9 October 2007
The State Diamond Trader has entered into a deal with mining giant De Beers that will see it acquire 10% of all diamonds mined in South Africa enabling local crafters to cut and polish the gems, thereby adding more value before they are placed on the market.
Minerals and Energy Minister Buyelwa Sonjica said this week that the deal aims to boost the downstream industry in South Africa, to a point where a considerable amount of value-addition to the country’s minerals is done locally.
She also described the deal as “a big leap towards transformation”, as the diamonds would be sold on to mainly emerging crafts-people in the diamond industry, enabling previously excluded people to participate actively in the country’s economy.
De Beers non-executive director Barend Petersen said that the company fully supported the government’s initiatives, describing the signing of the agreement as “a great day” in the history of the diamond business in South Africa.
The State Diamond Trader was established on 3 September and, according to chief executive Abby Chikane, is expected to be able to supply its clients with rough diamonds for beneficiation by January 2009.
De Beers will also provide the trader with technical expertise and intellectual property as it begins its work in earnest from November this year. The service and licence agreement with De Beers provides a “security of supply” that will allow for a quantifiable amount of the stones to be sold to the clients of the State Diamond Trader.
Chikane pointed out that the trader would be buying diamonds at a market-related price, and subsequent pricing of the polished produce would “definitely not” be above the market rate, while the trader would itself be run on a cost-recovery basis, with the intention of passing profit margins on to its clients.
In terms of the value of the agreement, 10% of South Africa’s annual production of diamonds, amounting to around US$1.4-billion, would be about $140-million (about R960-million).
All diamonds purchased by the State Diamond Trader will have to comply with the Kimberley Process Certificate Scheme, which seeks to keep illicitly mined and conflict diamonds off the market.
‘Not the end, just the start’
Sonjica said the 10% quota assigned for sale to the State Diamond Trader was “not the end, just the start”, but added that the government was being careful not to be too drastic in ensuring that value is added to South Africa’s minerals before they are exported.
She said however, that the idea of buying 10% of diamonds for local beneficiation by emerging cutters and polishers “will expand to other minerals”.
In the meantime, the government is also focussing on intensive training of local diamond cutters and polishers, though Sonjica conceded that South Africa does currently falls short of the ideal level of skills for value-addition to diamonds.
This was being addressed, whe said, with a group of aspiring crafters being sent to China to learn cutting and polishing skills. The government is also talking with Senegal about the possibility of South Africans being trained there.
She said the government was not looking at subsidies for emerging beneficiators, but was considering incentives – not necessarily monetary incentives – to encourage more people to participate.
Sonjica added that the government was also working with the Industrial Development Corporation to improve access to finance and skills training.