The decisive, US$5-billion exit of the storied Oppenheimer family from its 40% controlling interest in De Beers brings to a close a century of history in the global diamond trade.
The family’s unique position atop the lucrative and secretive diamond world got its start with Ernest Oppenheimer, a middle-class German Jew who travelled to South Africa in 1902 to work as a diamond buyer in the emerging diamond fields of Kimberley.
By 1927, he had gained control of Cecil Rhodes’ nearly 40-year-old De Beers diamond company, further building up the company until his death in 1957.
Ernest’s brother Bernard also had a go at diamonds, setting up a short-lived business in England in 1917 using up to 2,000 disabled World War I veterans as diamond polishers.
Ernest’s son Harry immersed himself in the family business in South Africa, and became one of the world’s richest men during his quarter-century stints as both the chairman of Anglo American and De Beers Consolidated Mines.
Although Ernest and Harry both converted to Christianity in adulthood, Harry was a strong supporter of Jewish causes including the new state of Israel, and helped set up the country as a major centre for cutting and polishing high-quality diamonds.
Harry also straddled the fence by being a key South African industrialist and a vocal opponent of the country’s racist apartheid system.
By mid-century, De Beers had established a worldwide reputation for cornering the diamond market using ruthlessness, price-fixing and anti-trust behaviour. But De Beers always countered, with some justification, that diamonds are a luxury good no one needs, and so any monopolistic behaviour was of little importance in the grand scheme of things.
Harry’s son Nicky Oppenheimer also took to the diamond trade with gusto, becoming deputy chairman of Anglo American in 1983 and De Beers’ chairman in 1998. Nicky ushered in De Beers’ modern “kinder, gentler” era, settling long-standing anti-trust issues that kept the company out of the U.S., dealing with “blood diamonds” issues and launching the company’s now extensive retail operations. De Beers also had mixed success during this period with business ventures in Canada and Russia, and taking on a multitude of new competitors from Australia, Canada and the U.K.
The next generation of Oppenheimers after Nicky never showed much interest in the high-stakes and harsh game of mining. This latest news of the family’s financial exit from De Beers was only a matter of time.
The sale of the Oppenheimer stake in De Beers to Anglo American has been widely hailed around the diamond industry, with most observers hoping that it signals the end of some of De Beers’ more parochial business practices, such as selling diamonds to a select club of “sightholders” who must buy diamonds in bulk at fixed intervals, or risk being shut out from future purchases.
Anglo American, for its part, has not yet discussed these issues. Instead, it is touting the virtues of its purchase on the basis of its strong relationship with the Botswana government and the still-compelling supply and demand fundamentals for the diamond industry, which is seeing rising consumer demand in Asia and the Gulf States, combined with dwindling mine supply and a paucity of diamond discoveries worldwide.
The sale probably means little on the ground in Canada, as De Beers has already taken the big writedowns on its assets here, and its production base from Canada is only 5% of the company’s total.
Globally, De Beers employs 16,000 people in 20 countries, and had sales through its Diamond Trading Co. of US$5.1 billion in 2010 on the back of 33 million carats produced at its operations, or roughly 35% of the world’s diamond production by value.
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Beleaguered Kitco, which has been under creditor protection since July, got a stay of execution in October, with the online gold trader receiving a second Quebec Superior Court extension of creditor protection, this time until April 22, 2012.
In mid-year Revenue Quebec targeted some 100 companies in the gold sector suspected of false billing, and has been seeking $300 million from Kitco, which denies any wrongdoing and contests the assessment.
As part of its investigations into the suspect billing, Revenue Quebec raided 70 company locations in and around Montreal in June.
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