Sarine Technologies

Transformation

The diamond industry underwent much changes with the emergence of lab grown diamond (LGD) as a meaningful category alongside natural diamond. In the midst of this change, recent geopolitical events accelerated this transformation fundamentally.

During this period, Sarine Technologies was transforming from a midstream player expanding to upstream and downstream diamond activities. It is a process that began almost ten years ago.

Post Covid-19 revenge spending in 2021 and geopolitics in 2022 causes natural diamond price to rise sharply. This accelerated the adoption of LGD following FTC recognition of the synthetic stone as diamond in 2018 and De Beers launch of LightBox in 2019. U.S. wholesalers aggressive entry into this sector eventually disrupted the otherwise slo-mo industry.

2023

The year began with producers holding rough price firm, robust retail sales and manufacturers hopeful that China post-Covid re-opening would drive demand. There were also expectation that U.S. wholesalers & retailers would begin the natural diamond restocking cycle.

Meanwhile for the first 8-9 months, manufacturers had been accumulating rough inventory at around 2022 level. But neither events occured as China grapple with a real estate crisis and U.S. buyers rely on memo sale because of falling polished diamond prices.

GJEPC finally stepped in to freeze rough import from mid-October to mid-December to rebalance polished inventory and support price.

In the midst of these technological, geopolitical and economic dynamics; Sarine revenue declined 27% to $42.9M and a loss of $2.8M. Meanwhile Trade revenue grew 61% and touches the $10M milestone. It is noteworthy that in 2020 Covid year; the company managed a profit of $2.4M on revenue of $41M.

Total inclusion mapped in 2022 was 35M. For 2023, 33M stones less than 0.9 carat was mapped alone. Inclusive of large stones, Sarine has gained marketshare in 2023 where industry polished export is lower than 2022.

During the 2020 pandemic, the firm freezes sales & marketing spend and headcount was reduced from 533 to 412 to edge out a profit.

In 2023 the situation have changed. Instead of cost cutting, Sarine have increased headcount back to 538 by end 2022 and restored sales & marketing spend.

This was necessary to push forward business development in A.I. Grading delayed by the pandemic. In addition, geopolitics have raised Traceability to high priority with G7 impending new sanction milestones.

Sarine Technologies

Sarine Technologies priorities for natural & lab-grown diamond are:

Traceability
A.I. and E-Grading
Growing LGD business
Dominating traditional natural diamond market:
- Inclusion mapping, planning & services
- Expanding small stones market

The firm has also iterated that Sarine is a technology company. An important strategic positioning that will define future activities.

Traceability

G7 sanction milestones has now been communicated to the industry. Sanction of all diamonds from Russia including those processed outside the country. This apply to both rough and polished diamonds and is effective from:

1-Mar-2024 for diamonds greater than 1.0 carat
1-Sep-2024 for diamonds greater than 0.5 carat.

While the effective milestone is clear; business politics are clouding implementation. For Sarine, the infrastructure established is clear.

Since 2022, the company have gained traction in clients adoption of SDJ Traceability. Notable names are:

Maison Boucheron
Aura Blockchain Consortium (LVMH, Cartier, Prada, OTC)
- Tiffany & Co. (LVMH) had adopted SDJ in 2020.
Bonas Group representing 8 mines
HB Antwerp
Rubel & Menasche

Stargems Dubai was the first tender house to take delivery of AutoScan Plus in October 2023.

Importantly, De Beers TRACR - Sarine Technologies collaboration has moved to Heads of Terms stage on 1-Mar-2024 and formally announced they are both ready for G7 import requirements. This is significant given that media had been reporting that G7 is piloting a blockchain-based, verifiable traceability system which will be operational from 1-Sep-2024.

Best of knowledge, there is only one company capable of automating verifiable traceability and providing a digital twins of provenance.

Note: GIA joined TRACR in Apr-2023.

A.I. Grading

Significant events in 2023 were 70% acquisition of GCAL New York, completed in May-2023 and installation of about 25 E-Grading suites at manufacturers facilities in 1H-2023.

On completion of A.I. Grading integration to GCAL NY processes, the subsidiary launched GCAL Surat in Jan-2024 targeting LGD sector.

In 3Q-2023 the firm also mentioned a 'unique business model' for utilising of e-Grading for natural diamond suppliers. This is likely referring to fine-sorting for inventory control and to pre-grade and price a diamond prior to sale.

Boucheron will also be A.I. Grading all centred-diamond in 2024.

Growing LGD Business (A 20M carats new segment)

Beside providing diamond dicing service to grow LGD; the firm has also initiated engagement in LGD planning and grading.

Revenue for LGD planning using Advisor 8.0 with a major launch customer has commenced in 1Q-2024.

GCAL by Sarine, Surat established in Jan-2024 is targeting the $100M LGD grading sector. Sarine aim to acquire 8-10% share by 2024.

Expanding Small Stones Segment (Traditional Business)

Most Valuable Planning (MVP) software for less than 0.4 carat stones was launched in Jan-2024 as an add-on to Advisor 8.0. Beside recurring revenue, this will also drive Meteorite Plus and Planning system sales.

MVP for < 0.9 carat planned launch in 2H-2024 together with Meteor Plus will likewise drive both recurring and equipment revenue.

With an addressable market of 250M stones and potential sale of 1,000 systems, this is an important growth engine for Sarine traditional business.

Plan is also in place to launch MVP for > 0.9 carat. This would be an interesting development as larger systems like Solaris, Galaxy 1000, 2000, Ultra & XL could be in play.

Strategic Partnerships

Management has stated that Sarine is a technology company. With time, the firm is likely to unfold more strategic partnership that effectively integrate her technology to the entire economic value chain.

TRACR-Sarine collaboration has enabled the company to work with a major producer to dominate the traceability value chain. De Beers with her scale, network and global reach have worked with lobbyist, technical committees and installed portals to meet G7 sanction requirements.

GCAL by Sarine established in Surat is in direct competition with IGI in the $100M segment. Interestingly, at this juncture, the company has only target natural diamond fine-sorting at manufacturers using E-Grading suites. This leave open the possibility of collaborating with natural diamond graders in the $500M segment.

Meanwhile, the company is already providing A.I. Grading services for high-end retailers. NGTC has adopted Sarine Light Performance in 2020 and is researching with Sarine on 4Cs A.I. Grading for the China market.

Best of knowledge is that Sarine is engaging retail clients on a white-label basis or Sarine grading certification. GCAL by Sarine is the channel for guaranteed grading certification targeting LGD especially.

Transformation

In 2024, we will witness Sarine Technologies continue transformation providing products & services for

Upstream producers, tender house, traders
Midstream manufacturers, expanding to small stone segment
Downstream diamond graders, wholesaler & retailers.

Success in the breadth and depth of this transformation will have significant implication for the company financial performance in years ahead.

2024

LGD price have since fallen to about a fifth of natural diamond and demand growth is maturing. The wide disparity in prices have started to differentiate both categories of diamond. LGD at lower price point is expected to cannibalise moissanite and zirconia substitutes.

Natural diamond demand is expected to improve with China gradual recovery and U.S. restocking expectation.

De Beers sight-2 continue to improve sequentially to $430M. India Jan & Feb24 rough import was 27M'carats. This is higher than 21.4M carats in 2023 and 25M carats in 2022. Polished export for two months was 3.4M carats. Rough/polished ratio of 7.9 imply polished output should continue to improve. Rough to polish turnaround time is typically one to several months depending on stone size.

With most of Sarine Technologies initiatives at various stages of commercialisation and scaling; the company outlook should improve going forward.

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