The History Of Diamonds Part 2

Throughout most of history, the vast majority of the world’s diamonds came from India. But, two thirds of the way through the nineteenth century, that all changed. The Orange River in South Africa was the scene of an immensely rich diamond strike.

The first diamonds found in South Africa were alluvial. But by 1869, they were appearing far from any river - first in yellow earth, then in hard blue rock, later called ‘kimberlite’ after the mining town of Kimberley.

Miners quickly opened up huge diamond ‘pipes’, and used steam shovels to excavate the new mines. Successful miners bought out their struggling neighbours, and a handful of companies took control of production. Leading this process of consolidation were two bitter rivals, English immigrants Cecil Rhodes and Barney Barnato.

In 1888, Rhodes finally prevailed, buying out Barnato with a cheque for over five million pounds, the largest ever issued. In doing so, he formed De Beers Consolidated Mines Limited. The company was granted an official listing on the Johannesburg Stock Exchange in August 1893.

In the decade following the first African diamond strikes, annual world production increased more than tenfold. Suddenly, the market was flooded with diamonds to make bespoke jewellery like bespoke engagement rings. It became obvious to Rhodes and his shareholders that if their investment was to be protected, then the price of diamonds would have to be artificially supported.

At the start of the twentieth century, De Beers became a cartel, made up of Anglo American, JCI and Barnato Brothers. The cartel bought up other mining interests, and rapidly strengthened its grip on the industry.

In the 1930's, Sir Ernest Oppenheimer, the chairman of De Beers Group and leader of Anglo American, came up with the idea of "single channel marketing". This meant "a producers' co-operative including the major outside, or non-De Beers producers in accordance with the belief that only by limiting the quantity of diamonds put on the market, in accordance with the demand, and by selling through one channel, can the stability of the diamond trade be maintained."

Not content with controlling about 90% of the world’s diamond production, De Beers now also took a stranglehold on the distribution of diamonds. The new single channel marketing structure eventually came to be known as the Central Selling Organisation (CSO).

For many years, De Beers had major problems with the US Justice Department, as anti-trust laws forbid the formation of cartels. But starting in the 1990s, De Beers has loosened its grip on the industry, though it remains the dominant player.