The making of a diamond mine

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In 1979, in the remote East Kimberley region of north-western Australia, a field crew found alluvial diamonds in Smoke Creek, which drained into Lake Argyle. Further fieldwork discovered an almost unprecedented concentration of diamonds. The diamond searchers were soon referring to Smoke Creek as a jewel box.

The trail of alluvial diamonds led, high in a spur of the Ragged Range, to an ancient volcano. There were early signs that the volcanic pipe would be significantly diamondiferous. ‘One of the first things we saw,’ searcher Warren Atkinson said, ‘was a small diamond embedded in an anthill.’

The diamond searchers probed the pipe, and they showed it contained more diamonds than all the other diamond mines in the world. The New York Times reported that ‘with its anticipated production, Australia could dominate the market. The world production in 1980 was about 40 million carats, or 10 tons of diamonds, valued at $4 billion.’

If the Australian mine – named Argyle after the nearby lake – were as rich as the explorers thought, it had the potential on its own to produce 40 million carats a year. But the mine faced big hurdles. Largely inexperienced in the marketing and distribution of diamonds, the discoverers decided to negotiate a deal with the global diamond cartel De Beers, and De Beers’ ‘Central Selling Organization’ (CSO).

The deal with the CSO had one major caveat: it was subject to final approval from Australia’s federal government. Obtaining that approval was far from straightforward. Politicians and officials would scrutinise the proposed marketing arrangements carefully, and the Argyle partners would have to navigate an international clash of perceptions and ethics.

In 1982, Malcolm Fraser was prime minister, and he had significant misgivings about selling diamonds to an organisation that was based in South Africa and therefore implicated in apartheid.

For several reasons, those concerns were unfair. In South Africa’s parliament, for example, De Beers’ chairman Harry Oppenheimer had long been on the right side of the debate about apartheid. Oppenheimer’s company may have originated in colonial South Africa, but by this time it was modernising as a ‘producer cooperative’ whose participants represented all parts of the world and all points on the political spectrum.

In Australia, attitudes towards South Africa and the De Beers empire were diverse and somewhat conflicted. Opposition to apartheid was almost universal, but few people felt awkward about receiving a Rhodes Scholarship or employing a Rhodes scholar – or voting for one.

Conveying the complex realities of South Africa and De Beers was difficult. At various points on the journey to Argyle, the Australian diamond searchers had met with politicians to build relationships that would hopefully help smooth the way for the searchers’ plans. Now, with the need for export approval pressing, the searchers lobbied hard.

Two of the leaders of the Australian diamonds joint venture – Ewen Tyler and Alan King Jones – met with the deputy prime minister, Doug Anthony. The leader of the Country Party, Anthony had a pragmatic, not-very-ideological outlook. He understood that without a credible sales contract, the Argyle mine wouldn’t fly. And he knew that the most credible, bankable contract would be with De Beers.

But, at the same time that the main diamond searchers and their allies were convincing people that contracting with De Beers was the only viable way to go forward, a member of the joint venture was running a counter campaign to criticise the CSO agreement and the parties to it.

The proposed CSO contract was a murky document, argued Rees Towie of Northern Mining, and he claimed it would undervalue the Argyle diamonds and cede control of the mine to a foreign power.

Politicians in Australia began to voice the same lines. As leader of the federal Opposition, Bill Hayden called for the commonwealth government to control exports of Australian diamonds.

In words that echoed Towie’s, Hayden said he feared the miners were ‘selling out Australia’s interests by offering De Beers a long-term low-price contract.’ Paul Keating, Labor’s spokesperson on minerals and energy, had used similar language, and he repeated it in the national parliament.

The diamond searchers arranged to meet Keating for lunch. On the appointed day, he was called away but his parliamentary colleague, Kim Beazley, hosted the lunch in Keating’s stead. As a West Australian MP in the national parliament, Beazley understood the importance of Argyle. According to Tyler and Jones, he ‘was very supportive’.

Several of the diamond searchers had considerable respect for Keating. They saw him as intelligent and potentially sympathetic. Now, though, a well-briefed Keating again expressed in the national parliament his concerns about the proposed export agreement, which he saw as ‘a matter of national importance’.

The Argyle partners pulled out all stops. They turned to their political networks on the right and the left. Kim Beazley, Doug Anthony, Sir Charles Court, Ian Warner, as well as Keating and Fraser. The JV’s bridge-builder, Jones, again arranged to meet with Keating. This time he attended, and he agreed not to push the matter further.

‘He saved the day for us,’ Jones said. Beazley also helped pave the way for a political solution, as did Anthony. Prime Minister Fraser agreed to let the Western Australian government make the call on whether or not the sales arrangement was acceptable. And he committed his government to sticking by that decision, whatever it was.

After this, things moved quickly. The Western Australian government supported the CSO deal. (The proposed high Argyle royalty proved to be useful, as it gave the Western Australian government a direct stake in the Argyle venture, and therefore a strong interest in seeing it go ahead.)

With the blessings of the federal and state governments, the parties to the marketing agreement could finally sign the deal. The Argyle JV members now had a basis upon which to seek financing for their diamond mine.

Once the CSO agreement was finalised, Harry Oppenheimer sent his new associates a message. ‘We are family now,’ he said. ‘Whenever you travel to South Africa, you must visit me and we will have a meal together.’