New South African Diamonds and Precious Metals Regu-lator head Steve Phiri has called for “fearless aggression” in Africa’s fight against global vested interests intent on thwarting local diamond beneficiation.

At the launch of South Africa’s new State Diamond Trader and also of the new Diamond Regulation organisation, Phiri said that both he and new diamond regulator CEO Louis Selekane had been “shocked” by talk, at a conference in Antwerp, on how those present could best continue to get unbeneficiated diamonds from Africa.
He said that the conference spurned the concept of adding value to Africa’s diamonds in Africa.

Instead, the ‘Dark Continent’ was rejected as having “no expertise and no skills” and as being “so backward”.

This attitude prevailed, Phiri said, despite the speeches by so many African leaders, including South Africa’s own Minerals and Energy Minister, Buyelwa Sonjica, on the need for diamonds to be cut and polished in Africa.

“That made me realise just how big the task ahead of us is and I warned Selekane of the battle ahead,” said Phiri, who is also CEO of the Royal Bafokeng-led JSE-listed Merafe Resources.

“We, as the board, have set ourselves goals of being a professionally run organisation, which is fearless in its actions and aggressive in whichever manner is necessary, so as to enforce the policies of government and our ideals.

“When you talk beneficiation, the industry backtracks because you are treading into its protected territory,” Phiri said.

He praised diamond giant De Beers for refusing to be threatened by local beneficiation and supporting the concept of adding value in this country.

De Beers’ Diam-del, which was being phased out as the State Diamond Trader was phased in, would second personnel for three years.

“We are mindful of June 2008 as the date on which we have to be a sustainable entity that services the diamond industry,” says State Diamond Trader chairperson Linda Makatini.

State-owned Industrial Develop-ment Corporation (IDC) resources executive Ufikile Khumalo said the IDC had made R65-million available to the State Diamond Trader and was prepared to continue to back it up to R1-billion.

Khumalo described the launch of the State Diamond Trader and the South African Diamond and Precious Metals Regulator as an “historic moment in the South African cutting, polishing and jewellery sectors” and said that its launch had significance for the “many beneficiation entrepreneurs who have not had an institution to enable them to participate in the diamond market”.

He regarded this stimulation of the growth of the cutting and polishing industry in South Africa as the correction of a market failure.

“We want this to set an example to the rest of the continent.” The IDC would this week be sending a delegation to India and Belgium to understand how they supported their diamond beneficiation industry.

“The intention is to bring design and service knowledge back to South Africa,” he said.

Extending South Africa’s world-class status as a producer of diamonds further downstream was one of the objectives of government, said Department of Minerals and Energy (DME) director-general Sandile Nogxina, the initiative’s mastermind.

Nogxina lamented that, while South Africa was the third-largest diamond producer in the world, the country had not been able to make rough diamonds available in sufficient quantities to especially small local cutters.

He described the jobs of the new regulator chairperson Phiri and new regular CEO Selekane as being the promotion of local beneficiation and the enforcement of equitable access to diamonds.

At the same time, it would ensure that all participants complied with the Kimberley Process, which prevented precious minerals from being abused to fund wars and support despots.

The regulator would roll out its beneficiation strategy in April.

Nogxina said he was aware that some did not support the new legislation and that was their demo-cratic right, but he said that nothing short of the Constitution could now stop the organisations.

He beseeched the two new diamond and precious metals institutions to avoid straying from their mandate acquiring up to 10% of the diamond production of all local diamond mines for resale to previously disadvantaged entrepreneurs for cutting and polishing in South Africa, which was said to be in line with government’s Industrial Policy Action. The Indian experience had been that, once the security of rough diamond inputs had been assured, the cutting and polishing industry created another one-million jobs.

IDC head of mining and beneficiation strategic business unit Abel Malinga said direct intervention in the diamond industry by governments already had precedents in Israel, Angola and South America. The initiative stood a sound chance of success when run strictly on professional lines without political interference.

The world market for uncut stones was currently valued at $13,4-billion annually, while the retail diamond jewellery industry touched $70-billion in 2005.

“Diamond producing countries in South-ern Africa are, therefore, looking to bridge that gap by promoting local beneficiation to ensure a bigger share of the downstream profit – cutting and polishing adds around 50% to the value of rough stones – as well as much-needed employment creation,” Malinga said. South Africa was the world’s third-largest diamond producer, annually outputting 14,5-million carats and employing about 14 300 people.

However, only 2 400 were in manufacturing and 900 in sorting and valuations, and the State Diamond Trader would address the imbalance whereby only 5% of total diamond production was beneficiated.

The IDC said R35-million of the R65,5-million investment would fund the direct purchase of diamonds from the mines, with the balance going towards establishing the infrastructure and initial fixed costs (R8,4-million); plant and equipment (R2,8-million); three months’ worth of fixed costs (R4,2-million), and R15-million in revolving credit facility.

A survey conducted by the DME last year indicated local diamond beneficiators required an additional rough diamond supply touching 846 000 ct/y. About 160 local diamond cutting and polishing firms have spare capacity, it said.

Despite the organisation’s high exposure to the diamond industry, Malinga said demand was reflected in the existence of local diamond cutters and diamond tool-making licensees, who legally conducted diamond processing in South Africa.

“There is comfort in so far as the target market is concerned. The State Diamond Trader will have a significant developmental impact by fostering the rapid growth of the downstream industries,” he predicted.

Internationally, about 168-million carats of rough diamonds was mined from 80 mines during 2005. The US accounts for 51% of the world’s diamond jewellery demand, followed by Japan and the European Union, at14% each.

State Diamond Trader CEO Abbey Chikane said that of the 78 clients attracted during a pilot project just completed, 66 were small operators.

Chikane said it would be necessary to first analyse the outcomes of the pilot project before projecting how many jobs could be created.

He said that diamond producers would present their prices to a government evaluator.

In instances of disagreement, an independent valuator could be summoned to give a final price.

Makatini said that the State Diamond Trader would not aim to be “a rich State entity with so much money in our pockets” but would focus, rather, on ensuring that rough diamonds were available to those who previously did not have access to them.

World Federation of Diamond Bourses president Ernest Blom told Mining Weekly that he bought fully into the government’s beneficiation philosophy, which he described as “a great thing”.

“So far only a pilot project has taken place, so we are waiting for the full implementation of the State Diamond Trader and I hope that the dreams of the industry will not be shattered, but rather that they will be realised,” Blom said.

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