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De Beers

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De Beers
Company typePrivately held company
Industryexploration and mining of diamonds
Founded1888
FounderCecil Rhodes
Headquarters
Johannesburg
,
South Africa
Area served
Worldwide
Key people
Nicky Oppenheimer, Chairman

Gareth Penny, Managing Director
ProductsDiamonds
ServicesDiamond marketing and promotion. Community development.
RevenueIncrease US $6.5 billion (2005)
Increase US $554 million (2005)
Number of employees
22,936
Websitewww.debeersgroup.com

De Beers, founded in South Africa by Cecil Rhodes, comprises companies involved in rough diamond exploration, diamond mining and diamond trading. The various companies within the De Beers “family of companies” are responsible for around 40% of world diamond production by value.[1]

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 economical 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,[2] a 50-50 joint venture with the government of Botswana. In Namibia it takes place through Namdeb,[3] a 50-50 joint venture with the government of Namibia. Mining in South Africa mining takes place through De Beers Consolidated Mines (DBCM),[4] 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).[5] This company sells almost half of the world’s rough diamonds by value. Other diamonds sold through the DTC include those purchased from the Russian diamond mining company Alrosa[6]). 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.[7] 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,.[8][9] which cover business ethics, the Kimberley Process Certification Scheme[10] and the industry’s System of Warranties,[11] labour standards, health and safety as well as environment.

History

Early history

Diamond discovery

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.[12] Major finds were later made inland, including the discovery of diamonds on the farm Vooruitzigt, which was owned by Dutch brothers Johannes Nicholas de Beer and Diederik Arnoldus de Beer.[12] These two brothers had bought the farm from the government[13] in 1860 for £50, and soon after the diamond rush began in 1871, the de Beer brothers sold their farm to Dunell Ebden & Co for £6300 and mining of the diamond-bearing kimberlite was soon to begin.[12] The De Beers company derives its name from the names of these two brothers who owned the farm on which some of these early deposits were found.

Cecil John Rhodes

Image of Cecil Rhodes

Englishman Cecil John Rhodes had arrived in South Africa in 1870, and travelled to join his brother Herbert, arriving in November 1871[13] at the New Rush (later called the Kimberley Mine) which was one of the sites of the diamond rush in 1871.[12] Realizing early on that individual claims that measured only 30 by 30 feet[14] would eventually become unworkable as greater depth into the ground was reached, Rhodes sought to broaden his claim territory.[14] Having neighbouring claims, he and his brother partnered with a third neighbouring claim holder Charles Rudd. Their business interests diversified into service enterprises such as ice making,[12] and mine drainage.[13] The profits from these enterprises were used to purchase as many mining claims as the law allowed.[12] In 1876 restrictions on claim ownership were abolished allowing syndicates to form. This change meant that by 1880 the 3600 individual claim holdings of 1878[14] at the Kimberley mine, had been consolidated into 96 syndicate holdings.[12] By 1882 this number was further reduced to about 50 claims.[14]

In April 1880,[15] Rhodes and Rudd formed the De Beer Mining Company[13] to consolidate their claims at the De Beer Mine. In the following years the company aggressively bought out claims at the De Beer Mine so that by 1887, it owned every claim at that mine.[14]

Barney Barnato

Another Englishman, Barney Barnato arrived in South Africa in 1873 to join the diamond rush at the Kimberley Mine.[16] Arriving 'penniless',[16] Barnato worked until he was able to purchase claims at the heart of the Kimberley Mine.[17] These claims proved successful, and in 1880 Barnato formed the Barnato Diamond Mining Company with which he began to consolidate his claims.[15][17] In 1885, Barnato merged his company with the dominant Kimberly Central Mining Company, owned principally by Francis Baring-Gould.[18][17]

Barnato began to increase his interest in the Kimberley mine and by 1887 he was in position to vie for control of the diamond production in the Kimberley Mine.[19] The barrier that Barnato faced was gaining control of the French Company (Compagnie Francais des Mines de Diamant du Cap). Rhodes had by this time also set his sights on gaining control and ownership of the Kimberley Mine, and had travelled to England to negotiate a deal with the French Company. His plan involved convincing Lord Nathan Rothschild to act as financier for the takeover bid of the French Company,[20] in which respect he was successful. In negotiations with the French Company, the sum of £1,400,000 was agreed upon.[20] Rhodes travelled back to Kimberley to await the confirmation of the sale at the shareholders' meeting of the French Company, which had been made to Rhodes by the directors of that company.[20] Barnato made an attempt to scupper the deal made to Rhodes, by counteroffering for the purchase.[20] Countering, Rhodes entered into negotiations with Barnato, which resulted in a deal where Rhodes would purchase French Company for the original price, under an agreement that it would be merged with Kimberley Central. In return for this transaction, Rhodes would receive a shareholding of 70,000 shares in Kimberley Central as well as £300,000 in cash.[20][19] In reality, Rhodes' negotiations for the purchase of the French Company had merely been a means to gain the base shareholdership in the Kimberley Central company.[17]

Cheque of payment to purchase Kimberly Mine by de Beers Ltd.

In the months that followed, Rhodes and his colleagues set about buying any shares in Kimberley Central that became available. Share prices in Kimberley Central escalated from £14 to £49.[17] Rhodes succeeded in obtaining a three fifths stakehold in the company, at which time Barnato realized that he had been beaten.[17][19]

A minority of Kimberley Central shareholders objected to a merger that was struck by Barnato and Rhodes, and they sought legal injunction.[17][19] The judged allowed the merger to occur via a voluntary liquidation by Barnato's Kimberley Central, and De Beers purchasing the assets of Kimberley Central.[17] On 28 September 1889 De Beers Consolidated wrote the check for the sum of £5,338,650,[17] and on the same day De Beers drew from Kimberley Central the sum of £5,326,260.[18]

De Beers Consolidated Mines Ltd. officially incorporated on 12 March 1888 (this is the real origin of De Beers as it is today).[20]

London Diamond Syndicate

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 merchants from London: Holborn Viaduct and Hatton Garden).[20] 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).[21]

This marketing system, known as a cartel, created stability in the diamond industry and provided a source of stable income to diamond producing colonies in Africa at a time of economic difficulty during the early parts of the twentieth century.[21]

De Beers began advertising and marketing diamonds in the 1930s through the Diamond Trading Company.[21] In 1947, the famous advertising line "A Diamond is Forever" was written by Frances Gerety of the N.W. Ayer advertising agency.[21] Advertising Age magazine has since voted this to be the most recognisable advertising line of the twentieth century.[22]

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 LVMH Moët Hennessy Louis Vuitton 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, Los Angeles, Boston, Tokyo and Paris.

De Beers went private as a company in 2001. It now has three shareholders: the government of Botswana, through Debswana, (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,[23] 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.

Business structure

De Beers Investments is the privately held, ownership company of De Beers Societe Anonyme (DBSA), and is registered in Luxemburg.[24][25] It is made up of three shareholdings; Anglo American plc has a 45% shareholding,[26] Central Investments DBI has a 45% shareholding, and the Debswana Diamond Company (Pty) Limited group owns 10% directly. The Debswana group also has an 11% shareholding in Central Investments DBI, which produces an effective ownership in De Beers Investments of 14.9%.[27][1][28]

De Beers Societe Anonyme (DBSA) is the management company of the De Beers group. It is owner of De Beers Consolidated Mines (DBCM), De Beers Centenary AG. De Beers Centenary has an equal share with the Government of Namibia in Namdeb[29]

Marketing

Promotional campaigns

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" (attempting to discourage diamond owners from putting their older diamonds onto the secondary market, thus limiting competition) 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).

De Beers is also known for its television advertisements featuring silhouettes of people wearing diamonds, to the music of Palladio by Karl Jenkins.

Retail ventures

In 2001, De Beers entered into a joint venture with French luxury goods company Moet Hennessy Louis Vuitton[30] (LVMH) to establish an independently managed De Beers retail company.[31] 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: London at Bond Street, Royal Exchange and Harrods; Tokyo at Ginza, Nihonbashi, and Shinjuku; Osaka at Shinsaibashi and Umeda; New York City at Fifth Avenue; Boston at Newbury Street; Beverly Hills at Rodeo Drive; Paris at Le Printemps; and in Dubai at Mall of the Emirates.

Laboratory created synthetics

Since the 1950s, it has been possible to create synthetic diamonds 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. These are generally colored gems, but at least one company, Apollo Diamond, is offering colorless synthetics.[32]

As part of De Beers' "Gem Defensive Programme", The Diamond Trading Company has developed instruments, mainly for use by the trade and gemmological laboratories, which according to DTC 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, and lobbies for all diamond treatments and synthetics to be labeled as such. According to the DTC, these activities are undertaken in cooperation with leading trade bodies as a means of "ensuring full and accurate information is provided to consumers."[33][34]

Position on conflict diamonds

De Beers played a key role in selling conflict diamonds from global diamond conflict areas. 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.[35] 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.[35]

De Beers guarantees that 100% of the diamonds it now sells are conflict-free.[35] According to the company, all De Beers diamonds are purchased in compliance with national law, the Kimberley Process Certification Scheme[36] and its own Diamond Best Practice Principles.[8][9] De Beers is active in the Kimberley Process, which aims to eliminate conflict diamonds from world diamond flows, and the Diamond Development Initiative (DDI).[37] 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 United States Department of Justice to settle a 1994 charge 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 appear in court, but ten years later paid $10 million to settle all outstanding charges.

In November 2005, De Beers announced that an agreement had been reached and a preliminary approval order issued to settle the majority of civil class action price fixing 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. This resulted in an overriding global settlement arrangement totaling 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. De Beers continues to cooperate with the United States District Court for the District of New Jersey to seek resolution of this litigation.

As part of the class action settlement, De Beers offered injunctive relief, which includes a general commitment to comply with the antitrust laws of the United States, and a commitment not to engage in specific conduct with third party producers and Sightholders. Injunctive relief is a typical component of class action settlements in the United States.

In February 2006, it was announced that De Beers had voluntarily entered into legally binding commitments with the European Commission to cease purchasing rough diamonds from Alrosa as of 2009. In January 2007, the European Commission announced that it had rejected all outstanding complaints against the DTC's Supplier of Choice sales strategy.

Criticism

The diamond market is dominated by De Beers companies which were originally formed in South Africa by British owners. De Beers now owns about 70% of diamond mines in Africa. The De Beers “family of companies” collectively are responsible for around 40% of world diamond production by value.[38]

'Debswana (Debswana Diamond Company Ltd)', a fifty-fifty partnership between De Beers and the government of Botswana, is the world's leading producer of diamonds by value (originally it was only 15% for government of Botswana). However, the supply of diamonds worldwide is controlled only by De Beers; the government of Botswana has nothing to do with it.

De Beers enjoys a monopoly in Botswana and almost virtual monopoly in diamond supply in the rest of the world. There are other diamond mines owned by small companies with less control on the market. None of the companies are owned by Africans.

De Beers currently holds a legal exemption in South Africa from the mandatory dust suppression method of spraying water when drilling, on the grounds that the dust in its mines is uniquely harmless. However, dust in a diamond mine can cut and scar the lungs of mineworkers. [39]

In August 2007 British charity War on Want published a report accusing De Beers parent company Anglo American of profiting from the abuse of people in the developing countries in which the company operates.[40].

References

  1. ^ a b Introduction and Profile De Beers website, accessed online February 11, 2007.
  2. ^ Operations: Introduction Debswana website, accessed February 11, 2007
  3. ^ Namdeb: Overview Namdeb website, accessed February 11, 2007
  4. ^ De Beers Consolidated Mines (DBCM)
  5. ^ Diamond Trading Company
  6. ^ Alrosa
  7. ^ Introducing DTC Sightholders Diamond Trading Company Sightholders website, accessed online February 11, 2007
  8. ^ a b DTC Diamond Best Practice Principles De Beers Group, accessed online February 11, 2007
  9. ^ a b Best Practice, in Pratice: Our Commitment to You Diamond Trading Company Sightholders website, accessed February 11, 2007
  10. ^ Kimberley Process: Maintaining the Diamond's Integrity Diamond Trading Company Sightholders website, accessed February 11, 2007
  11. ^ Kimberley Process Certification Scheme: Section IV - "Internal Controls: Principles of Industry Self-Regulation " Kimberley Process Website, accessed February 11, 2007
  12. ^ a b c d e f g 1860-1880 : Kimberley and the Great Diamond Rush De Beers website, accessed February 11, 2007
  13. ^ a b c d Ailey, Paul Cecil Rhodes Bishop's Stortford and Thorley: A history and guide website, 2004, accessed online February 11, 2007
  14. ^ a b c d e Gemological Institute of America Diamonds and Diamond Grading: Birth of the Modern Diamond Industry Carlsbad, 2002
  15. ^ a b 1880-1900: Consolidation - The Formation of De Beers De Beers website, accessed February 11, 2007
  16. ^ a b Barney Barnato 1852 - 1897 South African History Online, accessed February 11, 2007
  17. ^ a b c d e f g h i The story behind "Barney" Barnato Token Coins website, accessed February 11, 2007
  18. ^ a b Trevelyan, Raleigh Grand Dukes and Diamonds: The Wernhers of Luton Hoo London, 1991
  19. ^ a b c d Blancq, Jeffrey Kimberley GemsImport website, April 19, 2006, accessed online February 12, 2007
  20. ^ a b c d e f g Gardner F. Williams (General Manager de Beers): History of Diamond Mines in South Africa, B&F Buck & Company, NY 1905 Chapter 9 dealing with history of the financial transactions by Rhodes leading to De Beers Consolidated Mines Ltd as well as Chapter 17 dealing with production, sorting and sales of diamonds of the different mines owned by De Beers. Kartel in particular consisting of leading diamond merchants Holborn Viaduct and Hatton Garden, London (page 184 of Part II). accessed February 12, 2007
  21. ^ a b c d The Atlantic Monthly Online, February 1982 Describes formation of the CSO (and synonyms in other countries as well as the start of a new marketing campaign after Oppenheimer's meeting in NY with Gerold M. Lauck
  22. ^ IDEX (International Diamond Exchange Magazine July 2005 Advertising Age own website obviously has list but for registered users only. accessed February 12, 2007
  23. ^ Case study: Sale of 26% of DBCM to Ponahalo, De Beers Group, accessed online February 2007
  24. ^ Directorate De Beers website, accessed online February 11, 2007
  25. ^ Corporate Governance De Beers website, accessed online February 11, 2007
  26. ^ History Anglo American website, accessed Februray 11, 2007
  27. ^ De Beers Eco-Minex International Co Ltd, Ulaanbaatar, accessed online February 11, 2007
  28. ^ Central Investments DBI MBendi website, accessed February 11, 2007
  29. ^ Namdeb Diamond Corporation (Pty) Ltd MBendi website, accessed February 11, 2007
  30. ^ LVMH - Moet Hennessy Louis Vuitton
  31. ^ De Beers plans war on synthetic gems (Times Online)
  32. ^ Apollo Diamond, accessed April 8, 2007. [1]
  33. ^ Davis, Joshua The New Diamond Age Wired, Issue 11.09, September 2003, accessed online February 11, 2007
  34. ^ Welbourn, Dr. Chris.; Fisher Dr. David De Beers' Research Yields HPHT Secrets Rapaport News, posted online May 6, 2002, accessed online February 11, 2007
  35. ^ a b c De Beers Group De Beers Report to Stakeholders 2005/6 - Ethics, "Conflict and Instability" De Beers Group, accessed online February 11, 2007
  36. ^ Kimberley Process
  37. ^ Diamond Development Initiative (DDI)
  38. ^ Introduction and Profile De Beers website, accessed online February 11, 2007.
  39. ^ GLITTER & GREED, The Secret World of the Diamond Cartel by Janine Roberts, ISBN 1-932857-60-5
  40. ^ Anglo American: The Alternative Report

See also

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