CHAPTER12. The Secrets of the World's Greatest Diamond Mine.

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At the time of the enormous Argyle diamond discovery in 1979 the Oppenheimer family had ruled unchallenged the world of diamonds from South Africa for over 50 years, rationing out diamonds little by little to keep the prices high. But, when the news of the on-coming tidal wave of Australian diamonds reached them in 1980, their empire's foundations were already undermined...

...

The scale of the threat to De Beers was undeniable. In its 1981 reports CRA, the manager of Ashton Joint Venture, estimated that the Argyle diamond deposit would produce 20 million carats annually, expanding the world's diamond production from 48 to 68 million carats. But by 1987 the Argyle mine was producing a flood of 34.4 million carats of diamonds a year. By the 1990s its production had gone up to a sparkling 40 million carats or 8 tonnes of diamonds a year - about five times the production of South Africa.

The Argyle cattle station deep in the Australian outback was so rich in diamonds that a relatively small high paid work force using modern excavators could rip from its cold volcanic rocks diamonds at only US$2.90 a carat . A secret report by CRA contrasted this with the production costs at De Beers mines in southern Africa. It cost De Beers, despite paying its miners less than an eight of an Australian wage, US$33 a carat to mine a carat at Kimberley , US$19 a carat at Premier and US$9 a carat at Orapa in Botswana. It even cost 3 times more to mine a diamond in Zaire despite it's wages being only 5% those of Australia

.... there was only one conclusion possible for De Beers. The Australian diamonds must not compete. It was no wonder that Harry Oppenheimer, then Chairman of De Beers, should express a hope that Australia would market its gems 'in a way that doesn't invite a great deal of competition with other people,' The Australian prime minister, Malcolm Fraser, had a very different view. In 1981 he declared that Australian diamonds should not 'only serve to strengthen a South African monopoly.'

Harry Oppenheimer, who had been living in semi-retirement in Johannesburg, took personal control over De Beers' negotiations in Australia.

...Alan Jones, Managing Director of Ashton Mining, wistfully said to me when I interviewed him in 1981: 'If we were the Syndicate and we could set our price at the 'South African Fixed Price', the Argyle deposit would be worth at least a hundred billion dollars!'

But valuers trained by the De Beers owned marketing operation, the Central Selling Organisation (CSO), set the price of the Australian diamonds at only US$11 dollars a carat.

... Joris claimed that the sample sent to him and to the international team in July 1981 was clearly fraudulent.. He alleged that CRA were working hand in glove with De Beers people in selecting this sample: '

...It made sense that the CSO would want the price low. After all this was the price it would have to pay. But CRA's role as the Argyle mine manager was becoming more and more curious. If Joris were to be believed, it was allowing its customer, the CSO, to set the prices for the goods it was purchasing - surely a unique arrangement in any industry. But why would CRA facilitate this? Did it really believe that the Argyle diamonds were only worth about US$10 a carat on the international market?

... The internal evaluation reports showed that 22.4 per cent of the diamonds at Argyle were a very respectable three quarters of a carat or larger and that 9.3 per cent of the total were above 1 carat in weight. If Argyle produced 40 million carats a year (as it did in 1994), it would produce about 2 million carats a year of diamonds over one carat - over double South Africa's own production of this expensively sized diamond. Moreover about 200,000 of these Australian diamonds would be above 2 carats in weight.

As for still larger stones, the Argyle mine's separation plant was not designed to produce them!

...A CRA spokesman from its head office told me only 7 per cent of Argyle's diamonds were 'clean enough for gems'. I then asked them what they defined as 'gems'. He said diamonds 'cutable in New York'. This is not just 'gem' but the highest gem standard. The diamond Syndicate only sends the best of its gem diamonds to New York. I then asked how many of their stones were 'industrial' . He replied: 'Fifty per cent.' I then put to him the obvious question: 'What then are the other 43 per cent?' He firmly replied: 'Near gems.'

I was puzzled by this response. There was no such category as 'near-gems' in my diamond industry reference books in 1981. So I asked the CRA spokesman what were 'near gems'. He replied: 'stones cutable as gems if the market demands it.' Such a definition seemed something of a charade. Surely any diamond capable of being cut as a gem would be cut as a gem - given how much more it would be worth when cut? I later learnt that the 'near-gem' classification was a new lower -valued sub-division that came into general use with De Beers around this time- and that most of the sparklers on the world's engagement rings are made from stones now defined as 'near-gems'. The buyers of jewellery are not told of this degradation. It certainly has not lowered retail prices.

In private Mr. E. Tyler of Ashton told a joint venture meeting on the 3rd July 1982 that 'Argyle was a gem mine since it would be obtaining 85% of its sale revenues from its gems and near-gems.'

The following are the highly secret results from just two typical drill holes in the southern half of the pipe. These were code-numbered LDC6 and LDC3. The first had 10.39, 14.85, 24.14 and 8.48 carats of diamonds per tonne at 20 metre intervals . LDC6 had ....

The South African average is only 0.28 carats per tonne according to De Beers...

... There was also an offer from diamond merchant Jack Lunzer of Industrial Diamond in London's Hatton Gardens, an offer reportedly made in association with that of the Belgians. He was said to have offered a price of $US18 a carat - over 50% above De Beers' first offer and over twice as much as De Beers later to pay for the Australian diamonds.

... From his account, it seems De Beers had invented diamond valuations to suit itself. The fact that he had published this allegation in his autobiography without any legal reaction from De Beers made me think it more likely that De Beers could be undervaluing the Australian diamonds.

.... The CSO launched against Argyle upon its declaration of independence the same kind of market attack that they had previously used against Zaire and against Russia to deter them from selling independently- but with one difference. They had used their command of Argyle's diamonds to threaten Zaire and Russia. Now they used Argyle's own diamonds against Argyle. They sold large lots of the Australian stones in the CSO stockpiles to Indian sight holders....