Beers’ hands
Karen Harverson
An upbeat De Beers — which this week announced a 14% increase in its attributable earnings to R2,25-billion for 1995 — is confident that 1996 will see its control of the rough diamond market strengthen.
That control was threatened when Russia began leaking stones into the market in 1993, in violation of its five-year contract with De Beers’ Central Selling Organisation. It then side-stepped attempts to renew the agreement, which expired in December.
Finally a memorandum was signed last month between the government of the Russian Federation and De Beers to defuse the crisis. It covers the principles of a new three-year trade agreement, which could be signed by the end of this month, said deputy chairman Nicky Oppenheimer.
It reconfirms De Beers as the sole buyer of diamonds destined for export from Russia (about 50% of run-of-mine goods). As allowed in the previous contract, Russia can sell a 5% cut of every shipment as a price-checking mechanism; for the lower quality stones, this will be increased to 20%.
“This is very different to our standard contract with Botswana, Namibia and Australia, where there has always been a firm relationship between the price we buy at from the producers and the price we sell at to the market,” says Oppenheimer, adding that this was never the case with Russia.
The memorandum also clears up misunderstandings surrounding part- processed goods.
Russia had been privately selling what it termed part-processed stones (sometimes with a single facet), which De Beers termed rough. But, said Oppenheimer: “These goods now form part of our exclusivity agreement.”
Another area of dispute that the new agreement will resolve is the definition of technical diamonds. “Many of these technical diamonds have become polishable in India and we have agreed to redefine what are technical diamonds today rather than what they were yesterday,” said Oppenheimer.
Although half of Russia’s run-of-mine goods will be kept by Russia for its cutting and polishing industry, De Beers is entitled to buy whatever is unable to be polished.
Of the stones supplied to De Beers from Russia’s stockpile — believed to be mainly lower-quality diamonds – — an average price will be agreed upon in advance.
With the Russian threat behind it, De Beers can focus full attention on Australian producer Argyle whose contract expires in June.
Argyle — mainly a supplier of small, low-quality stones — has also blustered about going it alone, but sources report it doesn’t have the power Russia had to derail the De Beers cartel.
“With all the uncertainty of last year, the lower end of the market lost value rapidly but with the new Russian deal, it should stabilise and it’s in Australia’s best interests to sign up again with De Beers,” says a diamond analyst.