Diamond Industry

De Beers

De Beers is the largest diamond production company in the world, recording 40% production of gem quality diamonds across the world. Operating as a cartel, this unrivalled leader has a century rich history and a strong structure. It works through applying maximum thrust in the diamond pipeline and its business and marketing strategies are exemplary.

The group has a presence in twenty five countries and is noted to employ approximately 23000 personnel and approximately 10,000 contractors across the world. Its mines are located in some of the best strategic locations. As per its statistics, the De Beers organization shows a strong focus on strengthening its presence in diamonds; it also supports many native diamond communities across the world through initiatives in education and health. Importance of the environment is also not neglected.

History of De Beers

The organization has a rich history that dates to a century ago. The journey began when diamonds were discovered in South Africa in the late 1800s in large quantities. Cecil Rhodes took a large interest in these mines and De Beers was born and incorporated.

In 1870 huge diamond mines were found near Orange River in South Africa. At a time when many feared that the intrinsic value of diamonds may come down, major investors in diamond mines decided to merge their interests into a single entity. This decision was taken when the investors decided that they had to form a single powerful entity that could control production on its own. De Beers was formed and Cecil John Rhodes began buying up claims at the De Beers mine.

De Beers Merges with Kimberley Central Mining company

As prices of diamond rough started to go down, Rhodes decided to enter into larger scale mining to make the process more cost effective. Soon De Beers Mining Company was formed. However Rhodes realized that total control was required over total diamond production in order to keep the prices of diamonds from spiraling down. He thus convinced Barney Barnato of the Kimberley Central Mining company to merge with De Beers and in March 1888, the De Beers Consolidated Mines was formed with Rhodes as the Founder Chairman.

The organization began operations with large assets that included the entire De Beers mine, a large portion of the Kimberley mine and a controlling interest in the Bultfontein and Dutoitspan mines. In 1890, the organization acquired a large share of the Jagersfontein mine and a controlling interest in the Wesselton mine. It also entered into a sales contract with the London Diamond Syndicate for purchasing the entire production of diamonds of the De Beers mines. In 1902, just before Rhodes died, he was overseeing 90% of world production of diamonds.

Ernest and Harry Oppenheimer Contribution to De Beers

This was the time when Premier mine was discovered and it began to sell independent of the London Syndicate. This threatened De Beers stance, but only till 1907, when diamond market slumped and Premier had to finally sell through the London Syndicate. In 1929, Ernest Oppenheimer took over as chairman of De beers board of directors and helped the company battle through the depression in 1930, when many mining operations were shut down.

He created the Diamond Corporation in 1930 and restructured it as the Diamond Producers Association (DPA) in 1933. finally in 1934 the Diamond Trading Company (DTC) was formed. In 1952, the De Beers Investment Trust was formulated to hold industrial, gold, related mineral and agricultural interests. In 1962 the organization purchased the diamond production of Soviet Union and later set up partnership with the Botswana government in 1965 to gain share of the diamonds in Botswana. This move was made under the leadership of Harry Oppenheimer who made De Beers a multi national industry. Through its timeline of operations, the organization took on various names and forms. It began to be known as the Diamond Trading Company in London, as the Syndicate in Israel and as the Central Selling Organization (CSO) in Antwerp. Finally in Africa the organization disguised its operations under the banner of subsidiaries such as Mining Services Inc and Diamond Development Corporation. The cartel form of operation has proved successful for De beers, so much so that even diamonds from the Siberian mines were sold to De beers by the Soviet union.

Structure of the firm across the world

The structure of De Beers is a good example of cartel, where a small number of sellers dominate the diamond market. This privately owned organization operates through three major shareholders. These are the Anglo American PLC that owns 45%, Central Holding Group that holds a stake of 40% and the Government of Botswana that has a stake of 15%. Currently the organization is headquartered in Johannesburg and operates through its head office in Kimberley. Nicky Oppenheimer has been operating as chairman of the group since 1998. The Central Selling Organization or the Syndicate is the London based trading arm of De Beers Consolidated Mines Ltd. This arm in itself is known to control distribution of approximately 85% rough diamonds across the world. The organization also has its own research wing which operates as the De Beers Diamond Research laboratory.

De Beers Mines

De Beers matches its world production of diamonds through its fifteen mines located across the world in locations like Tanzania, Botswana, Namibia and South Africa. It undertakes all kinds of mining activities that include open pit mining, underground, large scale alluvial, deep sea and coastal mining. Its well known mines include the names of Cullinan mines (formerly known as the Premier mines), Finsch mines, Kimberley, Koffiefontein, Namaqualand, the Oaks and Venetia (South Africa's largest diamond mine). These mines are located in Botswana, Namibia, South Africa and Tanzania. In Botswana, mining takes place through a company known as Debswana. Mining in Namibia takes place through Namdeb, which is a joint venture between De beers and the government of Namibia. 70% of the diamond mines in Africa are noted to be owned by the company. The Cullinan mine was renamed as such in November 2003 and currently employs approximately 1500 people. These mines were discovered over a century ago and the underground block caving method is primarily employed for extracting diamonds.

Statistics of De Beers

Along with its joint venture partners, De Beers operates across the five continents in over twenty five countries. 40% of the world's rough diamonds are extracted from its diamond mines and the organization markets approximately 45% of these extracted diamonds. Figures reveal that capital expansion of De Beers rose from US$ 370 million in the year 2005, to become US$ 949 million in 2006, indicating that the organization is further strengthening its presence in the diamond industry. In the year 2007, underlying earnings were reported to rise by five percent to $324 million as compared to 2006. Group production was noted to rise by 2% in 2007, to become 25.3 million carats as compared to 2006, when production was noted at 24.7 million carats. Finally global sales at De Beers diamond jewelers were noted to rise by 39% as compared to 2006.

Business strategies

The operations of the organization are mainly governed by its mission to discover, acquire and mine its diamond deposits in a responsible and environmentally friendly manner. This mission furthers the process of creating value for shareholders and stakeholders of the firm. De Beers has succeeded with its innovative business strategies of keeping a strong hold on the entire production of diamonds.The sales and marketing arm of De beers is well known as the Diamond Trading Company (DTC). It operates its business through selling rough diamonds on the basis of value. It also operates retail outlets which come under the banner of De Beers diamond jewelers limited. Its outlets are present in various locations that include London, Osaka, New York City, Dubai, Dallas, Las Vegas, Paris, Houston, Beverly Hills and Tokyo. The firm is renowned for its marketing activities also and its promotional campaigns are well recognized.

Marketing strategies

Many experts recognize that the diamond industry has been successful, largely because of the manner in which it has been marketed by De Beers. These efforts have not only helped sustain the monetary value of diamonds (by checking that supply does not exceed demand), but also bring them within reach of the ordinary customers. Its famous campaigns and slogans include 'a diamond is forever', and its concepts of eternity ring (symbolizing continuous affection), trilogy ring (symbolizing the past, present and future of relationships) and the right hand ring (symbolizing independence for women). It is estimated that De Beers spends approximately $150 million every year just on advertising efforts. Its advertising has been phenomenal too. As the diamond market recovered in 1934, the NW Ayer advertising agency began promoting sales by presenting the diamond as a stone with great value while linking it with the emotion of love. By 1941 sales of diamonds had risen 55%. In 1968, De beers hired J Walter Thomson, a leading ad agency and started promotional campaigns in Japan. Such was the success of the campaign that from 1968, when less than five percent Japanese women received diamonds as their wedding rings, the numbers jumped to 60% by 1981. Today Japan is a large market for diamonds, second only to the US.

Innovations of De Beers

De Beers not just invented the way diamonds were perceived in the marketplace but led the way with many new initiatives. For example, the Dahlia cut in diamonds was introduced for De Beers in the 1990s by Gabi Tolkowsky. Today this cut is popular with its 51 facets. The De Beers research laboratory also created synthetic diamonds in 1987. As per GIA, such stones of one carat could be created in short time spans of 60 hours.

Community and environment initiatives

It is a known fact that mining poses its ill effects on mining communities and the environment. In order to control these threats, De beers has taken various initiatives. These include its education and skills development programs whereby funds are allocated for education, skills development and small business establishment. Health care is also given high importance and funds and support are allocated especially for HIV/AIDS related projects.

Its environmental initiatives include dust control systems and minimization of lighting and noise impacts in mining regions like the Venetia mines. In its efforts towards environment sustenance, De Beers group of companies aims to emerge a global leader for sustainability and environment performance by the end of 2009. To attain this, the firm has taken an external assessment of its performance, review of its key risks and implementing an environmental strategy. Thus issues related to biodiversity, energy, climate and water management have been taken into consideration. Finally the issue of conflict diamonds is combated with a strong involvement in the Diamond Development Initiative (DDI) and the Kimberley process.

Due to its unrivalled leadership position, De Beers has been a constant source of criticism for many. However, what remains at the end of the day, is that this was the organization that brought orderliness into the diamond industry a decade ago, and continues to do so. De beers is a leader not only in its mines and mining, but also in its structure and marketing. And despite what critics say, the organization continues to have a strong build new mines and increase thrust on exploration activities.