THE TIMES THEY ARE A-CHANGING

by Bafoon

Trying to keep an ear to the pearling rails these days is a thankless task. Almost as fruitless as keeping one’s nose to the pearl grindstone.

Chats with some longtime pearl dealers in the States and abroad doesn’t bring tears of joy to one’s eyes because everyone (and I mean EVERYONE) is crying the blues. Those that aren’t are blowing smoke up others’ nether regions, that is. Or whistling tunes in the graveyard... both being essentially the same aimless endeavors these days.

What I have come away with is that the old ways of doing business in the pearl world are gone forever. For example: respected U.S. dealers are questioning whether the expenses and troubles of mounting exhibits at shows such as Tucson and Las Vegas are worthwhile anymore.

Show sponsors take note! Overcrowded and expensive events all over– particularly those entailing time-consuming, long distance travel– will surely cause movement away from the traditional mind-set of the past.

Look at what occurred with Dubai’s incredibly poorly executed and horribly quixotic gamble to establish a viable pearling event amongst those distant and once-gilded desert sands. I recently saw a report where only one house has been built on World (those many man-made islands that were going to usher in a new infusion of largesse to the region) and that some 5,000 imported, indentured laborers a day are fleeing back to their home countries.

Maybe the Sands Convention Center people knew what they were doing when they cut the JCK Show loose. I know the taxicab drivers hated the show (Easterners were loathe to tip) and the hotel-casinos wanted the show to leave town because so many exhibitors stayed up in their rooms and played gin rummy or mah-jongg with each other rather than gambling (gamboling, too).

A Shoe Waiting to Drop?

Submitted to this blog by The Bushranger

In the current issue of Jewellery News Asia, one can find a salubrious blurb about Arafura (Arafura Pearl Holdings LTD) that begins: "The year 2009 is a pivotal year for Arafura ..." and goes on to note that the company is "the second largest [pearl] producer located east of Darwin" and that "it is now the second largest quota holder in Australia." JNA also reports that the company "reported a net profit after taxes of some AUS$10.1 million … 121 percent higher than in the previous year."

"The increased profit was largely the result of significant increases in production shell numbers, which led to a significant increase in the market value of its shell inventory, noted [the company CEO and founding partner]," JNA continued.

And thereby hangs this tale of quite probable statistical finagling that may be poised to erupt on the Australian pearling scene.

Sales revenues for Arafura through June 2008 were reported at AUS$6,514,971, with other revenues of AUS$398,104. Employee expenses during that period were AUS$6,061,428. There were also equipment expenses, lease expenses, travel expenses and fuel expenses, to name but a few. Total Arafura operating expenses were nearly AUS$15,000,000. With all that overhead, how could an after-tax profit of more than AUS$10 million have been made?

For the first half of the following fiscal year, Arafura's total sales revenues were AUS$235,427 and operating expenses totaled AUS$8,107,463. This adds up to a nearly AUS$8 million loss by almost any reasonable calculation. Yet the company reported a before-tax profit of AUS$4 million. So where is that profit coming from?

In June 2008, Arafura's income statement showed an increase in non-current biological assets of AUS$22,325,412. By December 2008, that figure rose again by another AUS$10,351,838 to nearly AUS$52 million.

Last month, auditors finally took the company up on the question of in-house valuations made in the September 2009 Preliminary Final Report. They used the figure of ¥15,000 per momme instead of ¥18,000 per momme as a reasonable sales price, and projected a yen to AUS$ rate for projected future dated sales at 77 in lieu of 70. These calculations turn a net profit from ordinary activities before tax of AUS$5.46 million into a net loss of AUS$9.4 million. They correct the total equity position for the entity from AUS$54.79 million to approximately AUS$44.39 million. Further, what might not be obvious to those not familiar with pearl farming is the fact that the company assumes pearls and sales from their entire quota, something that simply does not happen.

In addition, Arafura is paying an interest rate of 13.9% on a bank loan of AUS$6.5 million, resulting in an annual interest payment of over AUS$900,000. That's against total annual pearl sales of just AUS$857,246.

When interest payments exceed sales and profits are touted, it seems to me something is, as the Japanese are wont to say, kusai (stinky). When you add in the fact that interest rates have recently increased, this situation is bound to get worse if the loan is set at a variable rate. The banks Down Under can no longer afford to turn a blind eye to these statistical shenanigans.

A Sinking Ship?

Submitted by Grimace-sama

I received this account from another attendee of the Hong Kong Jewellery Fair.
-TPP

I am admittedly in a bleak mood when contemplating pearldom these days.
In the recent issue of Pearl World: The International Pearling Journal, I was reminded of Stephen Bloom’s opus, Tears of Mermaids, due to come out next month. This book, if you remember, chronicles Bloom’s journey throughout the pearl world, meeting movers and shakers, magnates and journeymen, princes and peons. It is a snapshot of the pearl world as it used to be not too long ago.

But it is about as relevant as using a Civil War daguerreotype as a reference point when trying to assess the processes of modern warfare in the Middle East today.

I just returned from Asia and saw for myself what a hole pearldom has dug for itself. At the HK Show it was apparent that rodents were leaving the sinking ships in droves. Stalwarts in the Autore SSP camp such as Atlas, Arafura and Blue Seas were seen marketing directly on their own (with little apparent success, it appeared). The Paspaley and Wan auctions were about the same as ever, attendance-wise with the usual subjects, but movement of goods seemed quite constrained. Tahitian goods, lowering in quality likewise, seem mired in a price free fall, with little or no hope for many moons (years?) to come. And the bloom seemed to be off Chinese freshwater pearls, as fine goods were scarcer than ever, and qualities were sorely diminished (one reason: it is said that rice farming is now more profitable than pearl farming).

I wish I could break into a smile or a frenzied tarantella, but it is hard to stay agreeable when one’s stiff upper lip is just about chewed off as the pearling malaise continues its spread, much like the H1N1 flu these days.

With no vaccine in sight.

Grimace-sama