The implementation of enabling mining policies by government is key in safeguarding the South African diamond industry from further decline and a worrying contraction, says Global Diamond Network consultant Dr John Bristow.
Bristow states that the local diamond mining industry is experiencing a “notable” decline in production, caused predominantly by unfriendly mineral policy and a negative investment landscape that has curbed industry exploration and expansion. In addition, the small alluvial diamond mining sector, which exploits extensive ancient alluvial deposits in the North West, Northern Cape and along the West Coast, and which consistently produces the world’s highest-value gemstone diamonds, has shrunk in response to unsupportive policy, Department of Mineral Resources licensing inefficiencies, and health and safety interventions which are disproportionate to the scale and risks of small-scale operations.
He notes that local orebodies are old, with no new rigorous diamond exploration projects under way.
“All of our existing kimberlite diamond mines are now underground operations. This has resulted in production levels falling by about 40% to 50% in recent years, owing to mining operations going from openpit operations that are easier to mine, compared with underground operations with markedly higher operating costs and reduced production.”
Bristow emphasises that the local industry has access to a highly favourable geological landscape, which is underlain by probably the most diamondiferous pieces of ancient cratons found anywhere in the world, world-class industry expertise in terms of industry professionals and service providers, as well as a huge range of cutting edge technologies to uplift and reinvent the industry. However, he adds that insufficient modern exploration projects are being undertaken in the country and, as a result, new orebodies are not being discovered to replace ageing mines. He avers that the recent award of about 16 prospecting rights to diamond mining company De Beers after a delay of some two years is encouraging, but a great deal more exploration is needed to turn the tide and generate new discoveries and new mine development.
Bristow explains that South Africa is exporting its industry-leading expertise and technology to more conducive investment environments, such as Botswana, Australia, Canada, Chile, Peru and West Africa, while the local industry is “battling a hostile policy environment that is playing a significant role in discouraging local and international investors from investing in new exploration projects”. Also increasingly apparent is the steady loss of experienced technical skills and capital flight which is negative for the industry as a whole.
“While the rest of the world is taking part in exciting new exploration projects, South Africa is languishing in this morass of poor policy and chaotic politics that is scaring off investors.”
Bristow highlights that exploration projects are risky, costly, long-term, and hold no guarantee of success. Therefore, investors who undertake the risks that accompany mineral exploration projects look for a stable and positive policy environment that will ensure access to mineral rights and return on investment.
Bristow asserts that three major concerns need to be addressed by government to improve the local investment environment: ineffective and uncertain macro-policies that threaten investments need to be rethought and modernised, mineral rights need to be made transparent, well managed and granted on a ‘use or lose’ basis, and access to geological data and industry-related information needs to be made simple and accessible.
“The emphasis should be on driving exploration, finding new orebodies, small or large, and developing new mines which employ people, create infrastructure, and pay royalties and taxes. Having to pay for old geological maps, and geophysical and geochemical data makes no sense in a country that desperately needs new and sustainable economic growth.”
He notes that existing macro-policies, such as the Mineral and Petroleum Resources Development Act, the Mining Charter III and broad-based black economic-empowerment policies “need a complete overhaul” to revive and properly transform the industry through lowering barriers to entry and encouraging renewed investment. While these policies are all aimed at transforming the industry – which he says is non-negotiable – he avers that the policies cannot do so at the expense of consistency, tenure certainty, power limitations, transparency and open communication among investment role-players.
Bristow states that transparency of mineral rights must also come to the forefront, as mineral rights are currently “unreasonably difficult” to access in South Africa and many thousands of rights appear to be “lost in the system”. He adds that the South African Mineral Resources Administration System that houses information regarding the locality of applications, rights and permits is outdated and needs to be replaced with a modern real-time administrative system. Easy access to mineral rights information would provide a competitive edge for the development of new projects and would further encourage investment in the local industry.
Further, Bristow adds that the success of exploration projects depends heavily on access to real-time information. “Access to Big Data and up-to-date geological information and archives would go a long way towards encouraging new investors to take up exploration projects in South Africa.”
He laments that, if action is not taken to address the hostility of South Africa’s investment environment by implementing enabling policies, the diamond industry, like the rest of the minerals industry will continue to contract.
“South Africa has been fortunate to have a robust diamond mining industry with exceptional orebodies, but after 150 years of exploitation it is in sunset mode. “While the implementation of the latest technologies and smart mine management will help extend the country’s existing orebodies and underground mines, a refocus towards promoting investment and exploration must come to the fore to revitalise this remarkable old industry, drive job creation, and provide longevity.”
He concludes that related positive policy interventions are also essential to re-grow the small diamond mining sector which would provide opportunity for new entrants and transformation, given lower capital outlay and operating costs.