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How De Beers's boss Philippe Mellier makes sure diamonds are forever - even as they begin to run out


By JON REES

The world is running out of diamonds but the boss of De Beers, Philippe Mellier, doesn’t seem too bothered: after all, he knows a diamond is forever.

Unlike gold or platinum, diamonds have only one significant use: as jewellery to adorn (mainly) women. Jewellery accounts for 99 per cent of the diamond market by value; and the rarer diamonds become, the more expensive they will get – at least that’s the theory.

The ebullient 59-year-old Frenchman, the first foreigner to run the world’s pre-eminent diamond company, is a mechanical engineer by training – attending one of France’s grandes écoles which specialise in educating its future business and political elite.

‘No big new diamond mine has been discovered for 20 years and from 2019 or so we will see a gap between supply and demand. And mining for diamonds is a very expensive business.’

De Beers is spending more than $3.5billion on mines in Botswana, South Africa and Canada. Most diamond mines are open pit mines, basically huge holes in the ground, and it takes about one ton of ore mined to recover a single carat of diamonds – a carat is 0.2 grams. As mines get older they get deeper and as they get deeper they have to get wider, a process measured in ‘cuts’.

In Botswana, De Beers is working on Cut 8 of one of its mines at a cost of $500 million. When open mines get too deep, mining is continued underground. De Beers is doing this in Venetia, South Africa, at a cost of $2 billion. At its Snap Lake mine, in the north of Canada’s Northwest Territories, where the temperature in winter reaches minus 50 degrees, it is also mining the diamond-bearing ore kimberlite underground, under the lake in fact, and spending $1 billion to open that mine next year. ‘We’re different from normal mining companies. Our colleagues in Anglo mine all the time, even when commodity prices are depressed like they are now, to keep costs down,’ says Mellier. ‘But what we mine, we sell; we don’t keep stock. We’re upside-down to Anglo. We mine on demand. We spend a lot of time listening to the market; we try to match production to market demand.’ Of course, De Beers can’t do that exactly but Mellier reckons about 20 per cent of its production is in line with demand.

‘If one market is strong and another is not, we try to understand which kind of diamond is going to sell better and mine it.

‘For instance, the US market is very strong, but the bulk of the diamonds sold there are average-sized, with average colour and clarity and are mostly round. So we know which type of rough diamonds we need to produce these kinds of stones. We make 60 per cent of our profits from the mines, 40 per cent from the diamond trade,’ he says.

The UK and, indeed, Europe, is a small market for diamonds, and traditionally involves diamonds passed down through families over generations. It was Mellier’s nous with consumers and governments, via a career in management selling cars and trucks for Ford, Renault and Volvo, that led De Beers to appoint him as its first non-South African chief executive in 2011. ‘For 100 years De Beers had a monopoly in the diamond market, then ten years ago it stopped buying Russian diamonds, stopped buying diamonds from Congo, and its market share fell from 85 per cent to 35 per cent. That was a big shock for the company,’ he says.

‘Ten years ago, too, there was a huge worldwide push into brands, like Cartier, Louis Vuitton, and De Beers was not in good shape.

‘The shareholders, led by the Oppenheimer family, looked for someone outside the diamond industry who understood brands – I knew about that from selling cars – and who had experience of dealing with governments, which I had from my trucks and trains experience. Now we’re in the luxury goods business and we’ve got a joint venture with Louis Vuitton Moet Hennessy.’

Today De Beers has about a third of the $18billion market by value, but Russia is a bigger volume producer.

So, De Beers brands its diamonds – cut invisibly to the naked eye with its own Forevermark icon and number – to show they are of the top quality and responsibly sourced. Its Forevermark brand will be coming to UK stores this year as corner outlets in top end jewellery retailers.

Mellier is an unusual mix: a hard-headed mining boss who is happy talking about romance, albeit with an eye to profit.

Before De Beers, diamonds were not usually given as an engagement token. ‘De Beers created the idea that a diamond is forever, that it is proof of love: in the US, 80 per cent of all couples getting engaged buy a diamond ring,’ he says.

Frances Gerety, the Philadelphia-based advertising copywriter who coined the phrase ‘A diamond is forever’ for De Beers in 1947, would be proud of him.

FROM FIGHTER JETS TO FRACKING: DE BEERS BRANCHES OUT

Most diamonds end up adorning women, but not all – De Beers’s Element Six division makes synthetic diamonds which are used in some of the harshest environments on Earth.

Fracking for oil and gas involves drilling huge distances, often sideways and pumping chemicals into shale rock to force gas and oil out.

‘The drill bits are being made with diamonds from us,’ said Philippe Mellier, De Beers’s chief executive.

‘Our diamonds are much harder than steel so they can be used to drill for a long, long time before they need replacing.’

Diamonds also dissipate heat very efficiently, which is why they feel cool to the touch, and are regarded as a superb ‘heat sink’ material capable of dealing with huge amounts of thermal energy.

In fighter aircraft, computer systems generate huge amounts of heat, so the microchips dealing with this are embedded on synthetic diamonds.

Diamonds’ ability to deal with super-high temperatures has led to their use in satellites while they are also used in laser technology. Firing lasers through glass would vaporise the glass, but they can be fired through windows made of synthetic diamonds.

De Beers is not the only company to make synthetic diamonds and it spends a lot of time – and $65million – developing the latest technology to detect synthetic examples which are being passed off as real. Its machines can test 360 stones an hour.

‘Because we can make synthetic diamonds ourselves, we’re very good at testing for them from other people,’ says Mellier.

 


 

 
 
 
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