Diamonds Update

In discussions with clients the past few weeks, I have spent considerable time discussing the changes in the diamond industry, especially the role of De Beers.  The topic typically comes up when the diamond shopper makes a comment about De Beers owning vast supplies of rough diamonds and keeping diamond prices artificially high.

It becomes obvious that the average consumer is basing their perceptions of the diamond industry on stories that are now decades old.  Those of us who work in the industry every day are well aware that the industry has seen dramatic changes.

For about 100 years, De Beers operated a near monopoly by either mining or buying as much as 70% of the world’s rough diamond supply.  They did use their stockpiles of diamond to control the supply and thus the price of diamonds, keeping the industry stable during times of widely fluctuating demand and production.  A byproduct of the tight De Beers control was that they ensured the bulk of the profit left the country where the diamonds were mined as quickly as the diamonds were moved to London for sorting and marketing.

In the last decade, De Beers has dramatically changed their business model under the direction of Gareth Penny, the current managing director.  Today, De Beers only manages the diamonds it mines, which totals about 40% of worldwide production.  That means other companies market 60% of the world’s rough diamonds.  The vast stockpiles of diamonds are long gone with only enough diamonds kept to keep the pipeline of diamonds moving fluidly.

One of the other big changes is in how De Beers and the rest of the diamond industry are attempting to improve the lives of the miners and compatriots in the countries where the diamonds are mined.  There is no better example of this change than in Botswana.  The mines have long been operated as a equal partnership between De Beers and the government of Botswana but now the country is getting even more benefits.  De Beers has moved its diamond sorting operation from London to Gaborone, the capital of Botswana.  The new facility will employ 500 Botswana workers and generate another 2,500 support and related job, including 16 cutting and polishing factories built around the new sorting plant that will process about 22% of the world’s production.

The economic growth and governmental stability of Botswana have not gone unnoticed by other diamond producing countries, especially in Africa.  The De Beers/Botswana model is likely to be implemented in other countries and is expected to continue the ongoing positive change within the diamond industry.