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De Beers

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De Beers was initially founded in South Africa in 1888 and today comprises rough diamond exploration, mining and trading companies. The various companies within the De Beers “family of companies” are responsible for around 40% of world diamond production by value. De Beers is active in every category of diamond mining: open-pit, underground, large-scale alluvial, coastal and deep sea. De Beers is not involved in informal small-scale diamond mining, which is rarely economic for large mining companies.

De Beers has a presence in 25 countries, largely on account of its extensive exploration activities. Mining takes place in Botswana, Namibia, South Africa and Tanzania. Mining in Botswana takes place through the mining company Debswana, a 50-50 joint venture with the government of Botswana. In Namibia it takes place through Namdeb, a 50-50 joint venture with the government of Namibia. Mining in South Africa mining takes place through De Beers Consolidated Mines (DBCM), a partnership with the broad based black economic empowerment partner, Ponahalo Investments. In Tanzania it occurs through a partnership with the government of Tanzania, 75% owned by De Beers, 25% by government. In 2007, De Beers is expected to open its first mine in Canada (called “Snap Lake”, located in Canada’s North West Territories).

The sales and marketing arm of De Beers is a company called the Diamond Trading Company (the DTC). This company sells around 45% of the world’s rough diamonds by value (the DTC sells the diamonds mined by De Beers, as well as diamonds currently purchased from the Russian diamond mining company, Alrosa). The DTC also creates and develops marketing programmes to stimulate interest in, and demand for, diamonds and diamond jewellery.

The rough diamonds sold by the DTC are purchased by a group of the world’s leading diamantaires known as “Sightholders”. Sightholders buy tailored assortments of rough diamonds from a blended (or aggregated) “mix” of diamonds from the different mines. These clients are chosen following assessment against a set of objective selection criteria according to their ability to add value to diamonds as well as their audited adherence to the DTC’s Diamond Best Practice Principles, which cover business ethics, the Kimberley Process and the industry’s System of Warranties, labour standards, health and safety as well as environment.


History

Early history

Diamonds ascended to the earth’s surface millions of years ago in molten rock called kimberlite, which solidifies to form “pipes” rich in diamonds. Today, most diamonds are extracted by mining companies from solid kimberlite pipes in formal mines covering a small surface area. Some pipes erode over time and release diamonds that are transported great distances to form low concentration alluvial deposits in riverbeds. These are rarely economic for mining companies and are mined by individual or small groups of diggers using simple tools.

Diamonds were initially discovered in India, and later in Brazil, as small alluvial deposits. The first authenticated diamond to be found in Africa was discovered in 1866 on the banks of the Orange River in South Africa. It became known as the Eureka diamond. Around three years later another, larger diamond (which became known as the Star of South Africa) was discovered close to the Orange River. The interest generated by the Star of South Africa led to the start of a diamond rush in the area. The history of De Beers is closely tied to the initial discovery of diamonds in South Africa.

Between 1869 and 1871, a diamond rush to alluvial, or river, diggings was underway at Klipdrift, near the Orange and Vaal rivers. Major finds were later made inland, including the discovery of diamonds on the farm Vooruitzigt, which was owned by the de Beer brothers, Johannes and Diederik (the name of these two brothers that owned the farm on which some of these early deposits were found is where the De Beers derives its company name). Soon after, the de Beer brothers sold their farm and mining of the diamond-bearing kimberlite rock was soon to begin.

Significantly from a De Beers perspective, Cecil John Rhodes travelled to the site of the diamond rush in 1871. Over the next couple of years, he and his partner, Charles Rudd, built up capital in order to purchase diamond claims (originally claim ownership was limited, but later relaxed allowing Rhodes and Rudd to increase their interest in the diamond areas).

Soon after, Barney Barnato arrived in South Africa and when limitations on claim ownership were completely removed (which led to syndication), Barnato began to buy up claims in the centre of the Kimberley mine (one of the kimberlites on the de Beer brothers’ farm, along with the De Beers mine, of which Rhodes’ company won control in 1887). Barnato began to increase his interest in the Kimberley mine and by 1887 he and Rhodes were in position to vie for control of the diamond production in the area. Eventually, the loyalty of Rhodes’ financial allies led to him taking a stronger interest in the Kimberley mine (as well as the De Beers mine), with De Beers Consolidated Mines Ltd officially incorporated on 12th March 1888 (this is the real origin of De Beers as it is today).

In February 1890, De Beers signed a sales contract with the newly formed "London Diamond Syndicate", whereby the entire production from all the De Beers mines was sold to the members of the “Syndicate” (these members represented the major diamond traders from London). The “Syndicate” later became the model on which Ernest Oppenheimer (then Chairman of De Beers, and the first of the Oppenheimer family to hold this position) was to establish the Diamond Corporation as an enlarged producers' marketing co-operative in 1930, and which, in turn, formed the basis for the Central Selling Organisation (which is now known as the Diamond Trading Company/ DTC). This marketing system created stability in the diamond industry and provided a source of stable income to diamond producing countries in Africa at a time of economic difficulty during the early parts of the twentieth century.

De Beers began advertising and marketing diamonds in the 1930s through the Diamond Trading Company. In 1947, the famous advertising line “A Diamond is Forever” was written by Frances Gerety of N.W. Ayer (the advertising agency with which De Beers was working). Advertising Age magazine has since voted this to be the most recognisable advertising line of the twentieth century.


Recent history

In 1958 De Beers entered into a partnership with the government of Tanzania to mine diamonds from the Williamson mine. The joint venture between De Beers and Tanzania is called Williamson Diamonds Limited.

In 1969 De Beers formed its joint venture with the government of Botswana to form the mining company Debswana. Botswana is now the largest producer of diamonds in the world, in terms of both volume and value.

In 1994, a similar partnership was formed with the government of Namibia to mine Namibia’s diamonds. This company is called Namdeb.

De Beers underwent a strategic review in 1999, which, amongst other things, resulted in the creation of a retail joint venture with Moet Hennessy Louis Vuitton (LVMH) to sell diamond jewellery under the De Beers name. The first De Beers store opened in London. Other De Beers Diamond Jewellers Ltd stores have since opened up in other large cities around the world, such as New York, L.A., Tokyo and Paris.

De Beers went private as a company in 2001. It now has three shareholders: the government of Botswana (which owns 15%), Anglo American (the diversified mining group, which owns 45%) and the Central Holdings Group (which is the Oppenheimers’ family company). The current Chairman of De Beers is Nicky Oppenheimer, following in the footsteps of his father, Harry, and grandfather, Ernest.

In November 2005, De Beers announced that a Memorandum of Understanding had been signed for the sale of 26% equity in DBCM to Ponahalo, a broad based black economic empowerment company owned by Ponahalo Capital and De Beers employees and pensioners in South Africa. The deal was signed on 5 April 2006.


Marketing

De Beers (through its sales and marketing arm, the DTC) has been very successful in increasing desire for diamonds. The famous advertising line “A Diamond is Forever” was coined in 1947 and the company has created many successful campaigns since then. One of the most effective of these has been recognising the diamond as a symbol of love and commitment and therefore the ideal jewel for an engagement or wedding ring.

Some of the campaigns started by De Beers include the “eternity ring” (as a symbol of continuing affection and appreciation), the “trilogy” ring (representing the past, present and future of a relationship) and the “right hand ring” (bought and worn by women as a symbol of independence).


Laboratory created synthetics

Since the 1950s, it has been possible to create synthetics in a laboratory. These laboratory created stones have since been used for many industrial purposes, such as for abrasives in heavy duty drilling.

It is now also possible to produce laboratory created synthetics that are suitable for jewellery. However, it is not yet possible to buy clear white, or colorless, laboratory created diamonds for jewellery (they are usually a strong yellow or orange colour).

The DTC has developed detection instruments, mainly for use by the trade and gemmological laboratories. These instruments can detect all treatments, synthetics and simulants. The DTC also funds educational programmes about treatments that can change the appearance and other properties of diamonds. These are undertaken in cooperation with leading trade bodies as a means of ensuring full and accurate information is provided to consumers.


Position on conflict diamonds

De Beers played a key role in seeking to eliminate conflict diamonds from global diamond flows. De Beers policy in the 1990s, which applied to all of Africa, was only to buy those diamonds that were legitimately traded and that it believed were not used to fund rebel groups. In 1999, in line with a new zero-tolerance policy, De Beers stopped all outside buying of diamonds in order to guarantee categorically the conflict free status of De Beers diamonds.

De Beers guarantees that 100% of the diamonds it sells are conflict free. All De Beers diamonds are purchased in compliance with national law, the Kimberley Process and its own Diamond Best Practice Principles. De Beers is active in the Kimberley Process to ensure total elimination of the remaining less than 1% diamonds from world diamond flows and the Diamond Development Initiative (DDI). The DDI aims to address the political, social and economic challenges facing the small-scale informal diamond mining sector and to optimise the beneficial development impacts of small-scale formal diamond mining to diggers and their communities. It does this through promoting the development of sustainable business models supported by development projects.


In 2004, De Beers paid a $10 million fine to the US Department of Justice in settlement of a charge from 1994 that De Beers had conspired with General Electric to fix the price of industrial diamonds (i.e. those diamonds used for industrial purposes such as abrasives on drills). General Electric had been to court to face the charges, but the case was thrown out for lack of evidence. De Beers did not go to court, but paid the $10 million settlement ten years later.

In November 2005, De Beers announced that agreement had been reached, and a preliminary approval order issued, to settle the majority of civil class action suits filed against the company in the United States. Since then, in March 2006, the three remaining civil class action suits were added to the November settlement agreement, resulting in an overriding global settlement arrangement totalling US$295 million which has received preliminary court approval. This settlement does not involve any admission of liability on the part of De Beers but will bring an end to all outstanding class actions. It also stands as evidence of the De Beers commitment to compliance with competition law. De Beers continues to cooperate with the Court of the District of New Jersey to seek resolution of this litigation.

As part of the class action settlement, De Beers agreed to offer injunctive relief, which includes a general commitment to comply with the antitrust laws of the United States, and specific prohibited conduct with third party producers and Sightholders. Injunctive relief is a typical component of class action settlements in the United States.


Retail ventures

In 2001, De Beers entered into a joint venture with French luxury goods company LVMH (Moet Hennessy Louis Vuitton) to establish an independently managed De Beers retail company. The joint venture, called De Beers Diamond Jewellers Ltd, has a licence from the De Beers group to use the De Beers brand name in a retail environment. The first De Beers LV store opened in Piccadilly in London and there are now De Beers LV retail stores in the following locations:


In 2004, De Beers paid a $10 million fine to the US Department of Justice in settlement of a charge from 1994 that De Beers had conspired with General Electric to fix the price of industrial diamonds (i.e. those diamonds used for industrial purposes such as abrasives on drills). General Electric had been to court to face the charges, but the case was thrown out for lack of evidence. De Beers did not go to court, but paid the $10 million settlement ten years later.

In November 2005, De Beers announced that agreement had been reached, and a preliminary approval order issued, to settle the majority of civil class action suits filed against the company in the United States. Since then, in March 2006, the three remaining civil class action suits were added to the November settlement agreement, resulting in an overriding global settlement arrangement totalling US$295 million which has received preliminary court approval. This settlement does not involve any admission of liability on the part of De Beers but will bring an end to all outstanding class actions. It also stands as evidence of the De Beers commitment to compliance with competition law. De Beers continues to cooperate with the Court of the District of New Jersey to seek resolution of this litigation.

As part of the class action settlement, De Beers agreed to offer injunctive relief, which includes a general commitment to comply with the antitrust laws of the United States, and specific prohibited conduct with third party producers and Sightholders. Injunctive relief is a typical component of class action settlements in the United States.



See also


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