The Multinational Monitor


S O U T H   A F R I C A

South Africa Gains Control of Australia's new Diamond Bonanza

De Beers seeks to ensure that diamonds are for them

by Phillip Frazer

The cast of characters and the plot are familiar. A giant multinational confronts a local corporation that lacks the capital and the expertise to develop its resources; national politicians proclaim that the country's interest resides with one corporate contender or the other; and the indigenous people on whose land the resources have been discovered struggle to be heard above the clamor.

The place is the remote northwestern region of Australia, and the prize is the world's largest diamond mine, whose output could equal the entire current world production of diamonds.

The profits may be enormous, and so too the impact of Australia's gems on the world diamond market. "It will be like throwing a whale into your swimming pool," Dr. Henry Dyer, head of the industrial division of the South African-based De Beers Diamond Company, told the Australian Bulletin magazine last month.

The struggle for profits has centered on the question of who will get to market the Australian stones. The De Beers group, whose major shareholders are members of the Oppenheimer family of South Africa, is the giant multinational winning the diamond battle.

Enjoying a monopoly on the world diamond market (see sidebar), De Beers viewed the huge Australian mine as a serious threat. The company realized that to continue operating its cartel, it had to preempt any Australian attempt to establish a rival marketing organization, which could cut prices and, possibly, precipitate a`diamond selling spree if diamond ring owners lost faith in their continued high -value.

De Beers was not involved in the exploration stage of the developing Western Australian diamond industry. In the early 1970s, the Australian Northern Mining Corporation and several partners began exploring for gems in the Kimberley mountains (which, ironically, are named after a South African diamond mining center).

But in 1975, De Beers got a crucial foothold in the project when the Northern Mining Company agreed to establish a joint venture with CRA (formerly Conzinc Rio Tinto Australia) - Australia's largest mining company.

The Oppenheimers, the major stockholders in De Beers, hold a 15-22% share in the London-based mining company, Rio Tinto Zinc, which in turn owns 58% of CRA.

CRA currently owns 56.8% of the Australian mining consortium, Ashton Joint Venture, now operating the diamond mine in Western Australia. Northern Mining Company possesses a mere 5% of the Joint Venture it began, with the remaining 38.2% going to Ashton Mining, a firm in which De Beers has acquired a large block of stock through intermediate holdings.

De Beers' successful control over the Joint Venture became clear in late February when the South African company, in an agreement announced by the Ashton Joint Venture, was granted rights to market nearly all the gem quality diamonds and 75% of the lesser quality stones through its own Central Selling Organization.

The newly-announced deal is expected to produce revenues of about $535 million a year for De Beers, and $200 million to the Joint Venture.

De Beers' acquisition of marketing control over Australia's diamond mining industry has stirred opposition throughout the country. The Australian Labor Party, which is given an even chance of regaining government power within two years in the next elections, has denounced De Beers as a saboteur of Australia's interests.

"The values given by the CSO for the Ashton diamonds are between 30 and 70% below the real values of the diamonds," warned Mat Bryce, a Labor Party spokesperson in Western Australia, shortly before the agreement was announced. "If they get control of the Ashton production it would be the coup of the century for the Oppenheimers."

The Labor Party's "shadow minister" for minerals and energy, Paul Keating, has declared his op position to the deal, warning that the Australian government "can no longer sit idly by and watch a unique Australian resource fall prey to another country at prices which are an insult to commercial acumen."

The Labor Party and other critics of the deal have also denounced De Beers as a prop of the South African system of apartheid, and criticized the mining agreement as a subsidy to the South African government. This position found a sympathetic ear for a time with conservative prime minister Malcolm Fraser.

Last December, Fraser blasted De Beers, saying Australia would reap no advantage from "arrangements in which Australian diamond discoveries only serve to strengthen a South African monopoly." A conservative on most issues, Fraser has acquired an international reputation for his opposition to apartheid.

Soon, however, Fraser's resolve weakened on the De Beers issue. Under fire from leaders of his own party for his stance on the diamond question, and slipping in the polls due to the Australian economic recession, Fraser decided to curb his criticism.

Aboriginals in Western Australia oppose the project for different reasons. As the only human inhabitants in the Kimberley mountains until the Ashton Joint Venture began exploring in the 1970s, the Aboriginal tribes are currently suing the Venture to ensure that "the companies treat us in a civilized fashion and don't rip up sacred sites," according to Darryl Kickett, chair of the Kimberley Land Council. The Venture signed a profit-sharing agreement with some tribespeople last year, but the Land Council rejects the agreement.

For now, De Beers has won out. But if the Labor Party returns to power, the challenge to Oppenheimer's diamond dynasty may resume.

The Australian Labor Party tried before, in the early 70s, to take back ownership of the nation's resources from multinationals. The corporations responded by applying financial pressures that brought that Labor government down (see MM, March 1981). Whether a future Labor government could confront the Oppenheimer empire any more successfully - by clamping export controls on Australia's diamonds until De Beers made concessions, for example - may depend more than anything else on whether, as the world recession puts the squeeze on pure luxuries, diamonds really are forever.

The Diamond Invention

Diamonds come in many sizes and colors, with varying degrees of imperfection. They are classified as being of "gem quality" at the top of the scale, "near gems" next, and industrial quality for those that are too small or too flawed for use except as abrasives in drill bits or in other industrial processes that require extremely hard and sharp materials. In a forthcoming book about what he calls "the diamond invention" American author Edward Jay Epstein argues that diamonds, which have only limited utilitarian value, were not much in demand until the South Africans launched a worldwide advertising campaign to promote them in the 1940s. Epstein claims that "the diamond invention is far more than a monopoly for fixing diamond prices; it is a mechanism for converting [diamonds] into universally recognized tokens of wealth, power and romance."

This has been achieved, says Epstein, through an advertising and promotions push that currently costs De Beers more than $60 million a year.

"To stabilize the market, De Beers had to endow these stones with a sentiment that would inhibit the public from ever reselling them.

The illusion had to be created that diamonds were forever - 'forever' in the sense that they should never be resold."

According to Epstein, the "invention" has been successful, to date. But Epstein cites many examples to back his contention that all those diamonds that have been sold to individuals as "tokens of wealth, power, and romance," are simply not saleable at anything like the prices buyers paid for them.

For as long as De Beers can control demand as well as supply, the market price of diamonds is what De Beers say it is.

The World Diamond Market

Through its marketing operation known as the Central Selling Organization, the De Beers groups has directed the world's diamond trade for the past 100 years.

The CSO currently controls about 70% of the world's natural diamond market, including 80% of the gem market. The U.S. is the largest buyer of gems (52% of world production), with Japan second (25%).

According to the Sydney-based National Times, De Beers 'Diamond Company is valued at over $3 billion and the Central Selling Organization enjoyed sales of more than $2.5 billion in the 1980-81 financial year. Oppenheimer's Anglo-American Corporation, which deals primarily in gold, is valued at over $4 billion, and the two companies combined produced profits of over $1.6 billion.

Through their Diamond Corporation, Oppenheimer interests buy most of the world's diamond production, usually on a run-of-the-mine basis, which means the corporation buys either everything the mine digs out, or nothing. Oppenheimer also buys on the open market from independent producers such as Sierra Leone and the Soviet Union. These diamonds-in-the-rough are then sold, by Oppenheimer's Diamond Trading Company, to various cutters and polishers, at prices which De Beers' CSO sets - and it has never reduced the price.

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