In only a few centuries, South Africa has become a near synonym for diamonds ever since the discovery of diamonds at the Kimberly Mine in 1871. The discovery would change the face of the nation forever. Diamond mines in South Africa have proven to be a continuing source of controversy, from the Second Boer War in 1899-1902 to the everyday conflict that exists till this very day. Today, diamonds are among South Africa’s most exported materials, next to coal, minerals, gold and metals. 
When diamonds were first discovered in 1867 and gold was discovered in 1884 South Africa began to grow economically and attract immigration. However, this also exacerbated the tension between European-South Africans and South African natives. The struggle for control over these resources played an important role in the war between the Boers and the British.
Global diamond giant De Beers was probably the greatest profiteer of the discovery of diamonds in South Africa. Formed by Cecil Rhodes in 1888, De Beers Consolidated Mines became the sole owner of all diamond mines in South Africa, and soon became an international monopoly. This monopoly was eventually broken diamond mines were discovered in Russia, Canada and Australia, as well as due to the cultural, social and financial changes of the 20th century.
Soon after the European rush for gold and diamonds in the late nineteenth century, mining operations expanded to include more than two dozen other minerals. By the mid-twentieth century, South Africa was the world’s largest producer or second largest producer of gold, diamonds, platinum, chromium, manganese, and vanadium; and it ranked high among producers of coal, iron ore, uranium, copper, silver, fluorspar, asbestos, and limestone.
Clusters of minerals occur in five major mineral complexes–the Bushveld, Transvaal, Witwatersrand, Northern Cape, and Western Cape complexes. Whereas most mines were originally funded and managed from European centers, by the 1970s most were managed by South Africa’s large diversified corporations, which controlled assets around the world.
Despite its importance in export revenues, the mining industry contributes only about 9.6 percent of GDP in the mid-1990s, down from an average of nearly 15 percent during the 1980s. The mining sector had been gradually surpassed by manufacturing and financial services both in terms of national output and labor force participation. The mines still account for a greater share of export revenues than any other single economic activity in the 1990s.
The mineowners’ association, the South African Chamber of Mines, was formed in 1889 to represent the industry in dealings with the government. In the 1990s, the Chamber of Mines includes six major mining finance houses, with thirty-six gold mines, twenty-two coal mines, and sixteen diamond, platinum, antimony, asbestos, manganese, lead, and copper mines. Together they account for 85 percent of South Africa’s mineral output. The Chamber of Mines negotiates labor concerns on behalf of mineowners, administers training programs for mineworkers, trains mineworkers in rescue and safety procedures, oversees pension and benefit funds, coordinates research programs, and refines and processes some minerals before sale.
Gold, first mined by Europeans in 1886 near Johannesburg, soon became the most important sector in the mining industry. South Africa has almost one-half of the world’s known gold reserves, located primarily in the Rand in what was once a prehistoric lake. Gold is also mined in the Free State. Industry analysts estimated in the early 1990s that South Africa had produced more than 43,000 tons of gold in the past century, and that at least that amount remained in reserves.
Gold occurs in seams embedded in rock strata, sometimes more than a mile below the surface. Deep shafts must be sunk, large amounts of rock must be blasted and brought to the surface, and the rock must be crushed and chemically separated from the gold. Some gold mines then pump processed mine tailings underground to serve as backfill. Mining and processing are costly, especially in deposits where the gold seam is extremely thin compared with the surrounding rock. For example, in the early 1990s industry analysts estimated that only 5.6 grams of gold were extracted from each ton of ore excavated. Nevertheless, the industry has consistently earned high profits and has accounted for one-third to one-half of the world’s gold production in the 1980s and 1990s. The country’s fifty-seven operating gold mines produce between 600 and 620 tons of gold per year, representing almost 30 percent of the world production. Gold production in 1994 and 1995 fell below 600 tons for the first time since the 1960s.
Gold mining companies traditionally kept expenses to a minimum by paying low wages. Gold mines became known for their often exploitative labor policies, including the use of migrant workers on limited contracts, strict worker control in company compounds, and difficult working conditions. Labor costs were especially important in determining profits, because the price of gold was set at US$35 per ounce through the 1960s. After the price of gold was allowed to float in 1968, it gradually rose in response to market demand, and companies could afford to produce less and still earn even greater profits. They then began to expand operations into so-called low-grade-ore mines. The volume of South African gold production fell, and gold prices skyrocketed to an all-time high of US$613 per ounce in 1980.
South Africa’s diamond mining industry dates back to 1867, when diamonds were discovered near Kimberley, now in the Northern Cape. The Kimberley diamond fields, and later discoveries in Gauteng, the Free State, and along the Atlantic coast, emerged as major sources of gem-quality diamonds, securing South Africa’s position as the world’s leading producer in the mid-twentieth century. (Rough diamonds were produced in larger quantities in Australia, Zaire, Botswana, and Russia.) Through 1991 most of South Africa’s diamonds were mined at only five locations, but a sixth mine, Venetia–in the Northern Cape–opened in 1992 and was expected to become a major diamond producer later in the decade.
The De Beers Consolidated Mines Company controlled most diamond mining in South Africa and influenced international trade through a diamond-producers’ alliance, or cartel–the Central Selling Organisation. The cartel enabled diamond producers to control the number of gems put on the market and thereby to maintain high prices for gem-quality diamonds. The cartel was able to react to marketing efforts outside its control by temporarily flooding the market, and thereby driving down the price paid for an outsider’s product.
Diamond prices fluctuated in the early 1980s, but the industry continued to expand even in the face of international recession and the discovery of the diamond-like cubic zirconia. Dollar prices for diamonds improved in 1985 but dropped again in 1987, requiring De Beers to support the market by withholding diamonds from dealers. Thus, annual production of more than 10 million carats in 1985 and in 1986 dropped to 9.1 million in the late 1980s. Gem and industrial diamond output in 1994 was 10.8 million carats, or roughly 11 percent of world production.
In 1990 the Soviet Union signed and openly acknowledged a contract to sell its diamonds (estimated at a value of about R13 billion over a five-year period) exclusively through De Beers. The action marked the first time in nearly thirty years that the Soviet Union had openly associated itself in commodity dealings with South Africa. Later that year, De Beers announced a loan of R2.63 million to the Soviet Union, against the security of an equivalent amount in diamonds.
Platinum group metals (platinum, palladium, ruthenium, rhodium, iridium, and osmium), which occur together in ore seams and are mined in one operation, were discovered in South Africa in 1924. Most of the estimated 59,000 tons of reserves are in the Bushveld complex of minerals; some concentrations are also found in the Transvaal and the Witwatersrand complexes. Platinum is used in automobile catalytic converters to reduce fuel emissions, as a catalyst in industrial processes, and in making jewelry.
South Africa is the world’s leading producer of platinum. Its output of about ninety tons in 1993 accounted for almost 49 percent of world production. South Africa’s platinum mines have profited, in particular, from the sale of rhodium, which sold for almost US$6,000 an ounce in the early 1990s, but world market prices fell after that.
In the 1990s, De Beers’ policy was to make sure that the diamonds it bought weren’t used to fund rebel groups. The Kimberley Process was established when Southern African countries decided to act against “conflict” diamonds in the markets, while protecting the legitimate diamond industry.
The Kimberley Process, which has been chaired by South Africa since 2000, includes over 50 governments has established a set of minimum acceptable international standards for national certification schemes relating to rough diamond trade. De Beers insisted that all of the diamonds it sells today are 100% conflict-free and that all De Beers diamonds are purchased are sold in accordance to national law, the Kimberley Process Certification Scheme and De Beers’ own Diamond Best Practice Principles.
During the 1980s, the dollar price of gold fluctuated widely, but because of devaluations of the rand, the rand price of gold generally advanced. When gold prices fell in 1989, the industry found that many of the low-grade-ore mines were no longer profitable. As the average value of the rand increased against the dollar, overall industry profits declined, and nearly half of the gold mines in operation were running at a loss. At least 40,000 gold mine workers were laid off in 1990, according to government estimates, and layoffs continued through 1993.
During 1994 all major gold mining houses except Johannesburg Consolidated Investments (JCI) were reporting lower profits as output fell in response to labor unrest and other factors. Randgold closed its Durban gold mine in mid-1994, owing primarily to poor grades of available ore, and other mines were threatening to close within the next few years unless profits improved.
In 1994 JCI began to “unbundle” its corporate structure by dividing into three separate companies. Anglo American, JCI’s largest shareholder (with 48 percent), retained its platinum and some diamond interests in one company, Anglo American Platinum. JCI’s gold mining and other industrial interests were separated into two companies, JCI Limited and Johnnies Industrial Corporation. Shares for these companies are being offered to the public, primarily as a vehicle for black investment and broadening participation in this sector of the economy.
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