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21 January 2008

Diamonds Are DeBeers' Best Friend

Diamonds are according to Mohs scale the hardest mineral, ranking 10 with talc--that stuff you use as powder, at number one. Yet despite the price that diamonds command, they aren't that rare.

Diamonds as big and blue as the infamous 45.52-carat Hope Diamond are indeed rare, but even the odd red glow that results after it's exposed to ultraviolet light isn't rare. Rather, it's a characteristic of all natural blue diamonds.

There are far rarer stones, some coming from exotic locales like California, yet due to great public relations and marketing, we think of diamonds before color-changing alexandrite, emeralds or the California blue-colored gem benitoite. For that, we can thank DeBeers, a company based in South Africa.

This is not to say that diamonds weren't actually rare from an Occidental point of view at one time. There are no major diamond mines in Europe. For centuries, diamonds were found in India and then Brazil. That was up until the mid-19th century. Diamonds were discovered in South Africa in 1867. By 1880, Cecil Rhodes created the DeBeers Mining Company to oversee his large holdings of diamond claims in that country and by 1887, the company was the sole owner of the diamond mines in South Africa.

If you're not familiar with the history of South Africa, in the 17th and 18th centuries it was a Dutch possession. They imported slaves from their colonies in Indonesia, Madagascar and India. Great Britain took over the Cape of Good Hope in 1795 as a stop on the ship route to Australia and India. It was returned to the Dutch and then after the Dutch East India Company went into bankruptcy, the British annexed the Cape settlement in 1806 and encouraged British colonization. The Dutch colonists resisted British rule which resulted in the Boer Wars.

DeBeers is thus a remnant of European imperialism, specifically the expansion of British Imperialism. It was under the 1902 Treaty of Vereeniging that granted sovereignty to the UK with certain conditions, including agreeing not to press for native voting rights until self-government was achieved (granted in 1994) and the Boer republics would accept the British monarchy until they were eventually granted self-rule. South Africa would become a union in 1910, then complete independence (1926 and 1931) and finally became a republic in 1961.

Yet DeBeers has a presence in diamond mining in about 25 countries, including Botswana, Nambia and Tanzania. Mining in Botswana is via the company Debswana as a 50-50 joint venture with the government. Nambia and Botswana border South Africa. The British government placed Botswana under its protection after hostilities escalated between the native tribes and the Boers. Namibia was called South West Africa when it was under German control in the 19th century and later came under South African control during World War I. The East African country of Tanzania was a German colony in the 1880s and then became a British mandate in 1919.

Unlike pearls which dropped from being a precious gem to semi-precious when the Japanese (Kokichi Mikimoto and Tokichi Nishikawa) discovered a process to make cultured pearls, diamonds have maintained the image of being rare. DeBeers has been highly successful in convincing Americans that "diamonds are forever" and that after the engagement ring, you can follow that up with an eternity ring and a trilogy ring. Women who, for whatever reason, aren't married, can always buy a right-hand ring. Everyone needs a diamond.

The control that DeBeers maintains over the fine jewelry diamond distribution hasn't been a big secret. Gemologists and rock hounding hobbyists have known it for years. Only recently has legal action been taken against the company and its monopoly over the trade. This diamond cartel has been threatened by discoveries of diamonds in Angola, Canada, Australia and Russia and so far DeBeers has been able to form alliances over the years. It is calculated that DeBeers holds 70 percent of the diamond mines in Africa and 40 percent worldwide.

Yet in 1994, though, the US Department of Justice filed a charge against DeBeers, charging that DeBeers and General Electric had conspired to inflate the prices of industrial diamonds. As a result, DeBeers paid a $10 million fine in 2004.

Although DeBeers has not admitted to any wrongdoing, there's a class-action settlement in the works where people who bought diamond jewelry between 1994 and 2006 can benefit--notice how absolute their control is that it doesn't seem to matter from what store. The settlement will have DeBeers paying out an estimated $295 million. To file for payment, consumers should call 800-760-5431.

How much you can receive, apparently depends upon how much you spent and how many people file a complaint.

Marilyn Monroe sang,"Diamonds Are a Girl's Best Friend,"but in reality diamonds have been DeBeers' friend and DeBeers' hasn't been a particularly good friend to Africa and the miners. In the future, with Australia and Canada entering the diamond market and the sometimes economically-challenged Russia possibly repeating its 1980 and 1990 slip outside of its uneasy alliance with DeBeers, diamonds might not always be as valuable. People may finally realize how common they are and the world diamond market could potentially become more competitive.

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