By Alexandra Wexler
ORAPA, Botswana -- De Beers is facing up to a tough reality: The world's diamond deposits won't last forever.
The mining behemoth, a unit of Anglo American PLC, is rewriting its century-old playbook as discoveries of new diamond troves grow scarce and its aging mines become more costly to operate. Global diamond production is falling, companies and analysts say, pushing De Beers to make investments and strategic changes that were almost unthinkable a few years ago.
The former monopoly famed for secrecy is developing a traceability system to verify a diamond's provenance, a bid to attract more socially conscious buyers. De Beers also stunned the industry last year with plans to sell its first synthetic diamonds through a new subsidiary. The synthetic stones are identical to natural stones in composition but are made in labs rather than mined from the earth.
De Beers Chief Executive Bruce Cleaver said in a recent interview that those changes and a new marketing push are necessary to ensure diamonds remain a coveted purchase for Asia's expanding middle class and American millennials reaching new life milestones.
"We are standing on the cusp of a new diamond world," Mr. Cleaver said. "It is a world...of considerable opportunity, if we make the right choices."
De Beers, founded by a group including colonialist pioneer Cecil John Rhodes in 1888, weathered the mothballing of its mines during the Great Depression and the destruction of its London trading offices in the Blitz during World War II.
As recently as the 1980s, De Beers controlled more than 80% of the world's diamond supply. In 2012, Anglo American paid the Oppenheimer family $5.1 billion for its 40% stake in the company, which last year contributed about a quarter of global diamond production.
That global industry is changing fast. During the most recent of the regular diamond sales that De Beers conducts for buyers, the company sold $390 million of rough diamonds, down 12% from the same sale in 2018. Earnings before interest, taxes, depreciation and amortization in the first half of this year dropped to $518 million, down 27% compared with the same period in 2018. Sales have been hurt by a slowing global economy, the U.S.-China trade war, protests in Hong Kong and tighter lending in India, where most diamonds are cut and polished.
De Beers is ramping up an old standby, marketing, to help combat the trends. The company is spending $180 million on marketing this year, the most in a decade.
Another plank of De Beers' strategy is to boost supply chain transparency by communicating the provenance and authenticity of its diamonds, which are typically mixed together and sold to buyers in bulk lots, effectively eliminating the ability to trace them back to their origin.
"Consumers have been asking for proof of sustainable and ethical sourcing," said Jim Duffy, chief executive of Tracr, a platform that provides a diamond's provenance and traces it all the way through the supply chain.
Using artificial intelligence and blockchain technology, retailers will be able to show consumers that their diamond was dug up in the sun-baked mining town of Orapa, in central Botswana, where warthogs laze about the parking lots. Information on the platform could explain whether proceeds from that stone funded a particular road, school or hospital project. It could become as granular as giving a consumer the back story of the specific person who cut and polished the diamond, Mr. Duffy said.
Tracr goes beyond the Kimberley Process, the industrywide effort to prevent insurgent groups from trafficking in rough diamonds by certifying that stones are conflict-free. Tracr, initially an in-house project at De Beers, is being spun out to the wider diamond industry and is expected to launch commercially early next year. It already has more than 30 participants, including De Beers and Russia's PAO Alrosa, the world's largest diamond producer by volume, and Chow Tai Fook Jewellery Group Ltd. of Hong Kong, the world's second-largest jeweler.
"Increasing supply chain transparency is the industry's lowest hanging fruit," said Paul Zimnisky, an independent diamond analyst in New York.
De Beers has also staked a claim in the lab-grown diamond market. That appears to have been a shrewd move. Since DeBeers said it would sell synthetic stones under a brand called Lightbox, the wholesale price for a 1-carat lab-grown stone has dropped from near-parity with mined stones in some cases to about 60% below that level. De Beers said they want consumers to see lab-made diamonds as less precious than stones dug from the earth.
"There's no rarity: It's fashion, it's fun, it's lighthearted," Mr. Cleaver said.
Analysts expect natural diamond prices to stabilize following their recent drop as global production continues to fall. Output is projected to fall through at least 2021 as older mines are depleted and new deposits aren't developed to replace them.
De Beers has sold several mines in recent years but is investing heavily in those that remain.
In South Africa, De Beers is spending $2 billion to extend the life of its single remaining mine there, Venetia, into the 2040s by moving production from an open pit to underground.
And the company said in March it would spend another $2 billion, together with the government of Botswana, to expand its largest mine there. The investment should extend the life of that mine, Jwaneng, to at least 2035.
Write to Alexandra Wexler at firstname.lastname@example.org