AUSTRALIA

The History of Diamond Production: Australia: In the Pink

When diamonds from western Australia’s mammoth Argyle mine started trickling on the market in the early 1980s, they grabbed the world’s attention because the best of them possessed a rich purple-pink never before seen. Alas, these colored diamonds accounted for an infinitesimal percentage of production; but they helped Australia establish its reputation.

To diamond world insiders, Australia is a maverick producer that has changed the structure of the industry in several notable ways. Since the overwhelming majority of stones from this outback deposit were small, irregularly-shaped, low-grade, off-color and difficult to cut, Argyle had to develop a market for its stones on its own. Although it was under contract to sell its output to De Beers, the two companies never had a comfortable relationship.

When Argyle’s annual production reached 40 million carats annually in the early 1990s, the company decided to take matters into its own hands and make direct outreach to India, the low-wage, worker-swarming cutting center that was processing nearly all of its stones. To make it profitable for Indians to buy Australian diamonds, Argyle encouraged cutters to be become finished jewelry manufacturers—thereby giving Australian stones tremendous added value.

De Beers did not take kindly to such market intervention because the plan to make India a major jewelry manufacturing center overnight would allow Argyle to demand more for its production. The relationship between the two mining giants, prickly to begin with, quickly deteriorated. In 1999, Argyle did not renew its contract with De Beers and went on its own, making rough allocation deals direct with Indian cutters.

Today, Australia is still a major producer, but annual production has tapered off to around 20 millions carats from norms of 35 million a decade ago. Nevertheless, Argyle’s defection from the De Beers’ monopoly marks an important turning point in diamond history—a new era in diamond mining where De Beers had to compete more fiercely with giant mining companies like Rio Tinto and BHP Billiton which forced a slow shift from a supply-side to a demand-side orientation. Don’t worry. Monopoly thinking is still part of De Beers’ DNA, but the company is now leaner, meaner and far more market-savvy.