De Beers: Cre­at­ing a fu­ture on 120 years’ ex­pe­ri­ence

Finweek English Edition - - Finweek -

De Beers has a strat­egy to op­er­ate only glob­ally com­pet­i­tive mines that pro­duce prof­itable carats for the com­pany plans for the fu­ture. De Beers has re­cently opened four new mines, up­graded oth­ers, and sold sev­eral older min­ing as­sets bet­ter suited to spe­cial­ists in mar­ginal de­posits. The com­pany has been in­vest­ing, to the ex­tent of over R3bn in South Africa alone. Mod­erni­sa­tion of the Fin­sch plant at the al­ready ad­vanced un­der­ground mine, pro­duc­tion from South Africa’s first deep-sea min­ing ves­sel, the Peace in Africa, fol­lowed up late this year with a new mine open­ing in the Free State, all point to a com­pany on the move.

DE BEERS is 120 years old this year. Founded in Kim­ber­ley in 1888, it’s part of South Africa’s min­ing her­itage, and syn­ony­mous with di­a­monds. It’s one of the few min­ing com­pa­nies that’s sur­vived to cel­e­brate its cen­te­nary let alone its 120th year. Al­beit in a dif­fer­ent guise to the com­pany it started life as.

Its sur­vival now ap­pears to be a func­tion of its be­ing a pri­vately held com­pany, with Nicky Op­pen­heimer the chair­man. It was his great grand­fa­ther – Ernest Op­pen­heimer – who be­came chair­man of De Beers in 1929, hav­ing es­tab­lished An­glo Amer­i­can in 1917.

De Beers delist­ing from the JSE, to­gether with its move away from its role as cus­to­dian of the global di­a­mond mar­ket – and its ex­pan­sion into part­ner­ships from the ex­plo­ration stage to top end high street branded jew­ellery – have been the most sig­nif­i­cant changes at De Beers over the past decade.

Per­haps the most im­por­tant de­vel­op­ment in the re­cent evo­lu­tion of De Beers was its re­al­i­sa­tion it was re­strict­ing its growth po­ten­tial by re­main­ing cus­to­dian of the world’s di­a­mond mar­ket.

A few years ago De Beers es­tab­lished a new busi­ness model for the group. De Beers is now pros­per­ing from the com­pe­ti­tion of

both min­ers and sup­pli­ers of di­a­monds in the mar­ket. In­creased com­pe­ti­tion vig­i­lance has also com­pelled the com­pany to change. The Euro­pean com­pe­ti­tion au­thor­ity ruled that De Beers’ buy­ing agree­ment with the Rus­sian state di­a­mond com­pany Al­rosa be phased out. And De Beers has set­tled a long-run­ning anti-trust dis­pute in the United States.

As the com­pany has changed the way it op­er­ates in­ter­na­tion­ally, there have also been sig­nif­i­cant changes at home in South Africa. As di­a­monds have been mined since 1866 and fewer ma­jor de­posits found, SA has ceded its po­si­tion to Botswana, Rus­sia and Canada as the largest source of di­a­monds.

The end of apartheid in 1994 also de­manded that SA com­pa­nies re­think the way they con­ducted busi­ness, with busi­nesses trans­form­ing to ad­dress the in­equal­i­ties of the past and build a broader-based econ­omy.

In late 2005 Pon­a­halo In­vest­ment Hold­ings bought a 26% stake in DBCM. Of that 26%, DBCM em­ploy­ees and pen­sion­ers own ex­actly 50%. The re­main­ing eq­uity was split be­tween three broad-based trusts: ben­e­fit­ing dis­ad­van­taged women, peo­ple with dis­abil­i­ties and the com­mu­ni­ties liv­ing around DBCM mines.

The next year David Noko suc­ceeded Jonathan Op­pen­heimer as MD of DBCM who to­gether es­tab­lished and im­ple­mented tough per­for­mance bench­marks and a mine­fo­cused profit shar­ing re­wards sys­tems in the com­pany.

DBCM is now a very dif­fer­ent busi­ness to the one when Noko ar­rived al­most three years ago. And the De Beers’ group as a whole has evolved into a so­phis­ti­cated global min­ing com­pany re­act­ing to the va­garies of sup­ply and de­mand in the world’s lead­ing lux­ury di­a­mond mar­ket.

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