Johan Dippenaar: Diamonds are also a man's best friend

The Business Interview: The chief executive of Petra Diamonds tells Alistair Dawber how the world's most famous mine just keeps on giving
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The Independent Online

Johan Dippenaar took the precaution of sitting down before picking up the phone in his office on 24 September last year. It was a public holiday in South Africa and the man on the other end of the line, the manager of Petra Diamonds' biggest mine, was supposed to be on holiday with his family.

"His name comes up on the screen, and you're thinking, 'this guy is on holiday, so why's he ringing?' It could only have been very good news, or very bad news," says the miner's chief executive.

On this occasion it was very good news indeed. The manager said that a huge diamond had been dug out of the ground at Petra's Cullinan mine. It would later be called the Cullinan Heritage and would be sold to a jeweller in Hong Kong for $35.3m (£23m). Tests would reveal that at 507 carats, the "virtually flawless" stone was the 19th biggest diamond ever mined.

Almost a year on, and despite the monumental find, the chartered accountant seems rather unphased by the discovery.

The reason, perhaps, is that the group's Cullinan mine, found to the north-east of Johannesburg, has a glorious history of producing diamonds. Possibly the world's most famous rock, the Cullinan, was itself found close to last year's discovery, in 1905. At 3,016 carats, it is the biggest ever found and was bought by the Transvaal government and given as a gift to Edward VII.

"Er, no," is Mr Dippenaar's response when asked if another big find would ever be donated to the British Royal Family. More than a century on, and the £220m London-listed company owns 74 per cent of the mine, testimony, perhaps to Mr Dippenaar's acumen and ability in spotting a bargain.

The group was formed in 2005 when Petra, then a pre-production diamond explorer with assets in Angola, merged with Crown Diamonds, where Mr Dippenaar was already chief executive, a miner with projects in Sierra Leone.

The new company got its timing just right. Back in 2005, diamond mining giant De Beers was under pressure to sell assets and was looking to offload a stake in Cullinan, which despite its glorious history, was producing fewer landmark stones. "De Beers is a world leading mining company, but we do things differently," says Mr Dippenaar. "When you have a $6bn turnover, you might be looking for a $1bn profit, but when a mine may only be worth $10m to $20m, a group of our size can give it a different level of attention. Because we're not vying to overtake De Beers' volumes, we are less fixated with volumes, and more on the quality of the production."

So far, the business plan seems to the working. In its first year, the company turned over $17m. Now it is up to $177m. Petra says production will hit 2 million carats by next year, rising to 3 million thereafter.

"I think people were sceptical back in 2005. It was odd because this business model has been followed successfully in gold mining, oil and other resources sectors," says Mr Dippenaar. "You see hundreds of this type of company taking on end-of-life mines and oil wells from the majors and keep on producing for 10 or 15 years. It's a proven business model to step in after a major and extend the life of a mine or a well by many, many years. Cullinan has a resource of nearly 200 million carats. So there's lots of life left."

While the Cullinan Heritage captured the headlines, and helped to push up revenues by 88 per cent in the 12 months to June, trends in the wider market have also helped.

The stone was sold to Chow Tai Fook Jewellery, a Hong Kong-based group that has more than 1,000 outlets in China. Mr Dippenaar is coy about what the jeweller plans to do with the diamond, beyond saying that he has been in touch with the buyer, and that it will be turned into "something very special".

But he says that Chinese interest in the diamond market is indicative of where the power now lies in the world economy. "Nothing prepares you for visiting China," he says. "People have all sorts of misconceptions about it, especially saying that the Chinese are not great at protecting intellectual property and things like that, but they are not sitting around and waiting for Westerners to come and tell them what to do. They are just getting on with it."

The growth of markets like China, and of other markets in Asia, has all been factored into the equation. Mr Dippenaar points out that 20 years ago, 75 per cent of diamond sales came in the United States. Asian growth now means that fewer than half of all diamonds go to US buyers.

Petra's immediate focus is on increasing capacity to help meet the extra demand. As well as Cullinan, the group has a number of assets in their infancy, not least in Tanzania where it has a site in what Mr Dippenaar describes as the largest kimberlite asset in the country.

"We make long-range plans," says Mr Dippenaar. "We've got plans in place that go out for the next nine years. If no acquisition opportunities come forward, we will remain, albeit smaller than the majors, an important producer of rough diamonds.

"If our predictions are right then the market we're supplying will be so much bigger than it is today. And that will mean healthy pricing and very good returns."

And while not all the calls he gets in his office will be as exciting as the one he took last September, he will continue to sit down to take them in the hope that he gets more "very good news".

Johan Dippenaar

At leisure: Like many South Africans, Johan Dippenaar, 52, is a keen sportsman, although these days limits himself to games of squash and watching other sports from the comfort of the sofa.

Travel is also a priority during time away from the office, and a recent family trip to China encouraged his keen interest in learning about other cultures.

Unlike a number of chief executives, Mr Dippenaar is not a gadget freak. Indeed, one of his most treasured possessions is his family's tropical fish tank.

At work A chartered accountant by training, Mr Dippenaar has been a mining executive for more than 20 years.

Mr Dippenaar served as the chief executive of Crown Diamonds before it merged with Petra in 2005.