De Beers

De Beers
Type Privately held company
Founded 1888
Founder(s) Cecil Rhodes
Headquarters Flag of South Africa Johannesburg, South Africa
Area served Worldwide
Key people Nicky Oppenheimer, Chairman
Gareth Penny, Managing Director
Industry Exploration, mining and trading of diamonds
Products Diamonds
Services Diamond marketing and promotion. Community development.
Revenue ▲ US $6.5 billion (2005)
Net income ▲ US $554 million (2005)
Employees approximately 20,000
Website www.debeersgroup.com

De Beers and the various companies within the De Beers Family of Companies engage in exploration for diamonds, diamond mining, diamond trading and industrial diamond manufacture.

De Beers is active in every category of industrial diamond mining: open-pit, underground, large-scale alluvial, coastal and deep sea.[1] Mining takes place in Botswana, Namibia, South Africa and Canada.

Contents

Company history

Cecil Rhodes

Cecil Rhodes, the founder of De Beers, got his start by renting water pumps to miners during diamond rush that started in 1867 at Kimberley, 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.[2] 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.[3][4][2] In 1889, Rhodes negotiated a strategic agreement with the London-based Diamond Syndicate, which agreed to purchase a fix quantity of diamonds at an agreed price, thereby regulating output and maintaining prices.[5][6] 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.[7] Rhodes was concerned about the break up of the new monopoly, stating to shareholders in 1896 that:[6]

“ Our only risk is the sudden discovery of new mines, which human nature will work recklessly to the detriment of us all. ”

In 1902, a competitive mine named the Cullinan Mine was discovered, however its owner refused to join the De Beers cartel.[8] Instead, the mine started selling to a pair of independent dealers named Bernard and Ernest Oppenheimer. Production soon equalled all of the De Beers mines combined, as well as yielding the largest diamond ever discovered - the Cullinan Diamond. Earnest Oppenheimer was appointed the local agent for the powerful London Syndicate, rising to the position of mayor of Kimberley within 10 year. He understood the core principle that underpinned De Beer's success, stating in 1910 that:[8]

“ Common sense tells us that the only way to increase the value of diamonds is to make them scarce, that is to reduce production ”

In World War I, the Cullinan Mine was finally absorbed into De Beers.

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.[9][10]

Activities

Mining in Botswana takes place through the mining company Debswana,[11]a 50-50 joint venture with the Government of the Republic of Botswana. In Namibia it takes place through Namdeb,[12] a 50-50 joint venture with the Government of the Republic of Namibia. Mining in South Africa takes place through De Beers Consolidated Mines (DBCM),[13] 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;[14] this is the first De Beers mine outside of Africa. In July 2008 De Beers opened the Victor Mine in Ontario, Canada.[15]

Trading of rough diamonds takes place through the Diamond Trading Company through wholly-owned and joint venture operations in South Africa (DTCSA), Botswana (DTCB), Namibia (NDTC) and the United Kingdom (DTC). 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 world 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.[16]

Business structure

De Beers Investments is the privately held, ownership company of De Beers Societe Anonyme (DBSA), and is registered in Luxembourg. It is made up of three shareholdings: Anglo American plc has a 45% shareholding, Central Holdings (the Oppenheimer family) has a 40% shareholding, and the Government of the Republic of Botswana owns 15% directly. De Beers Societe Anonyme (DBSA) is the management company of the De Beers group.[17]

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 Diamond Jewellers

De Beers retail store on Rodeo Drive in Beverly Hills, California

In 2001, De Beers entered into a retail joint venture with French luxury goods company Louis Vuitton Moet Hennessy[18] (LVMH) 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 store opened on Old Bond Street in London and there are now De Beers retail stores in the following locations:

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, Frances Gerety coined the famous advertising line "A Diamond is Forever" in 1947, allegedly while she was dreaming.

In the year 2000, Advertising Age magazine named "A Diamond Is Forever" the best advertising slogan of the twentieth century.[19]

Other successful campaigns 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.

Forevermark

De Beers has introduced Forevermark diamonds to markets in China, Hong Kong, India and Japan. According to the company, forevermark diamonds, "are natural, untreated, responsibly sourced, and cut and polished by a specially selected diamantaire."[20] Forevermark diamonds have an icon and identification number inscribed on the table facet of the diamond. The inscription is 1/500 of the depth of a human hair and applied using De Beers technology developed in Maidenhead, United Kingdom, and Antwerp, Belgium.[20]

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 (DTCSA), Botswana (DTCB), Namibia (NDTC) and the United Kingdom (DTC).

Diamonds sold by the DTC are sourced primarily from De Beers’ own mining operations in South Africa and Canada, and through its joint venuture partnerships with the governments of Botswana, and Namibia.

Technicians in London, Kimberley, Windhoek and Gaborone sort these diamonds into approximately 12,000 different categories based on size, shape, quality and colour, for DTC Sightholders.[21]There are 79 Sightholder companies who buy the rough diamonds from the DTC and its partner offices. Sightholders travel to London, Kimberley, Gaborone and Windhoek ten times a year for their Sight. DTC Sales in 2007 were $5.9bn.

The Diamond Trading Company develops diamond technology and operates a research and development facility based in the United Kingdom, to support the consistency of DTC rough diamond assortments for Sightholders and downstream industries in the DTC’s producer partner countries.

Sightholders are required to comply with the De Beers’s Best Practice Principles, which set out various objective standards of conduct within three main areas: business, social, and environmental responsibilities. The Best Practice Principles ensure that the De Beers Family of Companies, Sightholders and applicable third parties operate to an ethical, legal, professional, social and environmental standard, including being committed to the Kimberley Process.[22]

End of diamond monopoly

De Beers is well known for its monopolistic practices throughout the 20th century, whereby it used its dominant position to manipulate the international diamond market.[23][2] 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.[24] However the transformation of the company, from the late nineties to present, is starting to become more widely known.[25]

A range of factors contributed to the need for change in the De Beers model in 2000.[24] In the 1990s, it became increasingly evident that De Beers’ industry custodianship and supply-controlled model was no longer viable. De Beers was also unable to conduct business in several jurisdictions where it had interests or a corporate presence due to their dominance in the diamond industry. In addition, more producers from varied locations such as Russia, Canada, and Australia chose to start distributing diamonds outside of the De Beers channel, thus effectively ending the monopoly.[2][23] Also, diamond jewellery markets had fallen in comparison to other luxury goods. The behaviour of consumers had changed and the diamond industry had been slow to respond to market dynamics. To address this, on behalf of its own interests and that of the industry as a whole, De Beers conducted a strategic review with Bain & Company, consequently changing its business model from a supply-controlled industry to that which was driven by demand. De Beers also implemented their Supplier of Choice sales strategy. As as a result of company transformation, De Beers is now more profitable than when it maintained a greater market share.[25]

The diamond industry of today is markedly different to that of a decade ago, and is a complex and constantly evolving geo-political phenomenon. Current major players in the diamond industry are the African producer countries, i.e. the Government of the Republic of Botswana, the Government of the Republic of Namibia, De Beers, Rio Tinto, BHP Billiton, Lev Leviev, Harry Winston, and Alrosa.[26] As as a result of company transformation, De Beers is now more profitable than when it maintained a greater market share.[25]

Conflict Diamonds and the Kimberley Process

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, although as a leader in the industry they came under scrutiny and were widely believed to be a prominent dealer of conflict diamonds. In 1999, in line with a zero-tolerance policy, De Beers stopped all outside buying of diamonds in order to guarantee categorically the conflict-free status of De Beers diamonds.[27][28]

In December 2000, the United Nations General Assembly adopted a landmark resolution[29] 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 (KPCS). The KPCS sets out the requirements for controlling rough diamond production and trade. The KPCS 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[30] and its own Diamond Best Practice Principles.[22]

Legal issues

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. Whilst 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 totaling $295 million USD. De Beers does not admit liability. As part of the Settlement, persons who purchased gem diamonds within the past ten years may be eligible for compensation.[31]

Industrial diamonds - In 2004 De Beers pleaded guilty and 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.[32][33]

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 2009.[34] In January 2007, the European Commission announced it had rejected all outstanding complaints against the Diamond Trading Company's Supplier of Choice sales strategy.[35]

Sustainability

De Beers publishes an annual "Report to Stakeholders" which is coordinated by Maplecroft Consultants in the United Kingdom. The report covers De Beers approach, economics, ethics, employees, communities, environment, and a range of case studies, initiatives and related web sites. The first report was published in 2006.[36] It was reviewed by Ethical Corporation magazine as "transparent but not entirely reader friendly."[37]

Popular culture

See also

References

  1. ↑ Exploration and mining - The De Beers Group
  2. ↑ 2.0 2.1 2.2 2.3 Tobias Kretschmer (2003-10-15). "De Beers and Beyond:The History of the International Diamond Cartel" (PDF). New York University. Retrieved on 2008-11-25.
  3. ↑ Martin Meredith (2007). Diamonds Gold and War. New York: Simon & Schuster, Limited. ISBN 0743286146. http://books.google.com/books?id=4t6XGAAACAAJ. 
  4. ↑ John Hays Hammond (1974). The Autobiography of John Hays Hammond. Ayer Publishing. pp. p205. ISBN 0405059132. http://books.google.com/books?lr=&id=IdrVz9e9CzYC. 
  5. ↑ Edward Jay Epstein (1982). The Rise and Fall of Diamonds. Simon and Schuster. ISBN 0671412892. http://books.google.com/books?id=yxRkAAAAIAAJ. Retrieved on 2008-11-27. 
  6. ↑ 6.0 6.1 Lilian Charlotte Anne Knowles (2005). The Economic Development of the British Overseas Empire. Taylor & Francis. ISBN 0415350484. http://books.google.com/books?id=SoaY8HBBcKQC. 
  7. ↑ Colin Walter Newbury (1989). The Diamond Ring. Oxford University Press. ISBN 0198217757. http://books.google.com/books?id=aarv3Tfb3B0C. Retrieved on 2008-11-27. 
  8. ↑ 8.0 8.1 Tom Zoellner (2007). The Heartless Stone: A Journey Through the World of Diamonds, Deceit, and Desire. McMillan. ISBN 0312339704. http://books.google.com/books?id=n8cDYak68CMC. Retrieved on 2008-11-27. 
  9. ↑ Janine P. Roberts (2003). Glitter & Greed. The Disinformation Company. ISBN 0971394296. http://books.google.com/books?id=raO8jHBdDhYC. Retrieved on 2008-11-27. 
  10. ↑ Theodor Emanuel Gregory (1977). Ernest Oppenheimer and the Economic Development of Southern Africa. Arno Press. http://books.google.com/books?id=8le1AAAAIAAJ. Retrieved on 2008-11-27. 
  11. ↑ Debswana - The De Beers Group
  12. ↑ Namdeb - The De Beers Group
  13. ↑ De Beers Consolidated Mines - The De Beers Group
  14. ↑ Mining: Snap Lake Mine: De Beers Canada
  15. ↑ De Beers Canada - The De Beers Group
  16. ↑ Reports - The De Beers Group
  17. ↑ 17.0 17.1 The Family of Companies - The De Beers Group
  18. ↑ "De Beers ties up with luxury goods firm", BBC News (2001-01-16). Retrieved on 2008-11-26. 
  19. ↑ 'A Diamond Is Forever': How Four Words Changed an Industry
  20. ↑ 20.0 20.1 Forevermark - The De Beers Group
  21. ↑ [ http://www.debeersgroup.com/en/Sales-and-distribution/Sights-and-Sightholders/]
  22. ↑ 22.0 22.1 Best Practice Principles - The De Beers Group
  23. ↑ 23.0 23.1 Jane S. Lopus (2003). Capstone. National Council on Economic Education. pp. p61. ISBN 1561835161. http://books.google.com/books?id=sI65nv9KAfgC. Retrieved on 2008-11-25. 
  24. ↑ 24.0 24.1 Campbell R. McConnell, Stanley L. Brue (2005). Economics: Principles, Problems, and Policies. McGraw-Hill Professional. pp. p456. http://books.google.com/books?id=Gz-5QCLlLaEC. Retrieved on 2008-11-26. 
  25. ↑ 25.0 25.1 25.2 Joe Nocera (2008-08-08). "Diamonds are Forever in Botswana", New York Times. 
  26. ↑ From Mine to Mistress - Corporate Strategies and Government Policies in the International Diamond Industry - by Chaim Even-Zohar
  27. ↑ De Beers Group De Beers Report to Stakeholders 2005/6 - Ethics, "Conflict and Instability" De Beers Group, accessed online February 11, 2007
  28. ↑ FAQs - The De Beers Group
  29. ↑ "Kimberley Process Certification Scheme". United Nations (2004-05-18). Retrieved on 2008-11-25.
  30. ↑ Kimberley Process
  31. ↑ DeBeers Settlement
  32. ↑ "De Beers pleads guilty in price fixing case", Associated Press via MSNBC.com (2004-07-13). 
  33. ↑ Margaret Webb Pressler (2004-07-14). "DeBeers Pleads to Price-Fixing: Firm Pays $10 Million, Can Fully Reenter U.S.", Washington Post. Retrieved on 2008-11-26. 
  34. ↑ Alrosa Purchasing Commitments - The De Beers Group
  35. ↑ Diamonds.net News - European Commission Clears DTC of Outstanding Complaints
  36. ↑ De Beers Report to Stakeholders
  37. ↑ Kathee Rebernak (2007-03-11). "Ethical Corporation: Report Reviews - De Beers Report to Stakeholders 2005/06 – Lacking real sparkle". Ethical Corporation. Retrieved on 2008-11-26.

External links