100 years of Namibian diamonds

From men inching along on their bellies in hot sand and grit whipped up by 90kph winds to satellite-guided ships manipulating 250-ton remote-controlled crawlers hovering around the ocean floor, Namibia’s diamond-mining industry has come a long way since 1908.

Although Namibia accounts for just over 1% of the annual world diamond output - about 160-million carats—the high percentage of high-quality gems has made Namibian diamonds among the world’s most sought after.

In 2005 Botswana, the world’s top diamond producer, accounted for 31,9-million carats, which were sold for about $3,08-billion. Namibia’s 1,8-million carats are estimated to have grossed $1,07-billion that year.

“Everybody knows it: Namibian diamonds are used as ‘sweeteners’ in parcels [of rough diamonds].
We have the best diamonds in the world,” said Namibian diamond commissioner Kennedy Hamutenya.

Geologically speaking, they are exports from neighbouring South Africa: born from Kimberlite pipes erupting out of the massive Kaapvaal craton, they were flushed down the Orange River and then dumped by the icy, north-flowing Benguela current along ancient beach terraces of the Namibian coast about 60 to 90-million years ago.

The tough journey, plus a heavy pounding by the rough surf, meant that only the strongest crystals survived, with the heavier ones remaining trapped in the seabed, a reserve officially estimated at 1,5-billion carats. With 95% of that deposit estimated to be of gem quality and a projected 4% to 6% shortfall in global supply in the next 10 years, Namibia’s diamond mining future looks promising. But this was not always the case.

In April 1908, when news reached Kimberley that railway supervisor August Stauch had discovered diamonds outside Lüderitz, De Beers chairman Francis Oates dismissed the find as a “superficial” flash in the pan.

But a month later, on May 20, when the German colonial mining laboratory confirmed Stauch’s find, it set off a diamond rush that shaped the future of the previously struggling German colony as well as the global diamond industry.

Official production soared from 500 000 carats in 1908 to more than 1,2-million carats three years later as butchers, bakers, office clerks and adventurers of every sort scrambled into the desert to stake their claims. Braving high-speed winds and driving sand storms, hundreds of men crawled through the valleys between the dunes picking up diamonds from the surface. In one especially rich field known as “Maerchental”—Fairytale Valley—Stauch once won a bet that he could fill a tin water mug with diamonds picked up from the sand in under 10 minutes. Many became millionaires overnight.

It was an era when bar bills—including frequent damage to the decor—were often settled in rough diamonds. Colonial authorities tried to assert some control: they ordered that all diamonds had to be sold through a parastatal in the colonial capital, Berlin, and the desert between Lüderitz and Oranjemund, where most of the diamonds were found, was declared off-limits to all but those licensed to mine there—a rule that remains in place today.

De Beers’s representative in German West Africa, Leopold Herz, warned that huge volumes and low production costs would “bring profits of hundreds of thousands of pounds sterling” and destabilise the market. “Therefore the plan should be, for your own sake and the [sake of the] industry, to go in … and obtain some control over their production,” he warned.

But it was not until June 1914 that a delegation, which included a young Ernest Oppenheimer from Dunkelsbuehler and Co, travelled to Lüderitz to try to stem the flow of diamonds. A deal was struck, but two months later World War I broke out and the bottom fell out of the market.

De Beers, distracted by the war and lulled into a false sense of security, was caught napping when Oppenheimer, backed by US financier JP Morgan and the Newmont Mining Company, made an audacious secret bid for the German mines in April 1919 through their new company, Anglo American.

In secret negotiations conducted in Holland Oppenheimer consolidated the 10 largest German mines—forming Consolidated Diamond Mines (CDM) in January 1920. Boom years followed, but the best was yet to come. In 1928, tipped off by hugely rich discoveries on the south bank, CDM started digging up the fossil beaches immediately north of the Orange River—and hit the big time.

As writer William Brittan describes it: “They revealed a diamond core which eclipsed everything hitherto imaginable”. Not only were the stones bigger and better quality than those on the south bank, the terraces seemed to “stretch away endlessly up the coast”.

The rest, as they say, is history. Oppenheimer and his Anglo American were invited to become a member of the De Beers syndicate in 1924 on the strength of his CDM holdings, and the next year he was elected chairperson. In the following years Sir Ernest, as he was soon known, formed a new syndicate, acquiring full ownership of CDM and creating the so-called single-channel marketing system that by the 1980s was estimated to control 80% of all rough diamond sales.

Just how much the Oranjemund mine yielded in the past 80 years will probably not be known, but industry sources put it at 100-million carats. In 1977 alone CDM produced more than two million carats, a target reached again only last year.

The mines produced a rich variety of coloured stones: cognac-coloured yellows, blues and rare pinks, as well as the brilliant, flawless white stones De Beers became famous for.

“Namibia’s diamonds were crucial to De Beers and Anglo profits through the 1980s. The size of the stones, the low cost of mining and the degree of control produced these profits,” said journalist and author Edward J Epstein.

Fast-forward to the Nineties. Faced with an independent Namibian government that demanded a greater share in its country’s mineral riches, De Beers agreed to a 50-50 joint venture in 1994 called Namdeb.

But the yields from the beach terraces were already in decline and the mine would close by 2015, said De Beers. The future was clearly off-shore. De Beers Marine, in which the state held a 30% interest, started investing heavily in seabed-crawler and airlift technology.

In 1998 De Beers agreed to set up a local cutting plant, NamGem, but resisted efforts to create a local diamond industry in trading and cutting, even though the Diamond Act of 1999 made it legally possible.

Finally, in February last year, the Namibia Diamond Trading Company (NDTC)—another 50-50 joint venture—was formed, announcing that it would sell 16% of Namdeb’s “cuttables” to local companies that had already set up shop.

The agreement—a draft copy of which the M&G has—makes it clear who is really in charge: De Beers sets the prices, determines the selling mixes and buys all Namibian production at 95% of “standard selling value” before sending consignments back to Windhoek.

In effect the NDTC is little more than a De Beers outlet. Kombayedu Kapwanga, managing director of Lev Leviev Diamonds (LLD), pointed out that “specials” and “fancies” from Namibia are available only to select De Beers clientele, while eight of 11 local siteholders—De Beers’s approved buyers—also hold the same rights in London, meaning that the creation of the NDTC has actually allowed only a few new entrants into the field.

Their 500-man factory that can cut up to 25 000 carats a month was set up in 2004 by Israeli entrepreneur Lev Leviev in the hope of obtaining more high-end goods. While their own marine mining outfit, Samicor, produces 15 000 carats a month, they buy an extra 4 000 carats a month from the NDTC.

None of the other new factories, LLD included, turns a profit, he said. Public-private partnerships like Namdeb mean that the private companies have to compete with the state. As for control over the marine diamonds, these are “absolutely critical for the De Beers cartel to control the market prices,” Kapwanga said.

For once Kapwanga and the Namibian government agree. Last year the Namibian government started negotiations to take up a full partnership in De Beers Marine, the output of which accounted for more than half of Namdeb’s production since 2005.

Both parties are reluctant to comment on the talks apart from confirming that a broad agreement has been reached. Questions about stickier points, such as the fee Namdeb pays for the De Beers Marine’s fleet of seven ships, are politely deflected.

“I can confirm only that substantive negotiations have been concluded,” said local De Beers spokesperson Daniel Kali. “But as you know, the devil is always in the details.”

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