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De Beers

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De Beers
Company typePrivately held company
IndustryExploration, mining and trading of diamonds
Founded1888
FounderCecil Rhodes
Headquarters
South Africa 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
approximately 20,000
Websitewww.debeersgroup.com

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

Founded by Cecil Rhodes in 1888, De Beers is active in every category of diamond mining: open-pit, underground, large-scale alluvial, coastal and deep sea.[1] Mining takes place in Botswana, Namibia, South Africa, Tanzania and Canada.

Mining in Botswana takes place through the mining company Debswana,[2]a 50-50 joint venture with the Government of the Republic of Botswana. In Namibia it takes place through Namdeb,[3] 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),[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 began production at the Snap Lake Mine in Northwest Territories, Canada;[5] this is the first De Beers mine outside of Africa. In 2008 De Beers will also open the Victor Mine in Ontario, Canada.[6]

The Family of Companies employs over 7000 people in Botswana, over 7100 in South Africa, 3800 in Namibia, 700 in Canada and over 800 in Group Exploration.[7]

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 Investments DBI 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.[8]

Retail ventures

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[9] (LVMH) to establish an independently managed De Beers diamond jewellery company.

The joint venture, called De Beers Diamond Jewelers 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. De Beers is often criticised for creating demand for the diamond engagement ring through persuasive advertising.

A young copywriter, Frances Gerety coined the famous advertising line "A Diamond is Forever" in 1947, allegedly while she was dreaming, and the company has created many successful campaigns since then.

Other successful 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).

In the year 2000, Advertising Age magazine named """A Diamond Is Forever""" the best advertising slogan of the twentieth century.[10]

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

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).

The 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, Namibia and Tanzania. 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.[11]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 DTC develops diamond technology and operates a research and development facility based in the UK, 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 (BPPs), which set out various objective standards of conduct within three main areas: business, social, and environmental responsibilities. The BPPs 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.[12]

In December 2000, the United Nations General Assembly adopted a landmark resolution 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.

Conflict diamonds

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 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.[13][14]

De Beers states that 100% of the diamonds it now sells are conflict-free. According to the company, all De Beers diamonds are purchased in compliance with national law, the Kimberley Process Certification Scheme[15] and its own Diamond Best Practice Principles.[16]

De Beers is active in the Kimberley Process, which aims to eliminate conflict diamonds from world diamond flows, and the Diamond Development Initiative (DDI).[17] 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 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 (the diamonds used for industrial purposes such as abrasives on drills). General Electric had been to court to face the charges, but the case against GE was thrown out for lack of evidence. De Beers refused to appear in court, but ten years later "admitted [to] conspiring to fix prices in the $500 million industrial diamond market", pleaded guilty, and agreed to pay a $10 million fine.[18][19]

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. In March 2006, the three remaining civil class action suits were added to the November settlement agreement.

In April 2008, De Beers confirmed that Judge Chesler, presiding, had issued his written opinion, and entered an order, approving the Settlement. This resulted in an overriding global settlement arrangement totaling US$295 million which has received preliminary court approval. De Beers does not admit liability, and the settlement will bring an end to all outstanding class actions. As part of the settlement, persons who purchased diamonds within the past ten years may be eligible for a certain level of compensation.[20]

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.

Changes to De Beers' business model

Sometimes referred to as a monopoly or cartel, De Beers, via the Central Selling Organisation, at one time sold approximately 80% of the world's diamonds. Currently the Diamond Trading Company sorts, value and sells approximately 40% of the world's rough diamonds by value.

A range of factors contributed to transformation. In the 1990s, diamond jewelry markets had fallen in comparison to other luxury goods. The behavior of consumers had changed and the diamond industry, being in a world unto themselves, had been slow to respond. De Beers’ custodianship and supply-controlled model was no longer viable, and the company was also unable to conduct business in several jurisdictions where it had interests or a corporate presence.

In addition, more producers from varied locations such as Russia, Canada, and Australia chose to distribute diamonds outside of the De Beers framework.

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 strategy.

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 or the Republic of Namibia, De Beers, Rio Tinto, BHP Billiton, Lev Leviev, Harry Winston, and Alrosa.[21]

  • [15] De Beers Group official web site
  • [16] De Beers Diamond Jewellery
  • [17] diamondfacts.org
  • [18] Diamond Development Initiative
  • [19] diamondsclassaction.com
  • [20] KP rough diamond statistics site
  • [21] De Beers reports
  • [22] De Beers, Diamonds and Botswana - video story
  • [23] Debswana official web site
  • [24] Namdeb official web site
  • [25] Kimberley process official web site
  • [26] - From Mine to Mistress by Chaim Even-Zohar, Corporate Strategies and Government Policies in the International Diamond Industry

See also

References

  1. ^ [1]
  2. ^ [2]
  3. ^ [3]
  4. ^ [4]
  5. ^ [5]
  6. ^ [6]
  7. ^ [7]
  8. ^ [8]
  9. ^ LVMH - Louis Vuitton Moet Hennessy
  10. ^ [9]
  11. ^ [ http://www.debeersgroup.com/en/Sales-and-distribution/Sights-and-Sightholders/]
  12. ^ [10]
  13. ^ De Beers Group De Beers Report to Stakeholders 2005/6 - Ethics, "Conflict and Instability" De Beers Group, accessed online February 11, 2007
  14. ^ [11]
  15. ^ Kimberley Process
  16. ^ [12]
  17. ^ Diamond Development Initiative (DDI)
  18. ^ De Beers pleads guilty in price fixing case - World business - MSNBC.com
  19. ^ DeBeers Pleads to Price-Fixing (washingtonpost.com)
  20. ^ [13]
  21. ^ [14]
  • Epstein, Edward Jay (1982). "THE DIAMOND INVENTION" (Complete book. An in-depth research into the history of De Beers as a company and the development of the modern diamond market)
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