A new phase in diamond mining opened in 1885 that was to transform the industry’s prospects. After years of grappling with devastating reef falls in open-cast pits, mining companies began to experiment with underground operations, constructing shafts and tunnels to reach deep-level diggings. By the end of 1885, all three major companies in Kimberley mine - the Central, the French and the Standard - had moved to systematic underground mining; in the De Beer’s mine, the De Beers company, its largest claim-holder, followed suit. Though the costs of establishing underground operations were high, production and profits soared. Whereas Kimberley Central’s output in 1884 fell to as low as 600 loads a day, in 1887 it reached more than 6,000 loads a day. The deep-level diggings, moreover, proved to contain even richer diamond deposits. A recovery in the European market buoyed carat prices, further increasing profits. In 1887, Kimberley Central declared a dividend of 35 per cent. The opening of the railway line to Cape Town in 1885 provided another huge boost.
The success of underground operations, however, raised once more the spectre that had overshadowed the industry since the 1870s: increases in production eventually led to price falls and declining profitability. As companies competed to raise production to gain higher profits, so simultaneously did they increase the risks of wiping out profits altogether. The stakes by now were considerable: Kimberley Central had a fully paid-up capital of £750,000; De Beers, £1 million.
The solution had long been foreseen: a monopoly company in control of the entire industry. After returning from the diamond diggings in 1871, Frederick Boyle had observed:
You cannot drown the market with an article only appertaining to the highest luxury - without swift and sudden catastrophe . . . By royal monopoly alone, or by means of great and powerful companies, can jewel digging be made a thriving industry. Into the hands of a company all these public fields must fall, and, thus used, they may benefit the country for generations to come.
Several attempts at amalgamation had since been made. In 1882, Rhodes and his partners in De Beers approached the Paris bankers Baron Erlanger and Company with a scheme to consolidate holdings in De Beer’s mine; but the scheme foundered when claim-holders failed to agree on the valuation of their holdings. In 1883, the European merchant bankers N. M. Rothschild and Sons showed an interest in amalgamating holdings in Dutoitspan mine, but did not pursue it. In 1885, Rhodes’ friend John Merriman acted for the Standard Bank in proposing amalgamation in Dutoitspan mine as a way of recovering advances it had made to mining companies there, but without success. In 1886, Charles Roulina, a wealthy Parisian diamond-cutting factory owner, and Charles Posno, a London-based speculator, formed a syndicate of banks and diamond merchants to promote the formation of a giant new company, Unified Diamond Mines, with the aim of merging the interests of all the major companies; that initiative also failed.
The only option left, following the failure of the Unified initiative, was for the major companies to fight it out amongst themselves for control. By 1885, the total number of companies had been reduced to about one hundred: nineteen in Kimberley mine; ten in De Beer’s; thirty-seven in Dutoitspan; and thirty-two in Bultfontein. Two companies had emerged by 1885 as the most likely nuclei for a diamond mining monopoly: Kimberley Central and De Beers. Both set about crushing smaller rivals by producing as many diamonds as possible; in the words of a Standard Bank report, by ‘swamping them with production’. In 1886, Kimberley Central alone produced more stones than either the Dutoitspan or Bultfontein mines and almost as many as the entire De Beer’s mine, boosting Central’s revenues but keeping carat prices low. De Beers developed its operations at breakneck speed, doubling the amount of ground it excavated in the process and showing, according to the Standard Bank, ‘a reckless disregard for human life’. With accidents multiplying and disease rife, the death rate in the mine reached 150 per thousand employed.
Appointed chairman of De Beers in 1886, Rhodes pursued the last surviving independent companies in the mine relentlessly. By the beginning of 1887, only one independent company remained: the Victoria headed by Francis Oats. With the backing of the merchant bankers J. H. Schröder, Oats refused to come to terms. Rhodes therefore turned for help to Alfred Beit, using his connections to Jules Porges and Company, Europe’s leading importer of Cape diamonds, to carry out the coup de main. Instead of trying to take on Oats in Kimberley, Rhodes asked Porges to buy shares in the Victoria Company discreetly in London. ‘We felt that if they were bought in the London market,’ Rhodes subsequently explained, ‘it would excite no remark.’ At a cost of £57,000, De Beers acquired 3,000 shares and Beit and Porges a further 3,000 shares. After waiting for an opportune moment, Rhodes announced in April 1887 that, as the largest shareholder in the Victoria Company, he had decided the time had come to amalgamate with De Beers.
Thus De Beer’s mine became the first mine in Griqualand West to come under the control of a single company. In his report to the De Beers annual meeting in May 1887, Rhodes declared that amalgamation would enable the diamond industry to gain the position it ought to occupy, ‘that is, not at the mercy of the buyers, but the buyers under the control of the producers’.
The Victoria deal also marked the beginning of a highly effective collaboration between Rhodes and Beit. Rhodes came to depend increasingly upon Beit’s financial advice. Any problem concerning diamonds would invariably be solved by Beit. ‘Ask little Alfred’ became a catch phrase among Rhodes’ circle of friends. Beit himself prospered greatly by speculating in Victoria shares, clearing a profit of £100,000, doubling his own wealth.
While these company manoeuvres were under way, Hans Sauer often saw Rhodes seated on the edge of the De Beer’s mine ‘gazing intently down into its depths, absorbed in his reflections’. Later, Sauer asked him what he had been thinking about. ‘“I was calculating the amount of blue ground in sight and the power that this blue ground would confer on the man who obtained control of it,” was his answer.’
As well as driving the pace of amalgamation, the introduction of underground mining, together with the increasing use of steam engines and other machinery, brought major changes to the organisation of the labour force. Rather than local white overseers, skilled miners were needed. They were recruited from the coal mines of Cumberland and the tin mines of Cornwall; shaft sinkers came from Lancashire; artisans from the factories of Scotland and England. The number of colonial whites employed in the mines fell to just 10 per cent of the white labour force. Kimberley now witnessed the emergence of a poor-white community. An Anglican priest reported that he knew of no Coloured family ‘so low as the most degraded whites’.
New laws were approved introducing a legal colour bar between white and black employees. Whereas British administrators had previously resisted legal discrimination, the Mining Act of 1883 decreed that ‘no native is to be permitted to manipulate explosives or prepare the same for blasting or other purposes’. Blasting had to be carried on ‘under the supervision of a European’. Subsequent legislation ruled that: ‘No native shall work or be allowed to work in any mine, whether in open or underground workings, excepting under the responsible charge of some particular white man as his master or “baas”’.
To ensure a more reliable supply of black labour, mining companies organised their own system of recruitment. Recruits were required to agree to contracts running for six to twelve months rather than three to six. Their living conditions also changed. Originally, diggers had accommodated black workers on their compounds or encampments in tents or sheds. Subsequently, they were housed in barracks. From 1885, mining companies required black workers to live in fenced and guarded compounds on their property for the entire term of their contract. Closed compounds had the advantage of preventing diamond theft. They also provided mine-owners with greater control of the labour force.
The model for the closed compound system that developed in Kimberley was a convict station built by De Beers as a base for employing cheap convict labour. In return for housing and feeding several hundred convicts, De Beers was given the right to use them as free compulsory labour, paying only a small fee to the Cape government. The government’s inspector of mines considered ‘these convict barracks . . . the perfecting of the compound system’. De Beers found the employment of convicts so advantageous that it continued to use them for nearly fifty years.
By 1889, all 10,000 black mineworkers in Kimberley were accommodated in closed compounds. Some discussion ensued about the idea of incorporating white employees into the compound system. In his annual report in 1884, the inspector of mines proposed that it should apply to all mineworkers, but the idea was not pursued. Whites were permitted to live in the town, leaving blacks confined to segregated compounds.
The lifestyle of Kimberley’s magnates, meanwhile, was enhanced by the opening of the Kimberley Club. Like many other enterprises in the town, it was a venture launched as a joint-stock company, by a group of seventy-four well-known citizens, each of whom pledged to take one debenture share of £100. Among the shareholders were Rhodes, Rudd, Robinson, Jameson and Dr Matthews. When the double-storeyed building was completed in 1882, it was judged impressive: ‘It beats anything of the kind I was ever in,’ wrote young Neville Pickering. ‘We have our dinners and dances - one finds oneself in evening dress every night. It’s ruination to health and pocket. And then our Club is such perfection. Electric bells wherever you like to touch. Velvet pile and Turkey carpets to walk upon and then one loses oneself in a luxurious lounge. This reminds me of an advertisement I remember seeing at home: Call a spade a spade, but call our new velvet lounges the very essence of luxury and extreme comfort.’
Rhodes and Beit were often seen at the Club together, sharing a customary drink to start the day; their favourite tipple was Black Velvet, a mixture of champagne and stout. ‘Ah,’ Rhodes would proclaim, ‘it makes a man of you!’ They played poker there, albeit badly. Occasionally, they attended a Bachelors’ Ball, Rhodes vigorously twirling the plainest girl in the room, Beit indulging his penchant for tall girls.
In the final race to gain control of the diamond industry, their alliance was to prove decisive. Beit’s involvement with Jules Porges and Company provided Rhodes with links to foreign banks needed to finance any takeover. But the opposition they faced was formidable.
At the beginning of 1886, four powerful companies dominated Kimberley mine: the Central, the French, the Standard and Barnato. The Barnato was the smallest of the four. At one stage, with his claims buried under reef falls, Barney Barnato had thought of selling up, but he resumed mining operations in 1885 and embarked on an aggressive amalgamation drive in Kimberley to rival Rhodes’ acquisitions in De Beer’s. His first victim was the Standard, once controlled by Robinson. He next gained control of the Central, retaining the name as a vehicle for further acquisitions. Only the French Company and a few minor players now stood in his way. Barnato’s intention was to gain control of the French, expand output, push carat prices down to a level at which no other company could make a profit, and thereby force the closure of De Beer’s, Dutoitspan and Bultfontein mines.
The future of the diamond industry thus hinged on the fate of the French Company. Rhodes made the first move. Using Beit’s connections, Rhodes secured the promise of a loan of £750,000 from a syndicate of French and German financiers in exchange for a block of De Beers’ shares. But as speculators continued to drive up the price of French shares, Rhodes had need of far more funds. Through Beit, he obtained an introduction to Nathaniel de Rothschild, head of Europe’s wealthiest financial house and an active speculator in diamond shares. While Barnato was in the throes of amalgamating the Central and the Standard, Rhodes set sail for England in July 1887, accompanied by Gardner Williams, an American mining engineer well known to the Rothschilds, whom he had hired in May 1887 as a new manager for De Beers. At Rhodes’ behest, Williams had compiled a full report on the diamond industry, stressing the advantages of amalgamation under Rhodes.
Rhodes’ meeting with Rothschild in London went well. Rhodes asked for a £1 million loan to help him purchase the French Company and Rothschild promised to support him if he could get the agreement of its directors and shareholders to sell. Rothschild looked to make a profit of at least £100,000 on the deal. Travelling on to Paris, Rhodes was given a similarly favourable reception by the directors of the French Company. Once again, Beit had prepared the way, persuading Jules Porges in advance that amalgamation of the mines was a sound financial objective and that Rhodes was the man to accomplish it. A price of £1.4 million was agreed, subject to the approval of shareholders at a meeting scheduled for October.
Rhodes subsequently liked to boast of his genius in pulling off the deal: ‘You know the story of my getting on board the steamer at Cape Town, going home and buying the French Company within twenty-four hours,’ he would say. But the real architect behind the deal was ‘little Alfred’.
Barnato, however, was not so easily thwarted. He himself had previously acquired one fifth of the French Company’s shares. On hearing of Rhodes’ bid, he put in an offer of £1.7 million, hoping to raise sufficient funds from the Standard Bank. At a meeting of all the Kimberley shareholders in the French Company in September, he urged them to hold out for better terms than the Rhodes offer. As speculators on all sides joined the throng, the price of diamond shares continued to soar.
Though making massive gains from share speculation, both Rhodes and Barnato faced acute difficulties. Rothschild’s warned Rhodes that the price of French shares had reached such heights that they could not hope to purchase enough of them to prevent a Central takeover. Rhodes feared that Rothschild’s might abandon him altogether, preferring to ‘make half a million’ profit by selling the shares already purchased on behalf of De Beers to the Central instead. Rhodes’ colleagues urged him to negotiate a settlement rather than enter a bidding war that De Beers might win, but at too high a cost. Barnato, meanwhile, ran into trouble when the Standard Bank refused to advance loan money.
In October 1887, a compromise settlement was reached. Rhodes agreed that if he was allowed to buy the French Company unhindered, he would resell it to the Central but retain a one-fifth stake in Central. The advantage of the scheme was that it would allow amalgamation to take place in Kimberley mine and then open the way for the amalgamation of Central and De Beers. This arrangement, supported by Barnato and Beit, was designed to ensure that amalgamation was achieved without a fall in any company’s share value, thus satisfying industrialists and speculators alike. ‘The great comfort I feel now is that the goal is reached,’ Rhodes wrote in a private letter to Frederic Stow, one of his closest associates, on 22 October 1887. ‘Barnato . . . is working in everything with me and has given his pledge to go to the end with me.’
Outwardly, the battle between Rhodes and Barnato was fought as aggressively as before. A host of legends later circulated about their struggle. Rhodes himself relished such tales. Certainly, there were protracted disputes over the valuation of their properties. While the disputes continued, speculators drove share prices in Central and De Beers ever higher. Borrowing heavily, Rhodes increased his holding in Central from one-fifth to three-fifths. By March 1888, the market value of the mines had soared to nearly £23 million. De Beers’ shares worth £3. 10s in January 1885 reached £47.
But the original deal remained largely intact. Amid the hullabaloo, it was noticed that Rhodes and Beit had become increasingly friendly with Barnato. They met for drinks; Rhodes introduced Barnato into the Kimberley Club, despite the disdain with which other members regarded his flashy habits. After making huge profits from speculation, Barnato agreed in March 1888 to give up his shareholding in Central in exchange for gaining the largest shareholding in De Beers.
At Rhodes’ behest, a new company was set up - De Beers Consolidated Mines Limited - with ambitions that far outstripped the original purposes of the old De Beers company. Instead of being limited to diamond mining, Rhodes wanted the new company to be able to engage in any business enterprise, annex land in any part of Africa, govern foreign territories and maintain standing armies.
Barnato objected to such grandiose notions and argued in favour of restricting the terms of the company’s Trust Deed to business activity. A final meeting to discuss the Trust Deed was held in Rhodes’ corrugated iron cottage. Barnato brought his nephew, Woolf Joel, with him; Rhodes was supported by Beit. The arguments went on all night. Rhodes produced facts, figures and maps to persuade Barnato about the fabulous wealth to be gained from exploiting other parts of Africa.
‘Aren’t those just dreams of the future?’ asked Woolf Joel. ‘Dreams don’t pay dividends.’
‘No, my friend,’ replied Rhodes, ‘they’re not dreams, they’re plans. There’s a difference.’
Just before dawn, Barnato gave way. ‘Some people have a fancy for this thing and some for that,’ he said. ‘You have a fancy for making an empire. Well, I supposed I must give it to you.’
The first annual general meeting of De Beers Consolidated Mines was held on 31 March 1888. The company’s assets were considerable. It owned the whole of the De Beer’s mine, three-fifths of the shares in the Kimberley mine and a controlling interest in both Bultfontein and Dutoitspan. Barnato had 7,000 shares in the new company; Rhodes, 4,000. Rhodes called on the remaining shareholders to surrender and triumphantly proclaimed his determination to make De Beers ‘the richest, the greatest, and the most powerful Company the world has ever seen’.
As rewards for their endeavours in founding the new De Beers, Rhodes, Beit, Barnato and Frederic Stow were made ‘Life Governors’ and given a generous package of financial benefits: each was entitled to a one-quarter share of the net profits remaining after distribution of a 36 per cent dividend. ‘I feel with a Company that will be worth as much as the balance of Africa you must have four or five men to whom you make it worth their while to devote a great portion of their time to it,’ explained Rhodes. The powers that Life Governors possessed were formidable. They were able to operate in almost every way as if there were no shareholders.
When minority shareholders in the Central Company objected to the terms of the takeover and won a court ruling in their favour, Rhodes put the Central into liquidation, then won a tender for its assets, paying with a De Beers cheque made out for £5,338,650.
The consequences of amalgamation were soon felt in other ways. As De Beers cut back production, hundreds of miners, black and white, lost their jobs. On 4 June, white demonstrators marched from Dutoitspan to the head office of De Beers, pushing a cart containing an effigy of Rhodes. Before proceeding to burn it, they declared:
We will now commit to the flames the last mortal remains of Cecil John Rhodes, Amalgamator General, Diamond King and Monarch of De Beers, but not of the Pan [Dutoitspan], thank God! And in doing so let us not forget to give three cheers for a traitor to his adopted country, a panderer to the selfish greed of a few purse-proud speculators, and a public pest. May the Lord perish him. Amen.
Rhodes shrugged off such protests and proceeded to buy out the last remaining independent mine operators in Dutoitspan and Bultfontein. By September 1889 he had achieved a complete monopoly of all Kimberley’s mines - 90 per cent of the world’s production. Together with the world’s principal diamond merchants, he then set out to achieve a marketing monopoly of the diamond trade to ensure that the market could be manipulated to the best advantage, keeping supply in line with the highest price available. By 1891 virtually all Kimberley’s output was channelled to members of a syndicate based in London that controlled the system. Rhodes was well pleased with the result. De Beers’ ranking as one of the most powerful companies in the world provided him with a solid platform from which to pursue other ambitions. ‘Money is power,’ said Rhodes, ‘and what can one accomplish without power? That is why I must have money. Ideas are no good without money . . . For its own sake I do not care for money. I never tried it for its own sake but it is a power and I like power.’