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Jules Porgès - SettingThe Diamond Industry On Tracks

In the past, during the early days of the modern diamond industry, financing was mainly about developing the core of the industry – diamond exploration, mine development, and consolidation. Another major difference is that key financing came from financiers. One such financier who played a pivotal role in setting the diamond industry on the tracks it is still running on was Jules Porgès.
There is no diamond industry without financing, an issue that is at the core of diamond trading activity today. The difficulties associated with financing today center mainly on bank-client relations. In the past, during the early days of the modern diamond industry, financing was mainly about developing the core of the industry – diamond exploration, mine development, and consolidation. Another major difference is that key financing came from financiers. One such financier who played a pivotal role in setting the diamond industry on the tracks it is still running on was Jules Porgès.

Very little is known about Porgès' early years, although he became a very prominent social and economic figure. Possibly, this is by his own design. He was born on May 25, 1839, in Vienna as Yehuda Porgès, the son of a master jeweler and a descendent of a prominent Austro-Hungarian family, probably Jewish. His father's jewelry activities were mainly in Prague, where Porgès grew up, probably with the name Julius Porgès. He moved to Paris in the 1860s, where he changed his name to Jules and became a prominent diamond trader.

According to one account, he was the leading diamond merchant of the day, although it is worth remembering that at the time, diamond mining in Brazil was slowing down, and the diamond findings in South Africa were just starting. In addition to a thriving and successful diamond trading company, Jules Porgès & Co., he also owned a polishing facility in Amsterdam. This made him interested in having good access to sourcing rough diamonds.

The combination of reduced availability of rough diamonds from one region with the discovery of promising resources in another, a need to ensure access to rough diamonds, and a thriving diamond operation are all what made his role so pivotal at that junction in time. While he may not have realized how transformative his role would be, at the very least, he realized that an unusual opportunity was at hand.

Upon learning about the development of the Kimberley mine in South Africa, Porgès sought ways to source rough diamonds from it and establish a buying office on site. For that, he teamed up with Alfred Beit. Beit was a former diamond sorter and valuator who developed his diamond skills in Amsterdam's diamond center before making the trip to South Africa to work as a buyer at Kimberley. Porgès made Beit his sole representative and buyer at the mine, becoming a major buyer of the Kimberley goods. At the time, Kimberley was a collection of many small diamond mining claims, with many diggers, limited knowledge about diamonds or how to price them. It was a great opportunity waiting to happen.

In 1876, Porgès traveled to South Africa to take a more active role in diamond mining. Once he arrived in Kimberley, he started purchasing rough diamonds in large quantities, becoming an important buyer. In addition, Porgès started buying diamond claims, not limiting himself to Kimberley, looking to buy stakes in the other large diamond mine in the region, De Beers, as well as the two other smaller diamond mines in the region, Bultfontein, and Dutoitspan. Yet, his main focus was on Kimberley, the most promising of the four resources.

With Porgès' encouragement, Beit continued his partnership with Porgès as well as his own activities that stretched beyond rough diamond buying. It did not take long for Beit to understand that for diamond mining in the region to evolve, a consolidation of claims was needed. Such a move would give him better access to diamonds, reduce mining costs, and resolve issues such as adjacent claims collapsing over each other. It was around this time that he met Cecile Rhodes, who, like Beit and Barney Barnato, had a similar idea about the future of the mine. It was not long before Beit and Rhodes became close friends.

Porgès established a publicly traded company in South Africa, Compagnie Française des Mines de Diamants du Cap de Bonne Espérance, with an initial capital of 14 million francs and started to buy diamond claims in Kimberley whenever the opportunity arose. Now engaging directly in diamond mining, Porgès became the first person with a large vertically integrated diamond operation that included diamond mining in South Africa, diamond polishing in Amsterdam, and polished diamond wholesaling in France, making him a model for the diamond industry in years to come.

Porgès was not alone in the claim consolidation process. Beit used his own savings to acquire diamond claims, as did Rhodes and Barnato. During a period of about five years, between 1872 and 1877, the claims at the Kimberley diamond mine were sold by individual claim holders to smart players that purchased claims at every opportunity, resulting in a claims consolidation process. By 1877, the number of claim holders in the Kimberley diamond mine dropped from 1,600 to only 300. Of the 300, 20 of them jointly owned more than half the mine.

Porgès took an aggressive approach to roping in diamond claims at the mine, landing him a quarter of the diamond claims. The consolidation process continued, and over the next two years, the number of claim holders continued to fall. In 1879, three-quarters of the claims were in the hands of just 12 companies. Taking control of claims required capital, and Beit had easier access to financing than Rhodes or Barnato, who competed for control of the diamond mines. Beit's friendship with Rhodes led him to align with Rhodes in his effort to take over as many claims as possible and form a consolidated diamond mining firm.

In 1880, Porgès returned to Europe as the competition to take over diamond claims became fiercer and the stakes higher, probably driving up the price of each claim that became available on the market. As a major claim holder, Porgès' collective holdings were especially attractive, worth much more than the sum of claims he held. It was during this time that the battle between Rhodes and Barnato to achieve full control of Kimberley reached a new peak. As part of this battle, each sold diamonds at very low prices in an effort to drain the other of capital and undermine their claim buying abilities. It was then that Rhodes turned to Porgès with an offer to buy Porgès' stake in Kimberley.

Aware of this, Porgès' was open for an offer. After years of financing Beit's diamond buying operation and financing claims purchases, the situation at Kimberley came to a boiling point. It was either a matter of taking control of the mine and consolidating all of the claims to form the first large diamond mining company or sell his stake to the highest bidder and make a fortune. Today, we know that selling was the practical choice. Beit was closely aligned with Rhodes, advising him on many of his moves, especially on the financing side of the takeover.

From Rhodes' perspective, buying Porgès' claims would be his last effort to gain control of a majority of the claims at Kimberley. Rhodes offered to buy the Porgès' stake for £1.4 million, about £150 million in today's value. While contemplating the offer, Barnato, who heard of the offer, also approached Porgès and made a counteroffer of £1.75 million. Fearing he could lose out, Rhodes presented Barnato with an interesting offer: withdraw the higher bid, Rhodes would buy out Porgès' claims at his original bid price, and, in return, Rhodes would sell it to Barnato for just £300,000 plus a 20% holding in Barnato's publicly traded company, Kimberley Central Diamond Mining Company.

It was a bold and calculated move. Rhodes, for one, did not have the capital necessary to complete the deal, even if Barnato were to agree to the offer. Porgès decided to help him out and reached out to Rudolphe Kann, a Parisian financier, and together they succeeded in interesting N M Rothschild & Sons Limited to provide the capital that Rhodes needed to buy Kimberley Central's shares and pay for Porgès' stake in the mine. In addition, and probably unknowingly, Porgès became involved in an elaborate ploy, a multistage scheme, to become the leading stakeholder of the consolidated holding. Once Barnato agreed to Cecil Rhodes' offer, it was discovered that Rhodes had secretly purchased shares in Barnato's Kimberley Central Diamond Mining Company. By the time they concluded the deal, Rhodes had already held a large stake in Barnato's company. Together with the additional 20% holding, Rhodes was close to gaining control of the company.

The combination of the three main stakeholding companies in the diamond mine, Porgès' Compagnie Française des Mines de Diamants du Cap de Bonne Espérance, with Barnato's Kimberley Central Diamond Mining Company, and Rhodes' own stakeholding, Barnato and Rhodes merged to form the De Beers Consolidated Mining Company in 1888. It was named after the De Beers brothers, who owned the farm where diamonds had been discovered in 1871, around the same time that the Kimberley resource was discovered, and the site of the De Beers diamond mine.

Porgès was out of diamond mining, but he was not out of the diamond trade or resource mining in South Africa. With the discovery of gold at Barberton in Northeast South Africa in 1881, he had renewed interest in the country. When Witwatersrand was discovered in 1886, a gold rush swept the region, and a new era began for the country, bringing back Porgès, who was quick to buy gold mining claims. The battles over the diamond fields repeated themselves in Witwatersrand, resulting in the rise of the Randlords, a group of people who became gold magnates.

For Porgès, it was another great opportunity. Learning from his experience in the diamond fields, he decided to offer financing of gold claim buying on top of his own claim-buying activities. He recruited several of his partners in diamonds, among them Beit, Julius Wernher, who started his career working for Porgès in Paris and was sent by him to South Africa, and a partner in De Beers Consolidated Mines, Hermann Eckstein and Eduard Lippert. Together they formed the Corner House, a financing group named after the location of their offices, on a corner of the Market Square in Johannesburg.

In 1890, Porgès decided that he had enough. Although just 51 years old, he wanted to return to Paris to live a comfortable life with his wife, daughter and art collection. The man who played a tricky, if not cunning, role in the consolidation of the Kimberley diamond claims, a major financier of the world's greatest diamond and gold mines, left it behind with no fanfare.

Jules Porgès died on September 20, 1921, outliving his younger partners Rhodes, Barnato, and Beit. He is a much lesser-known figure in the formation of the modern diamond industry, but a central one nonetheless. One diamond trader who made a point of immortalizing Porgès was Harry Winston. In 1962, Winston bought a 78.53-carat, Asscher-cut, SI1 clarity, fancy yellow diamond and named it the 78.53-carat Porgès.

Photo: Jules Porgès in Prague 1875, Wikipedia 

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