South African Diamond Indaba

Action not words needed from the SDT

Brendan Ryan | Fri, 23 Oct 2015 07:21
[miningmx.com] – For a classic example of
“shutting the stable door after the horse has bolted” look no further than the Inaugural South African Diamond Indaba to be held in Sandton on October 27 which has the stated theme of “enabling South Africa to become the heartbeat of diamond beneficiation in Africa.”

That ship has already sailed. The leader in African diamond beneficiation is Botswana which has eaten South Africa’s lunch on diamond cutting and polishing.Botswana has beaten SA hands down because of the country’s vast diamond resources but also thanks to the ability of its government to work constructively with the world’s largest diamond producer – De Beers – in striking mutually beneficial deals.

The breakthrough came in 2011 when De Beers agreed to shift its entire diamond marketing operation from London to the Botswana capital of Gaborone by the end of 2013.

The Botswana government used that development to promote construction of a major diamond cutting and jewellery manufacturing hub in Gaborone.I believe Botswana has also been helped in no small way by the antagonistic attitude of the ANC government to De Beers and the incompetence of the State Diamond Trader (SDT) which is hosting the Diamond Indaba.IMHO, De Beers has wound down its South African diamond mining operations over the past decade because of the deteriorating situation here.It sold off mines like Cullinan, Finsch and Koffiefontein on the grounds that they were “non-core” yet these mines have continued to perform well – in fact, frequently better – in the hands of new owner Petra Diamonds.De Beers now retains only the world-class Venetia mine in Limpopo and the small Voorspoed operation in the Free State.

There’s a rich irony in the SDT hosting the conference given the damage it has done to South African diamond beneficiation since it was set up in 2007 with the aim of promoting “equitable access to and beneficiation of diamond resources, address distortions in the diamond industry and correct historical market failure to develop and grow South Africa’s diamond cutting and polishing industry.”The statistics tell another story. According to Ernest Blom – president of the World Federation of Diamond Bourses and chairman of the Diamond Dealers Club of South Africa – there are currently less than 300 people employed in the SA diamond cutting and polishing industry compared with a peak of more than 4,500 some 20 years ago.He points out the situation is about to get worse with the closure of the country’s largest remaining diamond cutting firm – Zlotowski’s Diamond Cutting Works – by end February next year.Blom says the reasons for that drop are “complex”. They include factors like the high cost of local cutting and polishing compared with India and China but he agrees the SDT has played a big role because it has been unable to meet its stated objective of providing sufficient diamonds to the local cutting industry.He says the main reason for that lies in the serious flaws in the legal framework under which the SDT must work. He adds the SDT is in a difficult position because it must buy ROM (run of mine) production from the mines which includes poor quality diamonds which cannot economically be cut in SA.Other diamond experts have been far harsher in their assessments of the SDT. In March 2010, David Noko – then MD of De Beers Consolidated Mines – in an interview with Miningmx said of the SDT; “that area is a mess. It needs to be fixed.”Noko added the problem lay “with the bureaucracy within the SDT” and commented, “the emphasis must be placed on efficient access to diamonds whereas at the moment the SDT sits on legal compliance issues and issues around the operations of the government diamond valuator. “In December 2009, then De Beers group MD Gareth Penny faced a barrage of complaints from local diamond cutters at a meeting in Johannesburg because of the shortage of diamonds since the SDT took over the role that was previously filled by Diamdel.Diamdel was a specialist marketing arm of De Beers which supplied diamonds to small SA dealers and cutters which were not large enough to take part in the 10 annual “sights” at which De Beers sells its diamond production to the trade.The ANC viewed Diamdel as part of the problem so De Beers shut down Diamdel when the SDT was set up . The cutters told Penny they wanted Diamdel back.At the time Noko was optimistic about the SDT being sorted out. He commented that, “they need to get the rough diamonds to the buyers. It will be fixed”.He was wrong. On October 5 this year DA shadow minister of mineral resources James Lorimer said legislative and rigid operating environments were making it extremely difficult for players in the diamond industry to survive.He commented, “the red tape and lack of government understanding and willingness to work with the industry is absolutely startling. The most interesting thing is there’s not a single representative of the cutting and polished diamond company companies on the South African Diamond & Precious Metals Regulator”.I see that new Minister of Mineral Resources Mosebenzi Zwane is to deliver the keynote address at the Indaba. As of Thursday night there was no programme of speakers on the Indaba website – just a note that this was “coming soon”.I hope that one or more of those speakers will have the “cojones” to tell the audience – preferably with the minister listening in – precisely what has gone wrong with diamond beneficiation in South Africa and spell out the role played by government in general and the SDT in particular in creating the present mess.