De Beers increasing its Canadian presence

The discovery of potentially economic kimberlite pipes in Canada’s North is being taken seriously by the world’s largest diamond organization, De Beers Consolidated Mines, and its marketing arm, the Central Selling Organization (CSO).

Anthony Oppenheimer, CSO president and director of De Beers and several other group companies, told The Northern Miner that the organization has expanded its presence in Canada through exploration subsidiary, Monopros, and through joint ventures with Canadian companies already involved in diamond exploration.

The De Beers group has been prospecting in Canada for the past 30 years and has even found kimberlites with diamonds, although none has proved economic. But that may change now that the group has gained exposure to a more selective land position in Canada. As Oppenheimer explained: “We are coming to the point where we are able to pinpoint possible targets (diamondiferous kimberlites).”

Oppenheimer’s recent visit to Canada included a tour of the leading project in Canada’s North, the BHP Minerals-Dia Met Minerals joint venture at Lac de Gras. Oppenheimer appeared duly impressed with the work done to date, though he did not fail to observe that, so far at least, the average size of diamondiferous kimberlites being tested is small relative to some of the producing pipes in South Africa. “It appears that several pipes are needed to support a mining operation,” Oppenheimer explained.

It is no secret that the De Beers organization is interested in marketing Canadian diamonds, when and if commercial mines are developed. The CSO has been responsible for marketing much of the world’s diamond production for the past 60 years, and Oppenheimer is clearly of the view that this role will continue.

“Diamonds are a luxury product, and it is essential to have single-channel control,” said Oppenheimer, who also stressed that CSO should be viewed as a “producers’ co-operative” rather than a cartel.

“We are not trying to sustain prices at a high level to take advantage of consumers. There are ups and downs in demand that have to be ironed out in order to keep (market) confidence and bring stability to an industry that employs 2.5 million people worldwide.”

His reference to a producers’ co-operative reflects the fact that CSO markets diamonds from producers other than De Beers. At one time, the organization directly controlled much of the world’s diamond production. Today, De Beers, together with its industry partners (such as the government of Botswana), controls about half of world production.

The CSO has also marketed Russian gem diamond production for the past 30 years. But the marketing agreements are up for renewal in 1995, and negotiations are being complicated by recent political developments within the former Soviet Union. Many regions within Russia are pushing for increased autonomy from Moscow, and that includes Sakha where the bulk of Russian diamonds are produced.

“The Russians are causing us some pain at the moment,” Oppenheimer said. “They are strong on stability and keen to sign contracts with us, but the three diamond organizations are having internal arguments about who should run the diamond industry.”

Another concern is the continued sale by the Russians of cheap rough diamonds. CSO does not have rights to market Russian industrial production, and it appears some of these “technical” goods are finding their way to Indian cutting centres. At prices up to US$70 per carat, these stones appear to be fetching a much better price than the average industrial. Diamond experts also predict that the Russians may push for rights to market a percentage of their production independently.

De Beers and CSO also have had to deal with a surplus of small diamonds produced by several mines worldwide (notably Argyle in Australia). In response to this, all producers were recently forced to cut back their sales to CSO by 15%, either through production cutbacks or by stockpiling. And an oversupply of browns and colored (yellow) diamonds has led to a price decrease of about 25% for these stones.

“The market for quality stones is still good,” Oppenheimer said, adding that overall diamond sales this year are forecast to total US$4.4 billion. Sales in the first six months reflected relatively healthy markets in the U.S., China and East Asia. Less buoyant were markets in Europe and Japan. Sales in the second half of this year are not expected to be as good as in the first six months.

Oppenheimer expects that by the turn of the century demand for diamonds will be stronger. At the same time, the organization expects production will decrease as mines near depletion in Russia and Australia. “By the year 2004, Argyle will have to go underground or close,” the De Beers director predicted. “It is still not clear if it will be economic for them to go underground.”

De Beers has some aging mines, but it also has a new producer — Venetia — to ensure its continued status as a producer. “We also think the mine is a leading example of building mines that are ecologically sensitive and that blend in with the environment.”

The organization is also positioning itself to remain a leading force in marine diamond mining. Currently, up to 10 miles off the coast of southern Africa and in waters up to 300 ft. deep, four ships are engaged in mining diamonds.

“It is a costly exercise, but it is economic because we are recovering good-sized diamonds with a high average value, and no industrials,” Oppenheimer said. “Marine diamond mining is very important and will gradually take over from land-based operations.”