Meet the Heavyweights of International Diamond Mining

No other industry in the world operates the way the diamond industry does. This makes it hard to draw parallels between diamonds and other commodities. Most other commodities have spot markets based on global supply and demand which determine the prices at which miners sell and end users buy. In the diamond industry on the other hand, miners command inordinate power in establishing the prices that ultimately trickle down to the rest of the industry.

Many argue that some of the challenges facing our industry today are a direct result of the pricing practices of the big miners. To understand how this came to be, we must first understand how these companies operate and make important decisions.

The Big Four

Rough diamond mining is dominated by four companies that sell an estimated 65% of the world’s annual supply. To a large extent, these companies establish the prices at which smaller rough diamond producers can sell their diamonds, and that manufacturers are willing to pay those smaller producers. All of the large producers rely largely on direct allocation sales, whereby rough diamond parcels are offered to a select list of clients at non-negotiable prices. In the secondary market, where rough diamonds are sold mostly by traders, prices are based on those established by miners in the “primary market,” although large variations from producer prices are not uncommon.

The four major producers are De Beers, 85% owned by mining conglomerate Anglo American plc and 15% by the government of Botswana; ALROSA, a Russian diamond miner largely owned by the federal government, provincial and municipal authorities, as well as labor entities; Rio Tinto Diamonds, a subsidiary of global mining giant Rio Tinto plc; and Dominion Diamond Corporation, a Canadian based publically held company.

De Beers Group

De Beers Consolidated Mines Ltd. (DBCM) was officially formed in 1888 after business rivals consolidated their various mining claims in South Africa to eliminate the fierce competition that was driving prices down to unprofitable levels. The name De Beers came from the farmers who owned land that held large diamond deposits. These farmers, fed up with the constant trespass on their property of those looking for riches, sold their land for 6,600 GBP. These lands would later become home to two of the very lucrative diamond mines: Kimberley Diamond Mine and De Beers Diamond Mine.

Shortly after forming De Beers, principal founder Cecil Rhodes established a syndicate of London based merchants with an agreement to purchase a fixed quantity of diamonds at a fixed price. This buying syndicate allowed De Beers to set prices by controlling supply. The arrangement functioned well, helping the company through turbulent times including two world wars and the Great Depression, all of which hurt global diamond demand. The syndicate would remain in place, in some form or another, until the beginning of the 21st century.

De Beers remained the world’s primary supplier of diamonds for decades, even after the discovery of massive diamond fields in northern Russia in the 1950s and Western Australia in the early 1980s. This is because other mining companies marketed their rough diamonds through De Beers.

These marketing agreements first ended when Rio Tinto and BHP Billiton (which has since sold its diamond mining unit) decided to market their diamonds on their own. Furthermore, the marketing agreement between ALROSA and De Beers ended in 2009 under efforts from the European Union to clamp down on anti-competitive behavior.  

Despite these changes, De Beers remains the largest supplier of rough diamonds in terms of value, supplying approximately 35% of the world’s diamond supply, compared to over 80% at its peak.

Today, DBCM is the group’s diamond mining company in South Africa. In 2008, De Beers opened the Snap Lake mine in Northern Canada, the company’s first diamond asset outside of Southern Africa, its historical power base.

ALROSA

As a country, Russia ranks first in the world in terms of diamond production by volume. The state-owned ALROSA purports to mine more than 99% of that production. Approximately 23% of the company is privately held following an IPO in 2013 on the Moscow Stock Exchange.

Although Russia’s diamond mining dates back to the 1950s, ALROSA was established only in 1992 after the break-up of the Soviet Union and the consolidation of several government-owned diamond companies. As its marketing agreement with De Beers was about to end, ALROSA began to develop its own sales and marketing branch. Today, ALROSA’s sales operation functions much like the De Beers’ Sight system, relying mostly on long-term buying contracts with a select list of companies.

Despite claims that Russia still has significant untapped diamond resources, ALROSA has expanded beyond its borders in recent years with partnerships in Angola and Botswana in Southern Africa. In Angola, the company holds a 32.8% stake in the Catoca Diamond Mine, the world’s fifth largest diamond producing mine. In Botswana, ALROSA has partnered with small exploration companies servicing the current diamond rush underway in that country’s Orapa diamond district.

ALROSA reported that it produced 36.2 million carats of rough diamonds in 2014, making it the world’s largest producer by volume, and second only to De Beers in value.

Rio Tinto Diamonds

Rio Tinto, the world’s second largest diversified mining company, entered the diamond industry in the early 1980s after an unexpected discovery in Western Australia. Not believed to have the appropriate geology for producing diamonds, this region would eventually become home to the Argyle Diamond mine.

Like so many others, Rio Tinto Diamonds initially marketed its diamonds through De Beers. However, this arrangement was terminated in 1996 whereupon Rio Tinto established a sales and marketing department in Antwerp, Belgium. This helped to make it a suitable partner for the Aber Diamond Corporation, which discovered the Diavik Diamond Mine in Canada’s arctic region in the early 1990s. Rio Tinto continues to operate the mine, in which it holds a 60% stake. 

In 2012, Rio Tinto announced that it would review its diamond unit and consider selling it as it focused on expanding operations in more profitable commodities such as iron ore, copper and uranium. In 2015, it sold its 78% interest in a small mine, Murowa Diamonds. However, it failed to find buyers for two of its major mines, Argyle and Diavik. In addition to these two resources, Rio Tinto also runs an advanced exploration project, Bunder, in the Indian state of Madhya Pradesh. Rio Tinto Diamonds thus remains a key player in the diamond industry.

Dominion Diamond Corporation

Dominion Diamond Corporation has a short, but interesting history that has seen it develop from a penny stock exploration company into a diamond powerhouse valued today at close to $1 billion. Traded on the Toronto Stock Exchange, Dominion was initially established in 1980 as Aber Resources. By 1991, Aber’s exploration team laid claim to the Diavik Diamond mine, which further solidified Canada as a major diamond-mining nation.

Aber soon partnered with Rio Tinto to develop the Diavik mine, in which it retained 40% ownership. Aber financed the mine’s construction by selling its stake in the Snap Lake Diamond mine to De Beers, as well as through an off-take agreement with Tiffany & Co. that led Tiffany to invest $50 million in the small company.

In 2004, Aber acquired a majority ownership in the iconic diamond jewelry brand Harry Winston, a takeover completed in 2006. It then changed its name to Harry Winston Diamond Corporation, a name which it kept for seven years. Then, in early 2013, the company reached an agreement with Swiss watch giant Swatch to sell its Harry Winston retail business for $1 billion. It used the proceeds from this transaction to complete the previously announced purchase of the Ekati Diamond Mine in Canada from BHP Billiton, the world’s largest mining company which had announced its exit from diamond mining in mid-2012.

After acquiring Ekati and selling the Harry Winston retail business, it changed its name again to become Dominion Diamond Corporation, a name that it retains today. With the Ekati acquisition, Dominion vaulted into fourth place amongst global diamond miners. In 2014, the company reportedly produced 6.1 million carats of diamonds from its two mines, the 9th and 19th largest mines in the world.

While these four big players control a sizeable portion of rough diamond supply, there have been numerous new entrants into the arena in recent years that are starting to have a pronounced influence on the market.

The views expressed here are solely those of the author in his private capacity. None of the information made available here shall constitute in any manner an offer or invitation or promotion to buy or to sell diamonds. No one should act upon any opinion or information in this website (including with respect to diamonds values) without consulting a professional qualified adviser.