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New regulations proposed to save alluvial diamond industry

‘We’ve got a very special commodity and we need certain exemptions and certain different rules for us’: Lyndon De Meillon – deputy chair, Sadpo.

NOMPU SIZIBA: The small and junior diamond industry used to be a bustling job-generative industry, but has diminished in size and significance over the last couple of decades for a number of reasons. Once upon a time, in 2004, there were said to be around 2 000 small diamond-mining companies employing around 25 000 people. That number has since dwindled to around 200 operators who employ around 5 000 workers. But the South African Diamond Producers Organisation says there’s a huge potential to revive the prospects of this industry, and in turn to boost jobs.

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Well, to share his wisdom on the issues I’m joined on the line by Lyndon De Meillon, the deputy chairperson at the South African Diamond Producers Organisation. Thanks very much Lyndon, for joining us. Just give us a picture of what the small diamond mining industry looked like a couple of decades ago.

LYNDON DE MEILLON: Nompu, thank you. Thanks for having me. Two independent scientific studies of the small-scale and junior diamond-mining industry under the auspices of two prominent universities in South Africa have shown that the number of companies involved in alluvial diamond mining have decreased from around 2 000 in the year 2004 to around 200 today. In the same period probably around 20 000 jobs have been shed in this industry. Those studies found that the main reason for this decline is the current mining regulations and legislation, nor do the money charters cater for the highly cost-sensitive junior mining sector, and even more specifically for the alluvial diamond mining sector.

NOMPU SIZIBA: So when emerging diamond miners are looking to get into this space, what are some of the regulatory hurdles that they have to face?

LYNDON DE MEILLON: Well, the problem is that we have to comply with the same regulations that most of the bigger mines have to comply with. So there’s a whole list of regulations, and regulations also including application costs for prospecting and money licences, and all the studies that have to go with that. That excludes a lot of our clients from being able to apply for mining rights, and it excludes a large portion of our population. This is a big problem for us.

NOMPU SIZIBA: Yes. Lyndon, you’ve submitted a position paper to the Department of Mineral Resources, putting forward recommendations that you believe could help to catapult the small diamond industry. What are the key elements there?

LYNDON DE MEILLON: The crux of our position paper is that the mainly privately owned junior mining sector – and specifically the diamond sector – requires an amended MPRDA [Mineral and Petroleum Resources Development Act] for its own mining charter. Our resource is marginal to mine, and our operations are nomadic, and we do not have the high profit margins of the larger companies to cover this. In brief we are asking for the following.

Firstly, and this applies to all mines and commodities all over, we need a working total cadastral system that allows easy and free access to anyone to see which mining or prospecting rights for what commodity have been allocated in an area. This system is the basis of the mineral resource management system of any country. And in South Africa the current sandbag system is dysfunctional and has been like this probably for the past 10 years. If you want to see how it should work, you can log into the system of Namibia and Botswana, where it works perfectly.

The question we all should be asking is why can’t South Africa, the supposed mining leader in Africa, not get this right. And here we could also include the Council for Geoscience, which is supposed to supply us with up-to-date data on the minerals and mining industry of South Africa. And we’ve [inaudible] in these government systems and institutions to work properly.

Secondly, we are proposing five types of permits or rights for diamonds to cater for all the unique groupings that exist in the small and junior mining sector. These are an additional mining permit, less than five hectares for the pick-and-shovel guys around Kimberley, the mining, the flooring areas of the old dumps, a small-scale mining permit of about 45 hectares, junior mining rights of greater than 45 hectares, and then the normal prospecting and mining rights. The three smallest and the smaller ones should be exempt from the MPRDA to ensure easy access for all mining entrepreneurs.

NOMPU SIZIBA: Given the opportunity to grow and succeed in this way, if some of your recommendations were taken on board, what could this sector mean for job creation as well as the wider mining community?

LYNDON DE MEILLON: Nompu, most of our alluvial deposits in South Africa are situated in the rural areas of the Northern Cape and North West. We talk about towns like Douglas, Prieska, Bloemhof, Schweizer-Reneke, where unemployment is not 30% or 40%, it’s 80% or higher. And here we can make a significant difference. Our concern is also that after more than 20 years the communities in these areas have actually benefitted very little. We are proposing that all diamond mining companies should contribute 2% of their turnover into a development fund that can be used for the upliftment of communities. The current social labour plan system is dysfunctional and virtually impossible for our small mines to implement.

We say replace this with a workable system that government can manage. We are miners. We are good at mining these ultra-low-grade special deposits. We are not social upliftment specialists – that’s government’s role. And we are saying let these contribute. By all means we will contribute, but let the government manage this.

NOMPU SIZIBA: Hmm. If this were to be allowed and more players could play in the diamond-mining industry – that is, small players – would that mean that they would be productive enough to become taxpayers as well?

LYNDON DE MEILLON: Absolutely. It will make a huge difference to all these communities. My calculations show that we probably have another hundred years of resource left of alluvial diamonds in South Africa. Now imagine if we can go back to the 2 000 operators we had 20 years ago, and all these people can employ people and pay taxes, it will make an enormous difference to our rural communities where we really need the jobs.

NOMPU SIZIBA: Your report also makes reference to limitations placed on the industry by rules around beneficiation. Just speak to us about that.

LYNDON DE MEILLON: Yes, we are very concerned at the lack of local beneficiation in South Africa, and specifically access to goods for our local beneficiating companies. At present, if you sell your goods outside South Africa, you have to pay a 5% export levy. But if you want to get exemption from that 5%, you have to beneficiate 15% by value of your product. Now that 15% is much too high for a small guy to do. We are cash-sensitive. It’s not our game to wait for the income from that 15% to come back to you. It’s not realistic. We are saying, make that 15% 5%. Now the small guys will say, it’s worth my while to really make an effort to go and find people to sell my diamonds so we can to beneficiate in South Africa, and even for me myself to beneficiate in South Africa. And that will make a huge difference to the beneficiation situation in South Africa.

NOMPU SIZIBA: But what do you say to the argument? I understand the economics of what you’re saying, but then at the same time government is saying that we need to have a beneficiation policy whereby, for what comes out of the ground here in South Africa, value is being added to it within the country.

LYNDON DE MEILLON: We completely agree with that. But we’ve got a very special product from the alluvial side. To give you some indication, South Africa produces about seven million carats of diamonds a year, of which our members probably produce 3-4%. But, by value, our contribution is 25%. Now that tells you the very special diamonds that we take out. These are not for everybody to beneficiate; they are the really expensive stones. Most of these stones can only be beneficiated in Israel, or Antwerp or those places. But we have a proportion of our stones that we can do locally, and we are more than willing to do it under the right conditions.

NOMPU SIZIBA: Is this a new conversation that you and I are having, or is this something that you guys have raised for a number of years?

LYNDON DE MEILLON: This is something that we have raised for a number of years, and we are very tired. One of our biggest frustrations is to get around the table with government to explain why our situation is so different and so special. The normal mining charter is virtually impossible for our guys to implement due to the nature of our deposit. For most of our clients the mining is of a nomadic nature. They work in an area for a year or 18 months, then they move out of that area again, and to implement all the rules and regulations and the social labour plans that go with the mining rights under these conditions is not possible.

So we are saying we’ve got a very special commodity and we need certain exemptions and certain different rules for us. Although, I must say, even the rules that we are proposing will probably be applied to most other junior mining commodities as well. And I think in South Africa we need to look at the junior mining sector, because I think that is the building block of the future of the minerals development of South Africa.

NOMPU SIZIBA: Say, for example, some of your suggestions came to fruition – you’re talking about giving licences for different portions of hectares, five hectares, 20 hectares, 45 hectares, and so on, and you’re talking about the mobility of these miners – how’s that going to work in practice in terms of getting on top of the next man’s territory and all of that?

LYNDON DE MEILLON: The smaller areas that we are talking about are around the dumps and maybe even the guys who do bedrock sweeping along the West Coast. And that is very easy to manage for a current mining right, and the mining right holders will manage that. The other areas will also have their own maps. It should be a very simple system, a very cost-effective system to implement. We don’t see any problems. If you go along the same lines as we have at the moment, where you have a map with coordinates that show where you are working, we don’t see that as a problem at all.

NOMPU SIZIBA: That was Lyndon De Meillon. He’s the deputy chairman at the South African Diamond Producers Organisation.

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