South Africa’s diamond mining industry is shrinking, continuing on a downward spiral following years of disinvestment, a drain on skills and beneficiation job losses, says World Federation of Diamond Bourses president Ernie Blom.

The country’s once iconic and thriving diamond industry is currently perceived as the “lame duck” of the global diamond mining industry, with no more than 200 diamond beneficiators remaining from a historical peak of about 4 500, comments Blom, a speaker at the inaugural Diamond Indaba at the Sandton Convention Centre, in Johannesburg, on October 27.

“This beautiful country, which has so many natural treasures and precious minerals . . . is facing a steep decline. From diamonds to gold and platinum, and even other resources, the situation does not appear to be promising,” he adds.

Blom explains that the decline is emphasised by diamond miner De Beers’ divestment from some of its South African mines, “which has impacted on the beneficiation industry”, with only the Venetia (in Limpopo), Kimberley (in the Northern Cape) and Voerspoed (in the Free State) mines remaining under ownership of De Beers in South Africa. A significant cause of this scale of disinvestment is the devaluation of diamond products worldwide.

He notes that the global diamond industry faces challenges, but that “the one saving grace” is that the US diamond market, which “appeared to be stable”, has subsequently offset the declining demand from China and slow market conditions in other major markets, such as Japan, India and Europe.

“Rough-diamond prices are too high for manufacturers, who cannot profitably polish goods at such levels. Polished-diamond prices have declined, in turn, reducing demand for diamonds from South African mines, as well as throughout the world.”

Blom says it was ironic that the concept of beneficiation of African rough diamonds started in South Africa in the early 1930s, but that the local industry is struggling to find an economic model that can justify diamond cutting and polishing. “The State Diamond Trader is a wonderful idea, but in practice, it has simply not been able to achieve its aims.”

Further, the local diamond industry cannot be “forced into sustainability” by imposing export levies, he stresses, because this would increase strain on local producers. There has to be a fair and logical tax regime, in line with international standards, Blom adds, advising that a business environment that encourages local manufacturers to buy and polish stones can be created.

Enabling firms to process diamonds in South Africa means that local producers’ costs have to be reduced to make local beneficiation profitable. Blom suggests that tax incentives or grants for employing and training diamond beneficiators can assist in ensuring local beneficiation sustainability.

South Africa can not simply exist as a “minimalist trading centre”, where the sum of its activities is mining rough diamonds and, subsequently, selling uncut and unpolished diamonds abroad, he highlights. “The South African diamond industry must find ways to rejuvenate the business by adding value to diamonds locally, which will provide employment and much-needed revenues for the State.”

Botswana Hub
Companies in the diamond trade – like every other business – “followed the money trail”, states Blom, adding that Botswana’s diamond industry has shown substantial growth through creating mining agreements with De Beers that have vastly increased the value of the country’s diamond activities.

He explains that the Botswana government managed to persuade De Beers to move its global aggregation, sorting and sale of diamonds to Gaborone: “Who would have thought, just a few years ago, that the collection of global production, sorting and sightholder sales – which took place for 80 years in De Beers’ historic offices in Charterhouse Street, London – would simply end and be moved to Africa?”

Blom describes current-day South Africa as a midway point of “little relevance”, as it simply connects overseas sightholders with Botswana “. . . where sightholders come to Johannesburg for really just one purpose – to catch a connecting flight to Botswana”.

However, even Botswana has discovered that creating a cutting and polishing industry is a considerably time- and capital-consuming business, thereby increasing its potential of being economically unfeasible, he notes.

Winning Formula
Finding a solution and path forward to a sustainable South African diamond mining and beneficiation industry will require commitment from government and a full and open dialogue with the industry, notes Blom.

“The future is in our hands. Do we want a beneficiation industry that is a mere shadow of itself or do we want one that will attract buyers from all corners of the globe?”

The local diamond industry has to step forward with confidence and conviction and play its part in finding solutions to the challenges that now confront the industry, says Blom, noting that solutions must be based on a clear and consistent approach to improve the attractiveness of the country and the industry as an investment destination.

“. . . it is right and fair to point out that the regulatory framework has become increasingly difficult to navigate and that the industry should show its willingness to work with government in simplifying this,” he concludes.