By Barney Jopson in New York and William MacNamara in London
Tiffany & Co, the US luxury jewellery retailer, is prepared to be more aggressive in financing diamond mines round the world in return for preferential access to supplies in the face of high prices.
Michael Kowalski, Tiffany?s chief executive, told the Financial Times it was ready to repeat an unusual deal struck this year to lend $50m to a mine in Sierra Leone in exchange for the right to buy its rough diamonds.
?We have recognised that it may be necessary to commit capital to assure diamond supply,? he said. ?We?re not going to bet the company on the mining business. What we would do is . . . look for selective opportunities.?
Tiffany?s policy is partly a response to high diamond prices and forecasts that supplies will fall short of demand due to the rising appetite of wealthy consumers and a lack of large, new mines.
?We are absolutely facing an environment of shortage, and the shortages are greater at the higher-quality levels, so we are in constant search of new supply sources,? said Mr Kowalski, whose company had global sales of more than $3bn last year.
Prices of diamonds have been pushed to record highs by growing demand from Asian buyers and by the resilience of wealthy consumers in the US, despite overall economic stagnation and growing income inequality.
The value of top-quality polished diamonds of 5 carats, or 1 gramme, has risen from about $100,000-$120,000 a year ago to about $150,000 a carat, according to PolishedPrices, which compiles wholesale market data.
It is unusual, but not unprecedented, for luxury retailers and precious gem miners to expand their businesses up or down the diamond supply chain.
De Beers, the world?s biggest diamond producer, has a jewellery retail franchise but no cutting and polishing business. Harry Winston is a mine investor and a marketer of diamonds.
Tiffany?s loan to Sierra Leone?s Koidu mine – which was overrun during the west African country?s civil war and reopened in 2002 – is its boldest step in a 15-year effort to integrate and internalise its supply chain.
The company has already moved from buying a majority of polished diamonds to buying rough stones, which are cut and polished overseas, notably in Antwerp, Belgium and then crafted into jewellery at US workshops.
Mr Kowalski said it was a ?powerful business model? that enabled Tiffany to gain a clearer view of diamond price moves, build up inventories and raise profit margins.
Controversy over ?blood diamonds? reaped amid Sierra Leone?s 10-year war has faded in recent years.
But Mr Kowalski said Tiffany had done extensive due diligence on Koidu and direct access to mines helped it assure customers that diamonds had been mined responsibly.
Additional reporting by Katrina Manson in Nairobi
? The Financial Times Limited 2011