De Beers' luster threatened De Beers faces new threats to its 60-year control of diamond production November 6, 1996: 7:38 p.m. ET Diamonds.Net LONDON (Reuter) -- For more than 60 years, the South African mining giant De Beers has controlled the secretive world of diamonds, but it now faces serious threats to its grip on the multi-billion dollar gem trade. Anarchy in war-torn Angola, new finds in Canada and, most importantly, tough-talking Russians could end De Beers' illustrious cartel and herald an age of turmoil in polishing centers such as Antwerp, New York and Tel Aviv. De Beers' hold on the market began to loosen after Australia's Argyle, the world's biggest diamond mine, severed ties with De Beers' Central Selling Organization (CSO) in June. The move is not disastrous for De Beers, as Argyle produces mainly small, low quality stones, which made up only 6 percent of CSO sales. But the Australian firm's pull-out from the syndicate is nevertheless a significant sign of the times. "This was a rather selfish act," said De Beers Chairman Julian Ogilvie Thompson. "If everyone did this, there wouldn't be a diamond market at all." The CSO, which has its headquarters in London, was founded in the 1930s by Ernest Oppenheimer, chairman of De Beers and founder of another South African powerhouse, Anglo American. It now controls about 75 percent off all trade in uncut diamonds, selling about $4.5 billion worth of stones a year via so-called "sights" to a select group of traders. The sights are held 10 times a year at the imposing CSO headquarters, where traders are shown several boxes containing a selection of diamonds for which they can make a bid. The rough diamonds piled up in the CSO's vaults do not only come from De Beers, but from other producers all over the world. They sell their stones to the CSO as the De Beers' cartel guarantees them a steady demand and stable prices for their stones. In turn, De Beers takes a fee and promotes diamonds through $400 million a year global advertising campaigns to ensure people perceive the gems as exclusive jewelry. Now that Argyle has pulled out of the CSO, the big question is whether Russia, the world's second biggest producer, will stay in. Russia and De Beers have been in talks for 18 months to strike a deal that should prevent Russian diamonds from being sold outside the CSO's control directly to diamond cutters. These "leakages" began several years ago when Russia, which accounts for roughly 20 percent of CSO sales, was still obliged under a five-year pact to sell nearly all its diamonds to the De Beers'-controlled cartel. Most of the leakages, which started as a trickle but quickly became a stream, were plugged in February when Russia and De Beers reached a framework agreement, which should be the basis for a final, watertight marketing deal. Russian officials raised hopes of a deal when they said early in October that an agreement had been drafted, but skeptics say this is no guarantee a final deal is nigh. "Russian diamond politics remain as complicated and as unpredictable as ever," John Helmer, Moscow correspondent of the trade magazine Diamond International, told a conference in London. De Beers also faces a long-term threat from Canada where mining giants RTZ-CRA, the Anglo-Australian company, and Australia's Broken Hill Proprietary Co. Ltd. (BHP) are starting up diamond mines with huge potential. BHP and partner Dia Met Minerals Ltd. still have to decide how to market the gems they expect to mine from Lac de Gras in the Northwest Territories. But BHP has already said it was exploring how to do business without the CSO's involvement. Similarly, RTZ-CRA, 60 percent owner of the Argyle mine, has yet to decide whether it will join the famed marketing cartel once it recovers gems from the Diavik project in Canada's Arctic. While De Beers is keen to start talks in Canada and convince miners of the benefits of the CSO, it is also working hard in Angola to gain a strong foothold there. Angola is the fourth biggest diamond producer after South Africa, Russia and Botswana. However, nearly two decades of vicious fighting between the government and opposition Unita rebels have created anarchy right on De Beers' doorstep.