Vendetta - About De Beers monopoly

Revenge can be sweet as honey. Some feel that it creates justice, and the instant gratification of taking care of things on your own is satisfying. I am the last person to legitimize this behavior, but this is the way the world works. Needless to say, it doesn't work any different in the diamond business.

It is no secret that the biggest name in the diamond world, De Beers, is very quickly losing their power. Sightholders are looking for revenge for all the pain De Beers caused them over the years. The prices De Beers charge them for the rough are 20% - 30% too high. Martin Rapaport recently gave a stern warning to the diamond miners making money, and the diamond manufactures loosing. He made a lot of noise within the industry, and his voice was heard. Some of the Sightholders are huge companies, with over 20,000 employees. Therefore, revenge from a few companies like that won't be just a drop in the bucket.

Leibish Polnauer and Martin Rapaport

Leibish Polnauer and Martin Rapaport

The revolt of many of these Sightolders is imminent. They are fed up, and many of them want to see blood. De Beers ruled the industry with an iron hand for half a century, but their time has come to an end.

When you wanted to be a De Beers Sightholder in the past, you had to comply with a wide array of strict rules the Syndicate demanded. Most of these roles served the control of De Beers only, and hardly contributed to the diamond brand as a whole. Sightholders where petrified to lose their regular allocation of rough, the 10 times each year, and couldn't risk the guaranteed De Beers prices. There were no negotiations allowed, no credit, and no leeway. It was money up front or nothing.

Great names like Moshe Shnitzer and William Goldberg were dropped from the Sightholders list over night for no visible reason.

 I remember specifically when that happened, as the move was so arrogant and sudden that everyone in the industry was shocked. It was mind-boggling how powerful De Beers was, and that they could do whatever they wanted to without consequence.

At the time, De Beers controlled 90% of the rough diamond market. The sight holders could not refuse their allocation, as once you refused you were history. In 1997, Yigal Hausman who was the president of the International Diamond Manufacturers Association, tried to lead a revolt against De Beers. All the members of the association under his lead signed on the document that they would no longer take the rough allocation. At the time, Garry Ralfe answered on behalf of the company and declared that they would absolutely not lower Gem and diamond prices, and didn't change a thing. The time was not ripe for a real revolution, as De Beers was powerful and controlled the market.

Today, the entire De Beers Sightholder system is history. There is 85% of the De Beers stock, owned by Anglo American PLC and 15% owned by the Botswana government. In 2009, Anglo American made a net profit of $10 billion. Today, the whole Anglo American PLC (ALL) is worth $4.39 billion, including the 85% De Beers shares. Not to mention, that AAL owes the banks approximately $13 Billion. Cash is needed to save Anglo American, as their bonds are near a junk rating.

All the sightholders, who were forced to comply with De Beers rules and regulations in the past, now smell the blood of the wounded.

Chaim Even Zohar, an old hand in the diamond world, reported that: De Beers stopped purchasing goods from Botswana, and will report a $105 Million loss. It's a catch 22 situation. Botswana needs the money and AAL needs to keep De Beers profitable and over a $4 Billion limit of sales each year.

My feeling is and has been for quite some time, been the same. I wrote about it in the past, De Beers Forever, and I will likely write about it again the future. The next move of the Sightholders revolt is when they will buy rough directly from the Botswana government, and leave De Beers completely out of the picture. Botswana needs the money, and has the product. They no longer need De Beers, since the company was kind enough to make introductions back in 2013.

Once the connections are made and logistics has been worked out, what would Botswana need De Beers for? The Botswana government forced De Beers to relocate the distribution of the sight to Botswana a few years ago. Now that everyone knows each other and have established a personal relationship between the miners and diamond manufacturers, all these sightholders will stand by and watch De Beers fall to the ground.

I realized this immediately after hearing about their relocation, and wrote about it here: De Beers Big Game Safari on Botswana-II. De Beers became a King without Kingdom. The diamond business will go its own way, as whether De Beers was the first to say it or not, diamonds really are forever.

Leibish Polnauer

Best regards,

Leibish Polnauer, President and Founder of LEIBISH Fancy Color Diamonds

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