DeBeers to Undergo Major Changes

London-based DeBeers is making radical changes in its approach to business, shifting its model from tightly centralized control to more site-based management.

Gareth Penny, managing director of DeBeers, says the company's entire business philosophy is changing. "We are no longer trying to run one global system managed by a centrist organization. We are now looking at it from a country-by-country basis, for a system that will be appropriate to that particular country. "Penny would like to see more workplace accountability in the overall DeBeers philosophy. He believes allowing management styles appropriate to specific countries will empower this.

One major change may see a shift of part of the company's marketing operation from London to Gabrone, where a massive new facility is being built for aggregation. Implementing this change will be breaking a 60-year tradition. The decision is subject to many conditions, so these plans are not final. Additionally, DeBeers is responding to pressure by various African governments to give more site-based autonomy and importance. Namibia, Angola, Botswana and South Africa want beneficiation, or more diamonds to be cut and polished locally, which would give them a larger share of the wealth generated from mining activities.

Over the years DeBeers' control of the world's diamond market has dropped from about 85% to close to 50% as competitors have forced their way into the business. The company has undergone a series of changes to shed its former monopolistic approach.

Six months into his tenure as managing director of De Beers, Penny is committed to this path. As managing director of DeBeers' marketing arm, the Diamond Trading Company, Penny consistently improved annual sales of rough diamonds. In his current position he has committed billions to these developments in southern Africa and Canada.

In 2005 De Beers patched up its long-running dispute with the Angolan government and now has exploration crews on the ground drilling into potential kimberlite pipes. It had identified some of these nearly a decade ago, before its relationship with the Angolan authorities soured. There was an extended period of negotiations and arbitration before De Beers knuckled under and accepted tough new conditions. Penny says it was worth it because De Beers is now getting exceptional co-operation from the Angolan authorities and is able to access exceptional opportunities. The motivation for De Beers' changed attitude is the belief that in Angola it could find a mine equal to one of its existing stars, like Venetia in Limpopo or Orapa in Botswana. This would cement De Beers' future competitive edge in the diamond business.

De Beers was dominant until the mid-1990s, earning a reputation for ruthlessness in its marketing, exploration and production strategies. The group made few mistakes but two it did make had serious consequences that now affect its drive to raise output: De Beers missed what became the world's largest diamond mine, Argyle in Australia, despite a long-running exploration campaign in that country during which its geologists had examined the precise region where Argyle was found. Instead, Argyle ended up in the hands of resources giant Rio Tinto. De Beers also lost out in the initial phase of the diamond rush into the far north of Canada, thus allowing a major competitor, BHP Billiton, to get into the business.

De Beers has given up on Australia but has been playing a serious game of catch-up in Canada, where it is developing new mines.

Penny is confident that De Beers will continue to cope with every challenge thrown at the group and thrive, as it has done since 1929 and the Great Depression, which threatened the very existence of the diamond business. He's also confident De Beers can adapt to work successfully under the new rules being laid down by various southern African governments. His view is that the relationships with governments in southern Africa are improving and he thinks they are moving onto a stronger footing and do not in any way feel beleaguered in southern Africa.