I promised you another story about the history of De Beers so here it is!
De Beers….that name is synonymous with diamonds. Books, movies and James Bond have had a field day with the real or imagined De Beers. What a spectacular history! De Beers started as a struggling mining company in the late 1800s. Through a focused vision of the future and close monitoring of their product at every step along the way, De Beers morphed into a global monopoly. It really happened pretty quickly. How did they do it? Just like I said, by controlling every step of the diamond’s journey from the mine shaft to the fashionable showroom floor. I don’t think most people realize that De Beers had always been a privately held business. The family behind De Beers, the Oppenheimer family, has always understood the power and attraction of the diamond.
The company was founded in 1888 by Cecil Rhodes. Rhodes got his start renting water pumps to miners during the 1871 diamond rush. Rhodes got his big break when he found an 83.5 carat diamond on Colesburg Kopie, which is the Kimberley mine today. Mr. Rhodes took his profits and bought up as many claims of small mining operators as possible and soon expanded into a separate mining company. The Rothschild family financed his growth. De Beers Consolidated Mines was formed in 1888 by the merging of two company’s owned by Barney Barnato and Cecil Rhodes. At the time, the new company was the sole owner of all diamond mining operations in South Africa. The name derived from the De Beers brothers, Diederik Arnoldus and Johannes Nicolaas de Beers, Boers whose farm had become the site of a particularly lucrative mine. The brothers had been bought out and had no ongoing business with the company. In 1889, Rhodes negotiated an agreement with the London based Diamond Syndicate which agreed to purchase a fixed quantity of diamonds at an agreed price, thereby regulating output and maintaining prices. A practice that would become commonplace over the next 122 years. The young company was never without a struggle battling through the second Boer War and World War I.
Kimberley Mine, “The Big Hole”, South Africa, photo courtesy of Wikipedia.
Cecil Rhodes, photo courtesy of NNDB.
In 1902, competition reared its ugly head in the form of the Cullinan Mine which was owned by an independent miner that refused to sell to De Beers. The mine started selling to a pair of independent dealers name Bernhard and Ernest Oppenheimer. Production from the Cullinan soon equalled all of the De Beers mines combined. The largest rough diamond ever discovered came from the Cullinan mine. Today, the Cullinan I or the Great Star of Africa at 530.4 carats is mounted in the head of the Sceptre with the Cross, which is the British royal sceptre. It is the second largest polished diamond in the world. The Cullinan II or the Second Star of Africa, at 317.4 carats, is the fourth largest polished diamond in the world. Both diamonds are part of the British Crown Jewels. Oppenheimer became the local agent for the powerful London Syndicate, becoming the mayor of Kimberley within 10 years. He too understood the core business principle that created De Beers success by stating in 1910 that “common sense tells us that the only way to increase the value of diamonds is to make them scarce, that is to reduce production.”
Cullinan II Diamond, photo courtesy of the Royal Archives.
During World War I, the Cullinan Mine was finally absorbed into De Beers. When Cecil Rhodes died in 1902, De Beers controlled 90% of the world’s diamond production. In 1927, Ernest Oppenheimer, a German immigrant to Britain who had also founded the mining giant Anglo American plc with the American financier J.P. Morgan, took over the chairmanship of the company after buying a seat on the board a year earlier. Oppenheimer built and consolidated the company’s global monopoly over the diamond industry until his retirement. He was accused of many questionable business practices among them price fixing and antitrust behavior. Former CIA Director Admiral Stansfield Turner has openly stated that De Beers would not release industrial diamonds for the United States war effort during World War II. De Beers created and maintained a monopoly for nearly 123 years. De Beers maintained the monopoly by a three pronged approach. First, it used a single channel method of distribution. It purchased and stockpiled diamonds produced by other manufacturers to control price and last but not least, it flooded the market with diamonds similar to those of producers who refused to join the cartel.
Ernest Oppenheimer, photo courtesy Brenthurst Library
Harry Oppenheimer, Ernest’s son, was the chairman of Anglo American Corporation for a quarter of a century and chairman of De Beers Consolidated Mines for 27 years until he retired. The Oppenheimer family were German Jews. When Harry married his wife Bridget (nee McCall), he chose to enter the Anglican Church, but remained a supporter of Jewish causes during his entire life. He personally authorized the flow of diamond rough to Israel so Israel could establish itself as one of the world’s diamond polishing and exporting leaders. He helped found a profitable core business for the new state of Israel.
Harry Oppenheimer, photo courtesy of Brenthurst Library.
Harry’s son Nicholas (Nicky) became Deputy Chairman of Anglo in 1983 and Chairman of De Beers in 1988. He remained Chairman until De Beers sold in 2011. He is the only private person granted permission by the City of London to commute within the one square mile of the city by helicopter. Nicky has a son Jonathan, who worked at Anglo and De Beers for over twenty years and was in line for the Chairmanship before the sale.
Nicky Oppenheimer, photo courtesy of African Success.
Jonathan Oppenheimer, photo courtesy of Zimbio.
In 2002 the De Beers model changed. Producers in Russia, Canada and Australia were actively distributing outside of the De Beers channel. The rising awareness of “blood diamonds” forced De Beers to limit sales to its own mined products. De Beers’ market share fell from as high as 90% in the 1980s to less than 50% in 2012.
Vladimir Putin, Nicky Oppenheimer, 2006, photo courtesy of Wikipedia.
De Beers had also maintained its control through a cartel of companies that dominated every sector of the diamond industry through mining (open pit, underground, large scale alluvial, coastal and deep sea) trading, manufacturing and selling. De Beers has been active in every category of the industry.
In November 2011, the Oppenheimer family announced their intention to sell the entirety of their 40% stake in De Beers to Anglo American plc thereby increasing Anglo American’s ownership of the company to 85%. The transaction was worth $5.1 billion in cash and ended the Oppenheimer’s 84 years dynasty of owning the world’s largest diamond producer. However, the family still has large stakes in other related businesses.
Retail appears to be the future for De Beers. It took its first steps in the retail sector a decade ago as it opened stores across the world in a joint venture with LVMH, the world’s luxury goods company and recently said it plans to open more outlets in China and the Gulf region where there are strong potential markets.
I would love to hear your comments about De Beers and it’s self created monopoly. Let me know what you think!