The Chamber of Mines (CoM) has described the first half of 2008 as a difficult period for the South African diamond-mining industry, characterised by an electricity crisis and rationalisation initiatives, and the closure of certain operations, which resulted in an 8,1% year-on-year decline in production.

The organisation’s annual report for the 2007/8 financial year, released this month, indicates that the implementation of the new Diamond Amendment Act has also resulted in challenges for the diamond-mining and cutting sectors.

In 2007, the country exported 13, 9-million carats and imported 1, 2-million carats of gem-quality diamonds. This, says the CoM, indicates that the local diamond industry has helped import gem-quality diamonds from its offshore production for the local cutting and polishing indus- try.

The report states that, with a few exceptions, the key cutting and polishing countries are not the primary rough-diamond-producing countries, as the competi- tive advantage requirements in the diamond cutting industry are different from the comparative advantage issues of mining.

Meanwhile, the electricity crisis has resulted in almost R12-billion in lost minerals sales.

On average, 50% of the electricity used in deep-level mines is for cooling, ventilation and pumping, which cannot be switched off or reduced, so the drop in electricity supply to 90% for mines means that a 10% reduction has to come from the 50% of electricity used for production.

The CoM report says the power crisis raises questions about State-owned power utility Eskom’s making industrial policy decisions, which should be a government prerogative.
“Mining leaders are concerned not only about the unbalanced burden sharing between different economic sectors, but also about how the issue of new power connections will be dealt with in the future,” says the CoM.

The electricity issue in not unique to South Africa, as Brazil, Chile and China are also experiencing problems, and the CoM says that mining companies now have to manage electricity supply, including developing their own internal sources of supply.

Other challenges such as the subprime crisis in the world’s banking sector, have induced corrections in equity and property markets, reduced the pool of liquidity available for funding new projects and have slowed consumer spending in the developed markets, says the CoM.

“These factors have reduced the growth in demand for minerals, resulting in cyclical challenges in commodities. Nevertheless, the underlying structural drivers remain intact. Urbanisation and industrialisation in emerging economies will continue to drive demand for minerals, while many of the mineral supply issues will remain,” says the Chamber.