• Shining through

    As the diamond market increasingly shows signs of recovery, industry-wide changes are redefining the sector.

    Shining through

    By May 2017, the international diamond market appeared to have emerged from its slump going back to late 2014. Both volumes sold and prices were up again, the former by some 20%, according to consultancy Bain. This is good news for diamond-producing countries in Southern Africa, where there are developed industries in South Africa, Namibia, Botswana and now Angola. However, not all jurisdictions are equally well placed to take advantage – the DRC and Zimbabwe possess considerable diamond wealth but their industries are lawless and chaotic.

    In the first quarter of 2017, De Beers, still the world’s biggest diamond seller by value, sold 14.1 million carats in three sales events (called ‘sights’) of the year, compared with 8.1 million carats for the same period last year (during which only two sights had been held). 2015 was a tough year for the diamond market as demand from the world’s largest market, the US, was squeezed by dollar strength, while China and the Middle East wavered on the back of general economic weakness.

    De Beers is now a unit of international mining giant Anglo American. For the first quarter of 2017, the diamond miner made a notable contribution to its parent company’s quarterly performance – production was up 8% year on year. However, it’s likely to plateau, as these figures now incorporate production from the new Gahcho Kué mine situated in the frozen wilderness of Canada’s Northwest Territories, as well as a ramping up of production from the huge Venetia mine in South Africa, near the Botswana/Zimbabwe border.

    Some pundits believe Gahcho Kué will be the last-ever major diamond mine and that, in the near future, the world will experience ‘peak diamonds’ as supply rises and before beginning a long, slow decline. De Beers has no plans for any further mines.

    A number of factors have fundamentally changed the industry in recent years.

    First is that the ownership and marketing structure of the entire industry has shifted in the 21st century. The diamond market has always been hinged on a delicate balance between supply and demand. For most of the 20th century, the balance was maintained by a cartel centred on a single firm – De Beers Consolidated Mines – which controlled the majority of global production and virtually all sales. When prices appeared likely to drop, De Beers’ Central Selling Organisation would simply cut supply, sitting on a stockpile that was the stuff of legend.

    De Beers, however, no longer controls the industry. The cartel dismantled under pressure from US regulators as well as Australian and Russian producers that objected to the terms imposed by De Beers. Indeed the company is no longer even the biggest producer in terms of carats pulled from the earth. That title is now held by Russia’s state-owned ALROSA, with around 30% of global production, even though De Beers still leads in terms of value.

    Second, it may well be that all the most viable kimberlite pipes have been discovered and brought into production already. These pipes are the remains of the plumes that originally brought diamonds up from the Earth’s mantle about one billion years ago. Given their age, it is usually difficult to identify a pipe directly as it will be covered by later deposits. Geologists have to follow a trail of alluvial diamonds (found in riverbeds downstream from the pipe) back to source.

    Some well-known diamond jurisdictions – including Namibia and the DRC – are based solely on alluvial diamonds. Namibia continues to mine diamonds deposited along its coastline after a long journey from the interior down the Orange river. Operations – mostly marine mining – are in the hands of Namdeb, a private-public partnership that places production output squarely into the De Beers marketing organisation. The partnership was renewed for a further 10 years in 2016.

    The DRC, however, is an example of the third factor that has driven change, in terms of conflict diamonds. In 1998, a small NGO – Global Witness – published figures drawn from De Beers’ own public reports that demonstrated how the company’s need to control supply by hoovering up ‘surplus’ production had funded warlords in Sierra Leone, Liberia, Angola and the DRC. The industry responded by launching the Kimberly Process in 2003, which aims to guarantee the provenance of all diamonds that make it onto the international market – reassuring buyers that the gemstones they purchase are not tainted by violence or exploitation.

    The Kimberly Process remains extremely active. In 2013 it banned the official sale of diamonds from the Central African Republic on the grounds that these are most often smuggled into the system from conflict areas.

    However, International human rights NGOs have been critical of the limitations of the Kimberley Process. It certifies diamonds at the point where they move from one country to another. Last year, Human Rights Watch argued that the problem is that the process defines conflict diamonds as gems ‘used by rebel groups to finance wars against legitimate governments’. It wants to see a broader focus on ‘the full range of human rights abuses connected with diamond production regardless of whether they are committed by governments, rebel armies or private actors’.

    The primary purpose of this wider definition is to make it possible to act against one nation in particular – Zimbabwe. Its Marange diamond fields are reputedly one of the richest in the world. They are, however, mired in controversy going back to 2006 when the government of Zimbabwe effectively nationalised them, placing operations in the hands of several private entities under the umbrella of the state-owned Zimbabwe Mining Development Corporation. The companies are allegedly affiliated to former military or political members of Zimbabwe’s ruling elite.

    There have been ongoing clashes between the companies and small-scale artisanal miners who prefer to sell their finds on the black market. Some local villagers are forced by soldiers to mine under conditions that amount to slavery. Illegal miners have been shot from helicopter gunships.

    In terms of the Kimberley Process, however, the gems mined in the Marange fields are not considered ‘conflict diamonds’. While the industry shows all the signs of informalism associated with conflict diamonds (President Robert Mugabe himself has declared that just US$2 billion of the US$15 billion mined were ever declared for tax purposes), the fields are under the control of the ‘legitimate’ government of the country and supposedly regulated by national laws.

    In 2013, Welile Nhlapo (chair of the Kimberley Process at the time) tried to justify Zimbabwean diamonds being given ‘conflict-free’ status by saying that the watchdog’s mandate was ‘to stop blood diamonds being used by rebel groups to fund the overthrow of legitimate governments’, but as the diamonds weren’t being used for that purpose, the Kimberley Process was unable to ban them.

    There is little doubt that Zimbabwe has missed an opportunity to manage its diamond wealth in an orderly way and thus to ensure that the benefits are transferred to ordinary citizens through the development of education, infrastructure and health facilities. The examples of the successful public-private partnerships in Botswana (Debswana) and Namibia (Namdev) have not been followed.

    By 2017, a cash-strapped Zimbabwean government had renationalised the industry, merging it into the Zimbabwe Consolidated Diamond Company, which was desperately trying to raise US$300 million to purchase equipment, now run down by a decade of looting and negligible investment.

    Diamonds may be forever, as the slogan goes, but the diamond market is inconsistent and changeable. The respectable side of the sector, represented by De Beers and ALROSA, has improved over the past couple of years but the issues that animated the blood diamond protests remain a problem.

    By David Christianson
    Images: Gallo/Getty Images