DeBeers


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�� 07-045 January 7, 2008
This case was prepared by Cate Reavis under the supervision of
Professor David McAdams. Professor McAdams is the Cecil
Copyright © 2008, David McAdams. This work is licensed under the Creative Commons Attribution-Noncommercial-No
To view a copy of this license visit
/licenses/by-nc-nd/3.0/
Karen Goldberg Goff, “Cultivated Carats,”
The Washington Times
, February 4, 2007.
Danielle Rossingh, “DeBeers Says
January 7, 2008
As he thought about his options, Lee recalled a ma
gazine article he had recently read about the
commodities, you know that a ton of copper is wort
h this much, and an ounce of gold is worth this
much because they are homogenous. But diamonds are not homogenous.”
The global diamond industry produced an estimated $13 billion of rough stones and $62 billion in
Millions Carat
$0.0
$2.0
$4.0
$6.0
$8.0
$10.0
$12.0
$14.0
US$ billion
Volume
Value
Volume
110117131144156171
Value
$7.8$7.5$7.3$9.3$11.8$12.7
200020012002200320042005
Source: “The Global Gems and Jewelry Industr
y: Vision 2015; Transforming for Growth,
, December 2006.
Figure 2 Diamond Rough Prices, 1996-2005
US$ per carat
Price US$
103.7100.995.595.910399.7102.7102.4121.6133.2
1996199719981999200020012002200320042005
Source: “The Global Gems and Jewelry Industr
rming for Growth,
, December 2006.

nada, the Democratic Republic of the Congo,
e value of diamond production and 96% of global
James Dunn, “Glittering Prizes,”
The Australian
, October 4, 2006.
January 7, 2008
production volume.
, for some producers, there was great disparity in the
5%
10%
15%
20%
25%
Volume
Value
Volume
4%17%19%7%18%22%9%4%
Value
12%4%25%11%6%17%13%12%
AngolaAustraliaBotswanaCanada
Dem.
Rep.
Congo
Russia
South
Africa
ROW
Source: “The Global Gems and Jewelry Indus
try: Vision 2015; Transforming for Growth,
, December 2006.
The $19 billion processing industry (which involve
d the cutting and polishing of diamonds) was
dominated by India. The 1 million people employed by India’s processing industry processed more
than half of the world’s diamonds in value terms, at costs significantly lower than other processing
countries—$10 per carat as opposed to $17/carat in China, $40/carat in South Africa, and Israel and
$70/carat in Belgium. Israel and China were th
e second and third largest processors with 15% and
“The Global Gems and Jewellry Industry: Vision 2015; Transforming for Growtrh,
, December 2006.
Ibid.
Ibid.
January 7, 2008
January 7, 2008
had become noticeably louder and a number of
countries were amending their diamond laws to
support and build local diamond-related industries.
In 1999, Namibia inserted a clause in a new law
permitting the government to force miners to sell a
percentage of their diamonds to local polishers,
and in 2004, Lev Leviev, an Israeli of Uzbek decent
who was one of Israel’s largest manufacturers of
polished stones, opened the country’s first cutting and polishing factory. At the opening of the new
factory, Namibia’s president was quoted as saying, “To our brothers and sisters of neighboring states,
es you inspiration to try to imitate what we have
In 2005, South Africa passed the Diamonds Amendment Act establishing a State Diamond
Nicole Itano, “Looking to Africa to Polish Its Diamonds,”
The New York Times
, September 17, 2004.
“The Cartel Isn’t For Ever,”
The Economist
, July 17, 2004.
John Reed and David White, “Beneficiation: A
chance to spread southern African wealth,”
Financial Times
, July 14, 2006.
Nicole Itano, “Looking to Africa to Polish Its Diamonds,”
The New York Times
, September 17, 2004.
Danielle Cadieux, “DeBeers
and the Global Diamond Industry,”
, 2005.
Ben Aris, “A Diamond in the Rough,”
, September 11, 2001.
Vanessa Friedman, “The New Rocks on the Block,”
Financial Times
, May 10, 2006.
James Dunn, “Glittering Prizes,”
The Australian
, October 4, 2006.
Figure 4 World Sales of Diamonds, 2005 (polished wholesale price)
16%
U.S.
Middle East
Japan
India
Italy
China
Turkey
U.K.
ROW
Source: “The Global Gems and Jewelry Industr
y: Vision 2015; Transforming for Growth,
, December 2006.
While at one time the diamond industry was supply-side
driven, with little attention given to the end
consumer, by the late 1990s the industry began fo
cusing more on the demand side. The main catalyst
for this shift was DeBeers’s decision to conduct business in a whole new way.
In the early 1990s DeBeers ruled the diamond indus
try. While it only produced 45% of the world’s
Danielle Cadieux, “DeBeers
and the Global Diamond Industry,”
, 2005.
Debora L. Spar, “Continuity and Change
January 7, 2008
January 7, 2008
blamed solely on the country’s economic and
rgest manufacturers of polished stones, was making
his move in Russia where he was well connected po
litically. In 1989, two years after Leviev became
a sightholder for DeBeers, Russia’s state-run diamond mining and trading group, now known as
Alrosa, entered into a joint venture with Leviev
to establish the country’s first cutting factory, the
by Russian mines, not through DeBeers.
marked the first time in which rough diamonds were cut
in their country of origin. Over the next five
years, Leviev’s position in the Russian diamond industry grew to the point where, in 1995, DeBeers
terminated his sightholder status.
The second jolt to DeBeers’s position came in 1996 with the decision by Australia’s Argyle diamond
mine, which produced low quality diamonds suitable for
inexpensive jewelry, to terminate its contract
“The Cartel Isn’t Forever,”
The Economist
, July 17, 2004.
Phyllis Berman and Lea Goldman, “Cracked DeBeers,”
Forbes.com
, September 15, 2003.
Ibid.
Nicholas Stein, “The DeBeers Story: A New Cut On An Old Monopoly,”
Fortune
, February 19, 2001.
January 7, 2008
Phyllis Berman and Lea Goldman, “Cracked DeBeers,”
Forbes.com
January 7, 2008
“Diamonds Get Their Sparkle Back,”
, February 26, 2007.
Danielle Cadieux, “DeBeers
and the Global Diamond Industry,”
, 2005.
Debora L. Spar, “Continuity and Change
January 7, 2008
sourced his raw stones from DeBeers sightholders
and others, began selling
a branded diamond called
Hearts on Fire which was differentiated by its cu
September 11, 2001 helped alleviate the comp
any’s debt. As DeBeers’s Chairman Nicky
Oppenheimer explained, “Sentiment changed dram
atically after September 11, though we did not
realize it at the time. There was a swing back to
traditional values such as family and all the sorts of
things that diamond jewelry plays into.”
One of DeBeers’s first major media grabbing acts
as a private company came in 2004 when it pleaded
guilty to charges of price-fixing of industrial di
Greg Gatlin, “Branding Becomes Gen of an Idea,”
Boston Herald
, February 11, 2001.
Danielle Cadieux, “DeBeers
and the Global Diamond Industry,”
, 2005.
David McKay, “A Private Life: Oppenheimer at 60,”
miningmx.com
, July 4, 2005.
Brendan Ryan, “Nicky Oppenheimer, Private Treasure,”
Financial Mail
, August 30, 2002.
January 7, 2008
consumers who accused the company of monopolizi
ng the international diamond business through its
control of mines and agreements with diamond suppliers around the world.
In 2006, DeBeers made another surprising move wh
en it signed an agreement with the Botswana
government to establish the Diamond Trading Company Botswana. The 50:50 joint venture would
start sorting and valuing all of the diamond pr
John Reed and David White, “Beneficiation: A
chance to spread southern African wealth,”
Financial Times
, July 14, 2006.
David White, “A Question of Profile Image and Status,”
Financial Times
, June 20, 2006.
“Diamonds Get Their Sparkle Back,”
New Zealand Herald
, February 26, 2007.
January 7, 2008
boundaries; love knows no end.” A 1-carat diamond from Gem Life sold for $13,000.
Producers
Ibid.
Vanessa O’Connell, “Gem War,”
January 7, 2008
The second process was known as chemical vapor deposition (CVD). A more modern and delicate
process than HPHT, CVD used a combination of
carbon gases, temperature and pressure that
replicated conditions present at the beginning of the universe. Atoms from the vapor landed on a tiny
diamond chip placed in the chamber. Then the vapor
particles took on the structure of that diamond
— growing the diamond, atom by atom, into a much bigger diamond. The process could be tweaked
to produce diamonds other than those used for jewerly. For instance, by adding enough boron to
allow the diamond to conduct a current, the CVD process could turn a diamond into a
semiconductor.
llo Diamond Inc., received a patent for the
CVD process he had developed for producing
flawless diamonds. As one diamond scientist
exclaimed upon putting a CVD diamond under a microscope, “It’s too perfect to be natural. Things in
nature have flaws. The growth and structure of this diamond is flawless.”
Unlike their natural counterparts, the majority of
1 carat = $9,000 (yellows) - $100,000 (pinks)
Kevin Maney, “Man Made Diamonds Sparkle with Potential,”
USA Today
, October 6, 2005.
Joshua Davis, “The New Diamond Age,”
Wired
, September 2003.
“Diamonddaze,”
South China Morning Post
, November 19, 2004.
Victoria Finaly, “Diamonds Are No Longer a Girl’s Best Friend,”
The Daily Telegraph
, December 22, 2006.
January 7, 2008
Environmentally, compared to a natural diamond which required several hundred tons of earth be
often at the expense of both human and animal habitats, lab-grown
diamonds were considerably more eco-friendly.
Committee, as far as 200 kilometers downstream from
the lake where Canada’s Ekati diamond mine
sat, environmental destruction, particularly of fish
habitats, was seen in numerous lakes and streams.
Diamond mining had also taken a toll on land-based wi
dlife habitats. Scientists had observed that
caribou and grizzly bears were spending far less
time feeding in areas around the mines. Meanwhile
diamond mines required the use diesel fuel to
tics which identified a diamond’s country of origin were washed away with the polishing
iamonds, had a
ere 200 monitors for the entire country sharing 10 USAID-donated motorcycles.

More than their financial and environmental
advantages, lab-grown diamond producers emphasized
January 7, 2008
However, some in the industry felt the Kimberle
y process was working and that the human rights
argument could in fact hurt those it intended to he
lp. As one industry observer stated, “When you’re
buying mined diamonds, you’re helping communities
in Africa. When you’re buying them made
from a machine, you’reS helping 20 guys in Florida.”
One international diamond trader took issue
with this sentiment stating that working conditions
for many Africans involved in the mining business
remained appalling, opining, “Conflict-free diam
January 7, 2008
Alongside their use in the semiconductor industry, the thermal conductivity, hardness and
transparency of diamonds made them an attractive
component for next-generation optics, digital data
as well as for biological purposes including skin
implanted electrodes due to their ability to
resist corrosion from acids and other organic compounds.
January 7, 2008
Debora L. Spar, “Continuity and Change
January 7, 2008
Exhibit 1 The Kimberley Process Certificate
(a) a Kimberley Process Certificate (hereafter re
ferred to as the Certificate) accompanies each
shipment of rough diamonds on export;
January 7, 2008
Tamper and forgery resistant
Date of expiry
Issuing authority
Identification of exporter and importer
Carat weight/mass
Number of parcels in shipment
Relevant Harmonised Commodity Description and Coding System
Validation of Certificate by the Exporting Authority

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