathered sightholders in breathless excitement that they were going to become DTC sightholders and the DTC was going to become the brand of brands…. And they were ever so lucky….

Of course, all that was happening was that De Beers wanted to hog all the value in the name (assuming there is a lot) to themselves and in particular to what was then the new venture into retail under the De Beers logo…. and of course the DTC brand has tanked.

As I said, all rather surprising.

There is another possible waiver to my surprise, when I hear that strategic supplies are going to be made available to those that can demonstrate exceptional plans to drive increased consumer demand, I get nervous.

Not because the concept is necessarily wrong, but I would suggest who consistently pays the highest price will by definition be forced to drive up polished prices.

Discretion in distribution, particularly in the hands of De Beers, has a most unhappy record.

Anyway, lets hope for the best, and in the meantime I will refill my glass to recover my equilibrium.

Source Polished Prices

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