The only way to solve the rapid downward spiral of South Africa’s distressed alluvial diamond industry is to convene all stakeholders to brainstorm collaborative solutions to the challenges.

The South African Diamond Producers Organisation (Sadpo), raising the red flag over the struggles of small and medium-scale alluvial diamond miners, is calling for the establishment of a steering committee to delve deeper into the issues that have led to the industry’s decline over the last 15 years.

The alluvial diamond sector has experienced significant downscaling since 2004, with the number of operators shrinking on a monthly basis, owing to overregulation, severe financial pressure, rising operating costs and cumbersome licence procedures and stipulations.

This is having a devastating impact on job creation in the rural areas, where the only other jobs are in the similarly struggling agriculture sector.

The industry’s 2 000 operations in play in 2004 have steadily dwindled to only 150 in operation currently, while the number of employees has been driven down from 25 000 to some 3 000.

Speaking to Mining Weekly, Sadpo chairperson Gert van Niekerk says that, among other things, the National Environmental Management Act has had adverse impacts in terms of costs, and resulted in the subsequent double-digit decrease in rights and permit applications for small-scale alluvial mining operations.

The Mineral and Petroleum Resources Development Act and its subsequent amendments, the global financial crisis and the latest Mining Charter have further compounded the negative impacts on an industry that is highly susceptible to overregulation, and faces a lack of policy consistency and an investor-unfriendly policy environment.

The small size of operations often makes regulatory elements impractical and administratively too costly to implement.

Sadpo is “seriously” concerned over, among others, Mining Charter III’s one-size-fits-all approach that can potentially lead to the “absolute diminishing” of the sector.

“This is a dying industry – we are basically only just breathing. What can we do to stop this?” he questions.

Further, Van Niekerk highlights the marginal profit to be made in the industry, owing to high expenses.

Of every R100 generated by alluvial miners, R99 is allocated to expenses, with diesel accounting for R35, salaries R14, maintenance and administration R15, legal compliance R7, hire purchase R10 and the repayment of seed capital R18.

With the bulk of alluvial operations mostly privately owned and lacking economies of scale, the owners are often personally responsible for capital raising and seed capital, as banks will not lend money to start up an alluvial diamond mine.

The industry requires urgent intervention and assistance from government in reducing administrative and operating costs, dealing with regulatory requirements and creating an investor-friendly environment.

Van Niekerk recommends the establishment of a steering committee comprising the Department of Mineral Resources, the Department of Water Affairs, the Department of Environmental Affairs, the South African Diamond and Precious Metals Regulator, the State Diamond Trader, the industry and associations to identify the challenges and brainstorm solutions.

“We need to find common ground. We need to sit together and identify problems and get to a solution, and deliver on the rapid turnaround alluvial diamond miners need,” he says.

Junior miners, including small diamond miners, require a different dispensation to large-scale miners, with an understanding of the financial constraints under which the owners operate and the elimination of blindly applying legislation applicable to large or underground mines to the smaller miner.

Reversing the decline may not lift the industry to its previous growth state, but, at a minimum, it could be possible to grow the number of operators back up to at least 1 000, creating up to 20 000 jobs.

“Although we produce 4% in carat weight of the national production of diamonds, we are close to 30% of the value. This makes us significant,” he says.