THE diamond industry has been hammered by the recession, with prices down by as much as a third over the past year. No company has felt the pain more deeply than South Africa-based De Beers. Analysts estimate that its production will fall by around 50 per cent after a collapse in sales in 2009, amid a slump more severe than most people can remember. At the height of the slowdown earlier this year, De Beers closed all four of its mines in Botswana because the ''sightholders'' - independent diamond-factory businesses that buy rough diamonds and cut, polish and sell them on to the retail trade - that it dealt with were being starved of credit by the banks. Its workforce has been reduced by 23 per cent, with payroll numbers down from about 20,500 to just under 16,000 in 12 months. Thousands of miners have been made redundant. Profits fell 99 per cent to $US3 million ($A3.28 million) in the first half, while borrowings stand at $US3.5 billion. De Beers needs to refinance $US1.5 billion of debt by March 10, 2010, but lenders are believed to be demanding punishing interest rates as the price of a restructuring deal. But an agreement with its three main shareholders should give the company increased bargaining power with the banks. Its biggest investors - mining group Anglo American, the diamond-entrepeneur Oppenheimer family and the government of Botswana - have agreed in principle to subscribe to a $US1 billion rights issue, raising much-needed cash to cut the group's indebtedness. For years, De Beers was the diamond industry, speaking for 90 per cent of world production. But new players from Russia, Canada and Australia have entered the market, reducing its dominance. Competition authorities in Europe and the US have also clamped down on the company's ability to control prices and supply by restricting its rights to sell on behalf of other diamond producers. In South Africa itself, the company has cut investment, while diversifying abroad to hedge against the political uncertainties unleashed by the ending of apartheid 15 years ago. Nicky Oppenheimer, the Harrow-educated chairman of De Beers, was obliged to sell 26 per cent of the company to a black empowerment group under legislation passed by the African National Congress. Like others, De Beers has taken account of the changing reality by ring-fencing its South African operations inside a company called De Beers Consolidated Mines and moving its capital abroad. But it is still the world's single biggest diamond producer, at 40 per cent, and remains a force to be reckoned with. It owns shops in world capitals such as London and New York and is behind a huge worldwide marketing operation designed to prop up demand for diamonds. The language on its website is both compelling and gushing. De Beers drastically cut production to support a price recovery, with output of 1.1 million carats in the first quarter - down 91 per cent year-on-year. Many mines have now reopened as the worst of the slump appears to be over, but De Beers cannot completely escape the chill winds of recession. In the US, which accounts for about half of world consumption, retailers are taking a big hit. Tiffany has seen profits drop by 75 per cent, while 1000 jewellers across America have gone out of business. The slump in US demand reverberates to places such as India, where thousands of workers in diamond polishing factories have been laid off.
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