More diamond stories:
Cracked De Beers
forbes.com
Phyllis Berman and Lea Goldman, 09.15.03
Lev Leviev is taking on the most successful cartel in the world.
The police are waiting for Lev Leviev when his gulfstream 2000 jet lands in Kiev after a three-hour flight from Tel Aviv. This is no criminal extradition, but a welcoming committee, including a caravan of limousines and Mercedes-Benzes, each with two armed bodyguards. The entourage speeds along Ukraine's pockmarked highways, through traffic lights, past lonely farms and dusty roads to the village of Zhitomir.
Leviev is a local hero. He restored this town's only remaining synagogue, which the Nazis had turned into an arms depot and communists converted to a cinema. Now a ragtag klezmer band serenades him as photographers snap pictures and boys perform a traditional Hasidicdance in his honor. Across some 400 villages in Russia and the former Soviet republics this scene has been replayed countless times. Leviev is a 47-year-old, Uzbeki-born Israeli citizen and devout Lubavitcher who gives away at least $30 million a year in order to return lost Jews to the flock.
This little-known billionaire is also the scourge of De Beers, the giant miner and marketer of diamonds, known as the "Syndicate." Leviev was once a sightholder, one of a few exclusive direct buyers of De Beers rough diamonds. Today he is the world's largest cutter and polisher of the precious gems and a primary source of rough stones to other cutters, polishers and jewelry makers around the globe. Those who have watched his rise over the last three decades say it was his intense hatred of De Beers that fueled him. He bristled under the Syndicate's high-handed treatment of buyers, who were given boxes of rough diamonds at take-it-or-leave-it prices and risked being permanently cut off if they balked.
Leviev won't openly criticize his former South African business partner. But his defiance seems thinly disguised. "I'm not going to let anyone else tell me how to run my business," he says. "I grew up in the Soviet Union. Iknew what it was to be afraid. I can remember being beaten regularly by the bullies at school, and I said to myself I would never be afraid of anybody or anything again."
Indeed, he has taken significant business away from De Beers in Russia and Angola--two of the world's largest producers of rough diamonds in terms of value. Leviev has not humbled the once-mighty Syndicate alone. But his defiance has inspired others, like Rio Tinto, owner of Australia's Argyle mine, which bypassed De Beers for the first time in 1996 to sell its 42 million carats directly to polishers in Antwerp. In the early 1990s the Russian government began selling some of its rough supply to others, despite its longtime exclusive deal with De Beers. When miners discovered massive diamond reserves in Canada's Northwest Territories, De Beers had to scramble for a piece. Its share of the rough-diamond market, 80% five years ago, has been cut to 60%.
The reason Leviev is such a threat is that he has profoundly shaken the tradition-bound diamond business. Until recently De Beers had a virtual chokehold on world supplies, determining who could buy uncut stones--and at what quantities and quality--and where the cutting centers were allowed to prosper. Leviev pulled an end run around the cartel, dealing directly with diamond-producing governments and shattering De Beers' all-important relationship with sightholders. He also became the industry's first diamond dealer with his finger on every facet of production, from mining and cutting to polishing and retailing, capturing profits at every stage (see chart, p. 112).
Trumping De Beers, Leviev has become very rich. He owns 100% of his diamond business, Lev Leviev Group, and a controlling stake in Africa Israel Investments. The latter is a Yehud, Israel-based conglomerate whose holdings include: commercial real estate in Prague and London; Gottex, a swimwear company; 1,700 Fina gas stations in the Southwest U.S.; 173 7-Elevens in New Mexico and Texas; a 33% stake in Cross Israel Highway, that nation's first toll road; and an 85% share of Vash Telecanal, Israel's Russian-language TV channel. Leviev also owns a gold mine in Kazakhstan, pieces of two diamond mines in Angola and mining licenses in the Urals and Namibia. He's probably worth $2 billion.
A part of that wealth comes from exploiting political connections--which has created enmity and suspicion. A recent example: When Leviev was preparing a bid for 40% of Australia's Argyle diamond mine, the banks supporting him pulled out at the last moment. Sources say it was a lack of transparency in Leviev's business. Even if his hands are clean, Leviev has dealt with people whose mitts are dirty. His ubiquitous brigade of burly armed guards isn't just for show.
Some of Russia's Jewish establishment resent Leviev's pushing his own brand of Hasidism. He has drawn fire for seeing to it that a Lubavitch rabbi, born in Italy and educated in America, was granted citizenship by Russian President Vladimir Putin days before Leviev installed him as the country's chief rabbi, though the nation already had one. He's playing with fire, critics say, by aligning himself so closely with Putin. Should the president turn on him, Leviev's Jewish activities could be seen as violating the promise Russia's oligarchs made to Putin to stay out of politics in order to keep their assets--many of which were notoriously acquired in the early 1990s.
There's no denying Leviev's clout. His relationship to Putin dates back to 1992, when the president, then a deputy mayorin St. Petersburg, authorized the opening of the first new Jewish school in the city in half a century (financed by Leviev) after the mayor hesitated to do it. Leviev has also become something of a go-to guy between Israel and central Asian countries, enlisting the secular regimes in those mainly Islamic states in the fight against fundamentalist terror groups. Leviev, who now lives in Bnei Brak, an ultra-Orthodox enclave in Israel, is a close associate of Israeli Prime Minister Ariel Sharon and the presidents of Kazakhstan and his native Uzbekistan. Among his pals in Africa are presidents José Eduardo Dos Santos of Angola and Sam Nujoma of Namibia.
Unkindliest Cut
forbes.com
Phyllis Berman and Lea Goldman, 09.15.03
Twenty years ago there were roughly 1,200 diamond cutters and polishers in Manhattan's gritty Diamond District on 47th Street. Their numbers have been dwindling for years, as New York's high costs have pushed such work to cheap-labor meccas like India and China. Today there are only 300 or so left, in a dozen or so firms, specializing in large, expensive rocks.
That evolutionary decline kicked into fast-forward in July, when De Beers axed some 35 sightholders--exclusive buyers of its rough diamonds--many of them based in the district. The consolidation has caused considerable dismay not just among sightholders but also among dealers, who bought and sold diamonds sightholders didn't need. Now retailers like De Beers and Tiffany & Co. are procuring rough diamonds directly from mines.
Can Leviev ease the situation for sightholders? "We're not interested in new customers," says Lev's brother Moshe, who oversees the company's day-to-day operations. Leviev is socking away his own supply for the Vivid Collection, a line of diamond jewelry. Average price: around $100,000. That leaves the booted sightholders in a spot. "I don't expect that many of them will be able to run around the world looking for rough," says Ilan Doron, chief executive of high-end jewelry manufacturer Elara, who still gets his supplies from De Beers.
No one knows for sure, but perhaps as many as halfwill close shop on 47th Street once the cuts take effect by year-end. Manhattan sightholder William Goldberg spent millions over the last three years developing and promoting a new brand called the Ashoka, at De Beers' suggestion. Now, he's among the expellees and fumes, "Fifty years didn't mean a damn to De Beers." |
