De Beers, like its facilities, is mixture of diamonds and dust
April 15, 2004
By Sherilee Bridge
Gary Ralfe, the managing director of De Beers, is fond of reminding visitors to the company's revamped headquarters in Crown Mines, south of Johannesburg, that the R300 million-plus building was designed to reflect light like a diamond - and the glass walls were meant to be an architectural metaphor for transparency.
With yoga classes for its staff and pools of water inside and out, the company shows the world the face of a thoroughly modern enterprise.
But the spangle of the new building fails to hide the company's age. Off to the left, tucked away as if discarded, is a 1970s style facebrick building that still houses the executive offices.
This is the first hint that this is a company in the midst of transformation.
For the millions of dollars De Beers spends on promoting its new image, the company remains a family business and, like the stereotypical college freshman, no matter what it wears, its clothes still smell of old money.
It was only in June 2001 that De Beers Consolidated Mines delisted. For the first time in 108 years its shares were no longer available for public trading.
And every year since then Nicky Oppenheimer, representing the third generation of the Oppenheimer dynasty, has reminded analysts and media attending De Beers results presentations that the diamond giant has not moved its head office from South Africa despite its global presence.
This is a fact. The only change was a move from De Beers' birthplace in Kimberley to Crown Mines.
What has changed, however, is the diamond company's dominance in Africa.
A 1995 annual report shows the "largest diamond mining organisation in the world" was active in 12 diamond producing areas in Africa.
Half of the world's gem diamonds by value came from mines in South Africa and in partnership with the governments of Botswana, Namibia and Tanzania.
In less than 10 years this figure has halved.
Some believe this is the cost of founding and following the Kimberley Process.
And it is here that De Beers finds itself at the crossroads.
Oppenheimer called it a "critical juncture" for the industry.
Addressing the World Diamond Council meeting in Dubai last month, he said of the difficulties the industry had faced, "none was a greater threat than that of conflict diamonds".
Oppenheimer acknowledged that the industry was enjoying a period of success with growing consumer demand for diamond jewellery, but he warned that efforts - in marketing, winning consumer confidence and maintaining ethical standards - would have to be kept up to guarantee the future prosperity of the industry.
Taken at face value, this is level-headed advice. Dig deeper and one will find the new De Beers agenda.
De Beers has gone to great pains to distance itself from the dusty reputation it had as a diamond cartel with control over 80 percent of the market, to being a marketer and retailer of the gems, competing with the best in the luxury goods sector.
By narrowing the number of clients it sells diamonds to, it can be argued that the company has created an artificial demand for rough stones. This demand is pushing up prices.
De Beers has already announced two price increases this year, one of 3 percent and another of 5 percent.
Last year's price increases totalled 10 percent.
But so far the repositioning has paid off. It added 7 percent to the company's sales last year, bringing $5.52 billion (R35.8 billion) and paying handsome dividends for its two major shareholders, Anglo American and the Oppenheimer family, which each hold 45 percent.
And with global diamond jewellery sales expected to exceed the $56.6 billion achieved last year, De Beers is rubbing its hands.
The company plans to increase its production by 7 percent this year.
That's after it upped its carat production by 9 percent to 43.9 million carats in 2003.
Plans show that production from South African mines should rise from 12 million to 14 million carats as the Venetia mine lifts output from 6.6 million carats to 7.4 million.
At the same time, diamond production from mines in Botswana should rise by 1 million to 31 million carats.
Production from Namdeb, De Beers joint venture with the Namibian government, was also expected to increase by 200 000 carats as Namdeb brings on additional marine diamond mining capacity.
De Beers also remains hopeful of restarting operations in the Democratic Republic of the Congo (DRC) and Angola, where it had a falling-out over security of tenure and marketing rights.
But the company has its hands full, with the renegotiation of its agreement with the Namibian government coming up towards the end of this year and the the Botswana government, which has a roving eye and is encouraging competition, threatening to take a second or even third wife after years of loyalty to De Beers.
Already there have been whispers that the lack of African access has pushed De Beers into foreign arms, with mines being constructed in Canada and exploration under way in India, Russia, Australia, Brazil and China.
But Bill McKechnie, director of group exploration at De Beers, disagrees.
He says Africa is again a key area of exploration.
Exploration spend in Africa has grown from $25 million to $38 million in 2003.
McKechnie says Africa has been a no-go zone for exploration for a number of years and some parts of Africa remains inaccessible because of the poor infrastructure left by a legacy of conflict.
De Beers is prospecting in Gabon, Tanzania, Zimbabwe and the DRC.
"What people don't realise is that it can take three to five years to make a discovery and then it takes another three to five years for development and commissioning of a mine," says McKechnie.
What's more, Ralfe said at the launch of the annual review, capital spending on operations had climbed from $255 million to $320 million, contributing more than $3 billion annually to the continent's foreign exchange earnings.
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