Tuesday, 29 April 2008!
HandWritten on; 23:52
THE POWER PLAY
Carved out of the southwest coast of Africa, where the mouth of the Orange River meets the waters of the Atlantic, is a rectangular strip of desert known as the Sperrgebiet: the forbidden territory. It is an inhospitable place, encompassing 10,000 sun-bleached square miles of sand. Thanks to an accident of geology millions of years ago in which masses of rough diamonds were transported from South Africa by the Orange River and deposited within its borders, the Sperrgebiet has become one of the most protected stretches of real estate in the world. There are only two ways in and out: a single two-lane highway and a small, dusty airstrip. Diamonds have been pulled from the riverbed here since 1908, when the country was a German protectorate known as South West Africa. De Beers has controlled the area since 1920; in 1994, after the country gained its independence as Namibia, De Beers formed the Namdeb Diamond Corp., a fifty-fifty partnership with the new government.
On a sweltering morning last October I found myself in an eight-seater Sikorsky Seahawk helicopter as it lifted off the runway of Namdeb's airport and climbed 1,000 feet above the desert. The helicopter flew over a solitary patch of green: Oranjemund, the town adjacent to the Namibian diamond mines. Then it headed out over the Atlantic.
I was encased in a tight-fitting wet suit and a yellow life preserver (a safety video had informed me that the helicopter would float if it crashed). A red speck emerged in the distance, then gradually materialized into the Debmar Atlantic--a diamond-mining and -processing plant in the guise of a large ship.
The Seahawk landed on the ship's helipad. Feeling a bit like Sean Connery in Diamonds Are Forever, I sprinted away from the helicopter's spinning blades, peeled off my wet suit, and descended a steep ladder into the bowels of the ship. For the next two hours, I was given a tour of one of the technological marvels of the diamond world: deep-sea mining.
As the once fertile beaches along the Namibian coast dry up, De Beers is placing its bets on the Debmar Atlantic and seven sister ships. Last year the company's marine division recovered more than 570,000 carats of high-quality diamonds from the waters off the Namibian coast. The process is remarkable. Special drill bits, 23 feet in diameter, burrow into the ocean floor, releasing a mix of diamond and ore that is sucked through 300 feet of tubing to the surface, where machines separate the diamonds from the surrounding material and pack them, like chunky soup, into aluminum cans. For security reasons, no human comes into contact with the diamonds until the cans have been sealed. Operating 24 hours a day, 365 days a year, the ships cover 1.2 square miles of ocean annually. No patch is left untouched.
De Beers had invited me to Namibia, along with the diamond editors of four American jewelry trade magazines, as part of a tour of the company's operations in Namibia, Botswana, South Africa, and the war-torn jungles of Angola. Over 14 days, 16 flights, and countless meetings with senior De Beers personnel, we were subjected to an endless sales pitch about Supplier of Choice and the new De Beers.
When it launched Supplier of Choice last July with a PR barrage, the once media-shy company got exactly the reception it wanted: "After a 60-year effort to hoard every diamond on Earth, De Beers decides to open the market," reported Time. DE BEERS TO ABANDON MONOPOLY, AIM AT NEW ROLE IN DIAMONDS, pronounced the Wall Street Journal. DE BEERS HALTS ITS HOARDING OF DIAMONDS, declared the New York Times.
My trip to Africa was meant to be the clincher, a demonstration of the new, transparent De Beers. But as I witnessed first-hand the company's sprawling empire, heard about its many expansion plans, and experienced its unrelenting focus on secrecy and control, I came to a different conclusion. As it implements its new strategy, De Beers is hardly abandoning the tactics that have defined its corporate culture for more than a century.
Prior to my James Bond-like adventure on the Debmar Atlantic, the sheer magnitude of De Beers' African operations had already overwhelmed me. At Orapa, a Grand Canyonesque pit in northern Botswana, Caterpillar trucks with 20-foot-high wheels and beds that carry nearly ten million tons of diamondiferous ore a year seemed more like Tonka toys, their tonnage dwarfed by the scale of the world's second-largest diamond mine. At Namdeb, I had watched giant bucket-wheels the size of Ferris wheels scoop out 65 feet of sand to expose diamond-encrusted bedrock so that miners in sand-covered overalls could vacuum the diamonds off the rocks.
The company's expansion plans are equally outsized. A proposed $300 million extension will double the capacity of the Premier mine, located just an hour from Johannesburg. A sparkling, largely automated recovery plant being built at Orapa will double that mine's output of nearly $1 billion per year. And De Beers is aggressively pursuing diamond properties around the globe. Last July, precisely at the moment it was proclaiming an end to its monopoly, De Beers launched two hostile takeover bids. The first, a $205 million offer for Winspear, a mine in Canada's Northwest Territories, was approved last August. The second, a $389 million bid for Australia's Ashton Mining--and its Argyle mine--was held up by the European Union's antitrust commission, so Ashton accepted a lower offer from a competitor.
De Beers was even making forays into Angola, albeit carefully. For more than 25 years Angola has been locked in a brutal, debilitating civil war. Begun as a struggle against the Portuguese occupation, the war has most recently been fought over the country's vast natural resources, chiefly oil and diamonds. Angola mines between $600 million and $800 million of diamonds each year, making it the fourth-largest producer, by value, in the world. One-fifth of that production comes from the country's only mine, Catoca. The rest is scattered in alluvial (surface) deposits.
The old De Beers prospected for underground deposits in Angola. And in its effort to control the world's diamond supply, it also bought lots of alluvial diamonds--both from the Angolan government and from areas controlled by rebels.
By 1998, De Beers' Angolan adventure threatened to become a PR nightmare. The nongovernmental organization Global Witness publicized the atrocities that rebel forces in Angola and other African countries were committing to gain access to their countries' diamonds. The phrase "conflict diamonds" entered the lexicon; the United Nations passed resolutions calling for a boycott; and U.S. Congressman Tony Hall sponsored a bill that called for an embargo against diamonds not certified by the governments of Sierra Leone and Angola. Fearful of a consumer backlash, De Beers closed its buying offices in Angola and the Democratic Republic of Congo (DRC).
Moments after De Beers shut its doors, Angola awarded the marketing rights for the country's diamonds to Ascorp, a state partnership with Lev Leviev, a Russian/Israeli diamond manufacturer and former De Beers sightholder. As a result Leviev now controls one of the largest sources of diamonds outside De Beers.
Despite its new, supposedly open mindset, De Beers is hardly comfortable ceding control over such an important producer of diamonds. So it is maintaining a presence in Angola, though a low-key one. Its representatives continue to negotiate with the government, it has just recently finished construction on a 12-story sorting house in downtown Luanda, and it still spends about $8 million a year prospecting in the Angolan jungles.
In the meantime the company is happily reaping the PR benefits of being able to call itself a "conflict-free" supplier. Diamonds that carry its new Forevermark are guaranteed to be conflict-free, and the company says that any sightholder caught handling conflict diamonds would be excommunicated. And last August, De Beers and other industry leaders formed the World Diamond Council, whose mandate is to eradicate conflict diamonds from the rest of the world's supply.
While the company seems to be winning this particular PR battle, its uneasy effort to tiptoe through the Angolan minefield exemplifies the problem De Beers faces as it simultaneously tries to open up and to wield the monopolistic powers of the old De Beers. Throughout my trip to Africa, I was confronted with evidence of this schism. Even as the company openly exhibited its expansion plans and granted access to its mining operations, it displayed the secrecy and stifling control for which the old De Beers was famous. Every minute of every day was rigidly scheduled. There was little room to escape, to veer from the confines of De Beers' yellow-brick road and seek the company behind the curtain.
But we didn't need to veer too far. Signs of the old De Beers were everywhere: At an orphans' village in Gaborone, Botswana, where De Beers had taken us to illustrate the company's commitment to social causes, even though the village's leader admitted, reluctantly, that Debswana, the partnership between De Beers and the government, contributed only $14,000 (about 2% of the annual budget)...In a seedy bar in Oranjemund, where one of Namdeb's miners complained, "The security for the diamonds is 110%; the security for us is not so good." Everything about the place, he said, can be summed up by the food, which "looks great on the outside but tastes like shit." The only thing left to do here, he said, staring at the label on his beer, "is to empty the bottle"...And even in the posh confines of the De Beers guesthouse. On our last night at Namdeb, I asked Alan Ashworth, the mine's manager, why we hadn't been able to see the "recovery area"--the part of the mine where the final separation between diamonds and ore takes place. "It's a question of security," he replied. Earlier that day at the mine, even though none of our group had come within a hundred yards of a diamond, we had all been X-rayed. (Employees are X-rayed every two weeks; Namdeb was in the process of implementing a low-dosage machine called Scannex that will allow it to X-ray all of its employees daily.) "How do we know that one of you wasn't recruited by some international crime syndicate?" Ashworth asked, his pale, mustachioed face reddening with anger. True, Namdeb is an alluvial mine that experiences a higher level of theft than De Beers' other operations. Still, Ashworth's response seemed paranoid. After all, for every 270 tons of sand they move, Namdeb's miners recover less than a handful of diamonds. Many miners work their entire careers without once seeing a diamond.
-jianrui!
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