De Beers' luster threatened
De Beers faces new threats to its 60-year
control of diamond production
November 6, 1996: 7:38 p.m. ET
Diamonds.Net
LONDON (Reuter) -- For more than 60 years,
the South African mining giant De Beers has
controlled the secretive world of diamonds, but it
now faces serious threats to its grip on the
multi-billion dollar gem trade.
Anarchy in war-torn Angola, new finds in
Canada and, most importantly, tough-talking
Russians could end De Beers' illustrious cartel
and herald an age of turmoil in polishing centers
such as Antwerp, New York and Tel Aviv.
De Beers' hold on the market began to
loosen after Australia's Argyle, the world's
biggest diamond mine, severed ties with De
Beers' Central Selling Organization (CSO) in
June.
The move is not disastrous for De Beers, as
Argyle produces mainly small, low quality
stones, which made up only 6 percent of CSO
sales.
But the Australian firm's pull-out from the
syndicate is nevertheless a significant sign of the
times.
"This was a rather selfish act," said De Beers
Chairman Julian Ogilvie Thompson. "If everyone
did this, there wouldn't be a diamond market at
all."
The CSO, which has its headquarters in
London, was founded in the 1930s by Ernest
Oppenheimer, chairman of De Beers and
founder of another South African powerhouse,
Anglo American.
It now controls about 75 percent off all trade
in uncut diamonds, selling about $4.5 billion
worth of stones a year via so-called "sights" to a
select group of traders.
The sights are held 10 times a year at the
imposing CSO headquarters, where traders are
shown several boxes containing a selection of
diamonds for which they can make a bid.
The rough diamonds piled up in the CSO's
vaults do not only come from De Beers, but
from other producers all over the world. They
sell their stones to the CSO as the De Beers'
cartel guarantees them a steady demand and
stable prices for their stones.
In turn, De Beers takes a fee and promotes
diamonds through $400 million a year global
advertising campaigns to ensure people perceive
the gems as exclusive jewelry.
Now that Argyle has pulled out of the CSO,
the big question is whether Russia, the world's
second biggest producer, will stay in.
Russia and De Beers have been in talks for
18 months to strike a deal that should prevent
Russian diamonds from being sold outside the
CSO's control directly to diamond cutters.
These "leakages" began several years ago
when Russia, which accounts for roughly 20
percent of CSO sales, was still obliged under a
five-year pact to sell nearly all its diamonds to
the De Beers'-controlled cartel.
Most of the leakages, which started as a
trickle but quickly became a stream, were
plugged in February when Russia and De Beers
reached a framework agreement, which should
be the basis for a final, watertight marketing deal.
Russian officials raised hopes of a deal when
they said early in October that an agreement had
been drafted, but skeptics say this is no
guarantee a final deal is nigh.
"Russian diamond politics remain as
complicated and as unpredictable as ever," John
Helmer, Moscow correspondent of the trade
magazine Diamond International, told a
conference in London.
De Beers also faces a long-term threat from
Canada where mining giants RTZ-CRA, the
Anglo-Australian company, and Australia's
Broken Hill Proprietary Co. Ltd. (BHP) are
starting up diamond mines with huge potential.
BHP and partner Dia Met Minerals Ltd. still
have to decide how to market the gems they
expect to mine from Lac de Gras in the
Northwest Territories. But BHP has already said
it was exploring how to do business without the
CSO's involvement.
Similarly, RTZ-CRA, 60 percent owner of
the Argyle mine, has yet to decide whether it will
join the famed marketing cartel once it recovers
gems from the Diavik project in Canada's Arctic.
While De Beers is keen to start talks in
Canada and convince miners of the benefits of
the CSO, it is also working hard in Angola to
gain a strong foothold there.
Angola is the fourth biggest diamond
producer after South Africa, Russia and
Botswana.
However, nearly two decades of vicious
fighting between the government and opposition
Unita rebels have created anarchy right on De
Beers' doorstep.