A $4,5-billion poker game between diamond trader De Beers and the world’s biggest diamond mine, Argyle, will come to a head during the next seven months.
Argyle of Australia — part-owned by Britain’s RTZ mining conglomerate — walked out of De Beers’ marketing cartel this month, a move some saw as the beginning of the end of De Beers’ control of the $4,5-billion international diamond market.
Argyle is gambling that demand for its own high- volume, low-value stones will pick up, particularly in emerging markets such as India, China and the former Soviet Union.
It has just seven months before it has to decide whether or not to ask investors for $1-billion or more to transform its open-cast operations into an underground drilling operation. Should its break-out from De Beers’ Central Selling Organisation (CSO) lead to further depression in the price of low-grade diamonds, Argyle may be forced to return to the fold.
But success for Argyle’s go-it-alone strategy would clearly influence other big players to leave the CSO. In particular, BHP, the Australian multinational, is a key factor in the game.
It has won permission from the Canadian environmental authorities to begin diamond operations in the Northwest Territories, which will require an investment of Can$1,2-billion.
These operations are unlikely to bear fruit before 2000, by which time success for Argyle may tempt BHP not to market its stones through the CSO but to join Argyle in selling its stones on the open market.
The parting between Argyle and De Beers was triggered by the CSO’s decision, in view of changing social patterns and growing inequality in the industrial world, to re-weight its pricing strategy, increasing the price of more expensive stones while lowering that of cheaper “Indian goods”.
Argyle, despite its record output, produced just 6% of CSO sales by value; half its stones are used for industrial purposes, the other half feature mainly in cheap types of jewellery.
On the surface, the CSO was unruffled when Argyle walked out. But it is thought De Beers believes its absence from the cartel sets an unfortunate precedent; it has seen defections before and is keen for Argyle to return to the CSO.