World Of Diamond Trading At Crossroads

Anarchy in war-torn Angola, new finds in Canada and, most importantly, tough-talking Russians could end De Beers illustrious cartel and herald an age of turmoil in polishing centres such as Antwerp, New York and Tel Aviv.

De Beers hold on the market began to loosen after Australias Argyle, the worlds biggest diamond mine, severed ties with De Beers Central Selling Organisation (CSO) in June.

The move is not disastrous for De Beers, as Argyle produces mainly small, low quality stones, which made up only six per cent of CSO sales.

But the Australian firms pull-out from the syndicate is nevertheless a significant sign of the times.

 

This was a rather selfish act, said De Beers Chairman Julian Ogilvie Thompson. If everyone did this, there wouldnt be a diamond market at all.

The CSO, which has its headquarters in London, was founded in the 1930s by Ernest Oppenheimer, chairman of De Beers and founder of another South African powerhouse, Anglo American.

It now controls about 75 per cent off all trade in uncut diamonds, selling about 4.5 billion dollars worth of stones a year via so-called sights to a select group of traders.

The sights are held 10 times a year at the imposing CSO headquarters, where traders are shown several boxes containing a selection of diamonds for which they can make a bid.

The rough diamonds piled up in the CSOs vaults do not only come from De Beers, but from other producers all over the world.

They sell their stones to the CSO as the De Beers cartel guarantees them a very steady demand and stable prices for their stones.

In turn, De Beers takes a fee and promotes diamonds through $400 million a year global advertising campaigns to ensure people perceive the gems as exclusive jewelry.

Now that Argyle has pulled out of the CSO, the big question is whether Russia, the worlds second biggest producer, will stay in.

Russia and De Beers have been in talks for 18 months to strike a deal that should prevent Russian diamonds from being sold outside the CSOs control directly to diamond cutters.

These leakages began several years ago when Russia, which accounts for roughly 20 per cent of CSO sales, was still obliged under a five-year pact to sell nearly all its diamonds to the De Beers-controlled cartel.

Most of the leakages, which started as a trickle but quickly became a stream, were plugged in February when Russia and De Beers reached a framework agreement, which should be the basis for a final, watertight marketing deal.

Russian officials raised hopes of a deal when they said early in October that an agreement had been drafted, but sceptics say this is no guarantee a final deal is nigh.

Russian diamond politics remain as complicated and as unpredictable as ever, John Helmer, Moscow correspondent of the trade magazine Diamond International, told a conference in London.

De Beers also faces a long-term threat from Canada where mining giants RTZ-CRA, the Anglo-Australian company, and Australias Broken Hill Proprietary Co Ltd (BHP) are starting up diamond mines with huge potential.

BHP and partner Dia Met Minerals Ltd. still have to decide how to market the gems they expect to mine from Lac de Gras in the Northwest Territories.

But BHP has already said it was exploring how to do business without the CSOs involvement.

Similarly, RTZ-CRA, 60 per cent owner of the Argyle mine, has yet to decide whether it will join the famed marketing cartel once it recovers gems from the Diavik project in Canadas Arctic.

While De Beers is keen to start talks in Canada and convince miners of the benefits of the CSO, it is also working hard in Angola to gain a strong foothold there.

Angola is the fourth biggest diamond producer after South Africa, Russia and Botswana.

But nearly two decades of fighting between the government and opposition Unita rebels have created anarchy right on De Beers doorstep.