De Beers is a cartel of companies that dominate the diamond, diamond mining, diamond shops,
diamond trading and industrial diamond manufacturing sectors. De Beers is active in every category
of industrial diamond mining: open-pit, underground, large-scale alluvial, coastal and deep sea.
Mining takes place in Botswana, Namibia, South Africa and Canada.
The company was founded in 1888 by British businessman Cecil Rhodes, who was financed
by South African diamond magnate Alfred Beit and the London-based N M Rothschild & Sons
bank. In 1927, Ernest Oppenheimer, a German immigrant to Britain who had earlier founded
mining giant Anglo American plc with American financier J.P. Morgan, took over De Beers.
He built and consolidated the company's global monopoly over the diamond industry until his
retirement. During this time, he was involved in a number of controversies, including price
fixing, antitrust behaviour and an allegation of not releasing industrial diamonds for the
US war effort during World War II.
Company history
Cecil Rhodes, the founder of De Beers, got his start by renting water pumps to miners
during the diamond rush that started in 1871, when an 83.5 carat diamond was found on Colesburg
Kopje, South Africa. He invested the profits of this operation into buying up claims of
small mining operators, with his operations soon expanding into a separate mining company.
He soon secured funding from the Rothschild family, who would finance his business expansion.
De Beers Consolidated Mines was formed in 1888 by the merger of the companies of Barney
Barnato and Cecil Rhodes, by which time the company was the sole owner of all diamond
mining operations in the country. The name derived from the De Beers brothers, Diederik
Arnoldus and Johannes Nicolaas de Beers, Boers whose farm had become the site of a particularly
lucrative mine, although they'd sold the claim and had no involvement with the company that
came to bear their name. In 1889, Rhodes negotiated a strategic agreement with the London-based
Diamond Syndicate, which agreed to purchase a fixed quantity of diamonds at an agreed
price, thereby regulating output and maintaining prices. The agreement soon proved to be very
successful—for example during the trade slump of 1891–1892, supply was simply curtailed
to maintain the price. Rhodes was concerned about the break-up of the new monopoly, stating
to shareholders in 1896 that:
The Second Boer War proved to be a challenging time for the company. Kimberley was besieged
as soon as war broke out, thereby threatening the company's valuable mines. Rhodes personally
moved into the city at the onset of the siege in order to put political pressure on the
British government to divert military resources towards relieving the siege rather than more
strategic war objectives. Despite being at odds with the military, Rhodes placed the
full resources of the company at the disposal of the defenders, manufacturing shells, defences,
an armoured train and a gun named Long Cecil in the company workshops.
In 1902, a competitive mine named the Cullinan Mine was discovered; however its owner refused
to join the De Beers cartel. Instead, the mine started selling to a pair of independent
dealers named Bernhard and Ernest Oppenheimer, thereby weakening the De Beers cartel. Production
soon equalled all of the De Beers mines combined, as well as yielding the largest rough diamond
ever discovered, the Cullinan Diamond. Ernest Oppenheimer was appointed the local agent
for the powerful London Syndicate, rising to the position of mayor of Kimberley within
10 years. He understood the core principle that underpinned De Beers success, stating
in 1910 that:
During World War I, the Cullinan Mine was finally absorbed into De Beers. When Rhodes
died in 1902, De Beers controlled 90% of the world's diamond production. Ernest Oppenheimer
took over the chairmanship of the company in 1927, after buying a seat on the board
a year earlier. Oppenheimer was very concerned about the discovery
of diamonds in 1908 in German South West Africa, fearing that the increased supply would swamp
the market and force prices down. Former CIA chief, Admiral Stansfield Turner,
claimed that De Beers restricted US access to industrial diamonds needed for the country's
war effort during World War II. Diamond monopoly
De Beers is well known for its monopoloid practices throughout the 20th century, whereby
it used its dominant position to manipulate the international diamond market. The company
used several methods to exercise this control over the market: Firstly, it convinced independent
producers to join its single channel monopoly, it flooded the market with diamonds similar
to those of producers who refused to join the cartel, and lastly, it purchased and stockpiled
diamonds produced by other manufacturers in order to control prices through supply.
In 2000, the De Beers model changed due to factors such as the decision by producers
in Russia, Canada and Australia to distribute diamonds outside the De Beers channel, as
well as rising awareness of blood diamonds that forced De Beers to "avoid the risk of
bad publicity" by limiting sales to its own mined products. De Beers’ market share fell
from as high as 90% in the 1980s to less than 40% in 2012, having resulted in a more fragmented
diamond market with more transparency and greater liquidity.
In November 2011 the Oppenheimer family announced their intention to sell the entirety of their
40% stake in De Beers to Anglo American plc thereby increasing Anglo American's ownership
of the company to 85%. The transaction was worth £3.2 billion in cash and ended the
Oppenheimer dynasty's eighty year ownership of the world's largest diamond miner.
Activities
Mining in Botswana takes place through the mining company Debswana, a 50–50 joint venture
with the Government of the Republic of Botswana. In Namibia it takes place through Namdeb,
a 50–50 joint venture with the Government of the Republic of Namibia. Mining in South
Africa takes place through De Beers Consolidated Mines, 74% owned by DeBeers and 26% by a broad
based black economic empowerment partner, Ponahalo Investments. In 2007 De Beers began
production at the Snap Lake Mine in Northwest Territories, Canada; this is the first De
Beers mine outside Africa. In July 2008 De Beers opened the Victor Mine in Ontario, Canada.
Trading of rough diamonds takes place through the Diamond Trading Company via wholly owned
and joint venture operations in South Africa, Botswana, Namibia and the United Kingdom.
The various DTCs sort, value and sell approximately 40% of the world's rough diamonds by value.
The Family of Companies employs about 20,000 people around the globe on five continents,
with 17,000 employees in Africa. Over 7000 people are employed in Botswana, over 7100
in South Africa, 3800 in Namibia, 700 in Canada and over 800 in Group Exploration.
Business structure On 4 November 2011 Anglo American plc and
CHL Holdings announced their agreement for Anglo American to acquire an incremental interest
in De Beers, increasing Anglo American's current 45% shareholding in the world's leading diamond
company to up to 85%. De Beers Investments is the privately held, ownership company of
De Beers Société Anonyme, and is registered in Luxembourg. It is made up of two shareholdings:
Anglo American plc has an 85% shareholding and the Government of the Republic of Botswana
owns 15% directly. De Beers Societe Anonyme is the management company of the De Beers
group. The family of companies
The De Beers family of companies is involved in most parts of the diamond value chain.
Companies are as follows: De Beers Canada – mining
De Beers Consolidated Mines – mining De Beers Diamond Jewellers – retail
Debswana – mining Diamdel – trading
Diamond Trading Company – trading Diamond Trading Company Botswana – trading
Diamond Trading Company South Africa – trading Element Six – Advanced Materials / industrial
diamonds Forevermark – retail
Namdeb – mining Namibia Diamond Trading Company – trading
Mining divisions The company's mining divisions include De
Beers Consolidated Mines, De Beers Canada, Debswana, and Namdeb.
The Diamond Trading Company The Diamond Trading Company, the rough diamond
sales and distribution arm of the De Beers Group, sorts, values and sells approximately
40% of the world's rough diamonds by value. Currently the DTC has a combination of wholly
owned and joint venture operations in South Africa, Botswana, Namibia and the United Kingdom.
Diamonds sold by the DTC are sourced primarily from De Beers' own mining operations in South
Africa and Canada, and through its joint venture partnerships with the governments of Botswana,
and Namibia. De Beers Diamond Jewellers
In 2001, De Beers entered into a retail joint venture with French luxury goods company Louis
Vuitton Moet Hennessy to establish an independently managed De Beers diamond jewellery company.
The joint venture, called De Beers Diamond Jewellers, Ltd., sells diamond jewellery.
The first De Beers boutique opened in 2002 on London's Old Bond Street as the brand's
flagship store, and since then has opened stores all around the world.
Marketing Over the last century, De Beers has been highly
successful in increasing consumer demand for diamonds. One of the most effective marketing
strategies has been the marketing of diamonds as a symbol of love and commitment.
A young copywriter working for N. W. Ayer & Son, Frances Gerety, coined the famous advertising
line "A Diamond is Forever" in 1947. In 2000, Advertising Age magazine named "A Diamond
Is Forever" the best advertising slogan of the twentieth century.
Other successful campaigns include the "eternity ring", the "trilogy ring" and the "right hand
ring". De Beers is also known for its television
advertisements featuring silhouettes of people wearing diamonds, to the music of Palladio
by Karl Jenkins. The campaign, titled "Shadows and Lights", first ran in the spring of 1993.
The song would later inspire for a compilation album, Diamond Music, released in 1996, which
features the Palladio suite. A 2010 commercial for Verizon Wireless parodied the De Beers
spots. Forevermark
De Beers has introduced Forevermark diamonds to markets in China, Hong Kong, India, Japan,
and the United States. According to the company, Forevermark diamonds "are natural, untreated,
responsibly sourced, and cut and polished by a specially selected diamantaire". Forevermark
diamonds have an icon and identification number inscribed on the table facet of the diamond.
The inscription is about 0.05 µm deep and applied using an undisclosed De Beers technology
developed in Maidenhead, United Kingdom, and Antwerp, Belgium.
Legal issues on monopolising and fixing prices Sherman Antitrust Act
During World War II, Ernest Oppenheimer attempted to negotiate a way around the Sherman Antitrust
Act by proposing that De Beers register a US branch of the Diamond Syndicate Incorporated.
In this way, his company could provide the US with the industrial diamonds it desperately
sought for the war effort in return for immunity from prosecution after the war; however his
proposal was rejected by the US Justice Department when it was discovered that De Beers had no
intention of stockpiling any industrial diamonds in the US. In 1945, the Justice Department
finally filed an antitrust case against De Beers, but the case was dismissed as the company
had no presence on US soil. South Africa's missing billions
In 2014, the Leverhulme Center for the Study of Value, based at the University of Manchester,
published a report authored by Sarah Bracking and Khadija Sharife, identifying over $3 billion
in price fixing of South African rough diamond trade, through transfer pricing manipulation
from 2005-2012. The report found significant evidence of profit shifting through volume
and value manipulation. Sharife simultaneously published an article disclosing the political
system that cultivated revenue leakage, including the donation of De Beers staff to the State
Diamond Trader.The report, like the article, utilised aggregated data produced by the Kimberly
Process certificates of import-exports, relying on figures listed by the diamond companies
themselves, in which De Beers was the dominant player. The South African Department of Mineral
Resources disclosed that De Beers did not authorise them to publish figures involving
values, sales, pricing and other data, preventing transparency of the industry.
Gem diamonds From 2001 onwards several lawsuits were filed
against De Beers in US State and Federal courts. These alleged that De Beers unlawfully monopolised
the supply of diamonds and conspired to fix, raise and control diamond prices. Additionally
there were allegations of misleading advertising. While De Beers denied all allegations that
it violated the law, in November 2005, De Beers announced that an agreement had been
reached to settle civil class action suits filed against the company in the United States,
and in March 2006, three other civil class action suits were added to the November agreement.
In April 2008, De Beers confirmed that Judge Chesler of the US Federal District Court in
New Jersey had entered an order approving the Settlement, resulting in a settlement
arrangement totalling $295 million USD. De Beers does not admit liability. As part of
the settlement, persons who purchased gem diamonds from 1 January 1994, to 31 March
2006, may be eligible for compensation. However, claimants were generally not pleased with
the amounts they received from the settlement. Industrial diamonds
In 2004, De Beers pled guilty and paid a $10 million fine to the United States Department of Justice
to settle a 1994 charge that De Beers had colluded with General Electric, which was
acquitted of all charges, to fix the price of industrial diamonds.
European Competition Commission In February 2006, De Beers entered into legally
binding commitments with the European Commission to cease purchasing rough diamonds from Alrosa
as of the end of 2008. In January 2007, the European Commission announced it had closed
the file due to lack of Community Interest. The commission decision is under appeal before
the Court of First Instance in Luxemburg. Controversies
Conflict diamonds and the Kimberley Process
In 1999 a campaign by Global Witness to highlight the role of diamonds in international conflicts
led to a review by the United Nations. The initial focus of the UN's investigation was
on Jonas Savimbi's UNITA movement in Angola, which was found to have bartered uncut diamonds
for weaponry despite international economic and diplomatic sanctions being in effect through
United Nations Security Council Resolution 1173.
In 1999, De Beers claimed to have stopped all outside buying of diamonds in order to
guarantee the conflict-free status of their diamonds effective from 26 March 2000.
In December 2000, following the recommendations of the Fowler Report, the UN adopted the landmark
General Assembly Resolution A55/56 supporting the creation of an international certification
scheme for rough diamonds. By November 2002, negotiations between governments, the international
diamond industry and civil society organisations resulted in the creation of the Kimberley
Process Certification Scheme, which sets out the requirements for controlling rough diamond
production and trade and became effective in 2003.
De Beers states that 100% of the diamonds it now sells are conflict-free and that all
De Beers diamonds are purchased in compliance with national law, the Kimberley Process Certification
Scheme and its own Diamond Best Practice Principles. The Kimberley process has helped restore the
reputation of the industry, as well as eliminating sources of excess supply.
Forceful relocation of indigenous San people in Botswana
In Botswana, a long dispute has existed between the interests of the mining company, De Beers,
and the relocation of the San tribe from the land, in order to exploit diamond resources.
The San have been facing threats from government policies since at least 1980, when the diamond
resources were discovered. A campaign is being fought in an attempt to bring an end to what
the indigenous rights organisation, Survival International considers it to be a genocide
of a tribe that has been living in those lands for tens of thousands of years. On the grounds
that their hunting and gathering has become obsolete and their presence is no longer compatible
with preserving wildlife resources, the Gwi and Gana people were persecuted by the government
of Botswana in order to make them leave the central Kalahari reserve. To get rid of them,
they had their water supplies cut off, they have been "taxed, fined, beaten, and tortured."
Several international fashion models, including Iman, Lily Cole and Erin O'Connor, who were
previously involved with advertising for the companies' diamonds, have backed down after
realising the consequences raised by this scandal, and now support the campaign.
See also Anglo American plc
Peace in Africa, diamond mining dredge References
External links The De Beers Group of Companies
De Beers Diamond Jewellers Attawapiskat First Nation and Africa fight
Debeers exploitation and abuse