Beneficiation – neologism or necessity?

Many dictionaries have no Russian translation of the word “beneficiation”. In those, which have, this word is usually interpreted as “ore dressing”. Meanwhile, nowadays it has acquired a broader connotation to mean a range of measures taken by state authorities to obtain maximum added value from processing rough diamonds mined in the country. In other words, it means protectionist policy directed at stimulating national diamond cutting and polishing.
In August – September this year the above subject received a significant coverage in the news field of the diamond mining countries. Further, we shall try to sum up some of the well-known events.
In the first decade of September, De Beers presented updated information about the changes taking place in the supply pattern in South Africa. London-based Diamond Trading Company (DTC) informed that by 2009 the supply of diamonds to the local market in Namibia would reach $300 million in terms of their value, which would be equal to about 5% of the Namibian GNP.
Presently, the company is selecting local clients to include them into the supply system. According to the company, the decision will be made known to all bidders in October by the newly created Namibia DTC (NDTC).
It is expected that DTC Botswana (DTCB) will be operating at full capacity in early 2008. As it was reported, the company was given the target to reach the level of $550 million in annual sales for the local cutting companies by the end of this decade. At present time, the so-called sightholders possessing diamond-cutting workshops receive their rough through London-based DTC International (DTCI).
DTC Botswana (DTCB) will air the list of its clients in mid December along with the new list of DTCI clients. DTC Botswana will start to supply rough to its clients in January 2008.
The South-African sightholders, who so far cannot buy rough diamonds from DTCI, will come to know this in mid January. The new contract will become valid from March 31, 2008.
Botswana, the largest diamond mining country, left the others behind in matters related to beneficiation. On September 4, the Board of Directors of the newly incorporated Diamond Trading Company of Botswana (DTC Botswana) held its first ever meeting. By the end of the current decade, this company intends not only to sell rough diamonds in the local market for an amount of $550 million every year, but also incurs commitments to promote local products in the market.
According to the agreement between De Beers and the government of Botswana, DTC Botswana is to turn into the largest in the world enterprise engaged in sorting out and evaluating rough diamonds in an amount exceeding 36 million carats per year. “Setting up DTC Botswana is an important landmark in the history of international diamond industry”, believes Garret Penny, Managing Director of De Beers Group.
According to the reached agreements, during the first two years, DTC Botswana will be managed by a De Beers representative and later it will be controlled by the Botswana government, which in its turn will yield the Debswana diamond mining company to De Beers. The position of Chief Executive Officer on the Board of Directors of DTC Botswana has been taken by Warda Shain from DTC.
Due to decreased number of DTCI sightholders in the new contract period, many companies will receive access to direct channels of supply which will obviously become for them a way out of the situation. The first signs of developments in this direction are quite noticeable.
Uchihara Group, a Japanese retail trading company, will import polished diamonds from Diamond Manufacturing Botswana (DMB) to be used in SA Birth jewellery line articles. Uchihara told this to Rapaport News.
Uchihara stressed that for the first time under this agreement a Japanese company would import polished diamonds directly from Botswana.
The company explained that it had started to produce SA Birth (South African Birth) Brand wares in 2006 when it managed to organize delivery of polished stones from a South African company being a sightholder of Diamond Trading Company.
Though its major sales turnover is in the Japanese market, Uchihara plans soon to launch sales of SA Birth wares in the USA and in the Middle East.
Dilip Mehta, General Director of Rosy Blue, who visited Botswana in the end of August, said he intended to invest into the local diamond processing industry.
In Gaberone, Mehta met with President Festus Mogae and Minister of Minerals, Energy and Water Resources Ponatshego Kedikilwe.
“We would like to start our work in Botswana as soon as possible”, told Mehta to Botswana mass media. “We are a large-scale company and are not interested in petty transactions. We would like to set up a joint venture for cutting and polishing diamonds which would at once engage five hundred workers.”
As it is known, besides cutting and polishing Rosy Blue is also involved in manufacturing diamond jewellery and in retail trade. The company is based in Antwerp and has its offices in 15 countries. In the South African Republic, it is the second largest lapidary company providing jobs for 250 employees.
Some people are not so optimistic about the diamond industry of Botswana. Thus, Chaim Even-Zohar describes the situation in lapidary workshops of Botswana as “sabotage”.
During the last several months, some diamond workshops in Botswana were on strikes inspired by trade unions in the course of which there were inadmissible elements of persecution and sabotage, notes this analyst. The strikers’ behavior went too far beyond readiness for honest negotiations, which is as a rule inherent to all labour conflicts.
According to the analyst, the major reason for conflicts was that some political leaders were negatively disposed to foreign investments into their country reckoning that advent of foreign companies would prevent “indigenization” of economy, i.e. its transfer into the hands of local population.
“It is expected that manufacturing companies coming in to Botswana to work will provide for training and educating their personnel, employment and creating added value. Fortunately, thanks to available diamonds, foreign money is not what is needed to the local government. What is needed indeed is the professional workforce consisting of expatriates who would be ready to live in the Botswana environment, which is far from being ideal, and to teach local people to cut diamonds and to manage their business”, says Zohar.
One more question which needs clarification: What particular diamonds will be evaluated and sorted out in Botswana? Botswana officials communicating with the press hint they would like to have all the diamonds from De Beers sent to this country, evaluated and sorted out in the centre, which is being set up and will be put into operation in 2008. So far, De Beers has not clarified the situation. Its representatives do not conceal that their company is reducing its London operations and even seeking a new and smaller office in the British capital for DTC. On the other hand, they declare that Canadian diamonds (10% of which the company pledged to leave for sale to Canadian lapidary workshops) will as before pass through London.
Namibia DTC (NDTC) has scheduled to start distributing rough diamonds among local lapidary workshops within the frames of a new distribution system in October. The contract period of NDTC will last from October 2007 to March 30, 2011.
The Namibian government issued 20 licenses for diamond cutting (some part of them was bought out from the already existing companies at prices ranging from $500 000 to $1 000 000). Fourteen license owners are the operating DTC sightholders although this is not obligatory to take part in the new rough diamonds distribution system in Namibia.
Selection will be based on specific conditions worked out for local workshops; it will be monitored by an ombudsman appointed to assist NDTC in careful inspection of every application. In particular, the companies bidding to take part in the supply of rough diamonds are to have a license for cutting and polishing diamonds. Meanwhile, the Namibian Ministry of Mining and Energy has suspended further issue of such licenses.
However, so far it is unclear how the new system will work in practice.
The majority of these 20 Namibian license holders so far have no workshops of their own. For the moment, in Namibia there 6 workshops and the largest are Namgem of Lazare Kaplan, Lev Levayev’s LLD and Steinmetz Namcor belonging to the latter. Three or four other workshops are in their construction stage, while the rest license holders are taking their time.
Last year the diamond mines of Namibia (mainly owned by Namdeb, a joint venture of De Beers and the government of Namibia) extracted 2 402 477 carats of diamonds worth $900 977 934. Thus, the local rough diamonds had an average export price of $375 per carat. Obviously, not more that 15-20% of the local rough (in carats) may be suitable for beneficiation at the local workshops.
De Beers pledged to supply $300 million worth of rough diamonds to the local market by 2009. However, according to experts, by the beginning of the new contract period the local rough supply may account for not more than $70-80 million.
Analysts believe that the missing $220-230 million worth will be made up for from the so-called London supplies, although virtually this amount may originate from Botswana.
As it was reported, in early October Dali Diamond Co., an Antwerp-based company, will open a diamond-polishing factory in the Namibian capital of Windhoek; its construction was worth $2.7 million. Dali Diamond, established in 1958, plans to engage in manufacturing, distribution and marketing diamonds from Namibia. The company definitely pledged to employ native Namibians at its factory.
The company’s Director Isi Morsel assures that his company will facilitate the development of local economy through investments into vocational training of local population and through introduction of modern technologies into the Namibian economy. The company is positive that Namibian diamonds have an outlook with fair promise.
The factory will be completely commissioned by the end of 2007. In the long term, the company hopes to bring the number of workers at the factory up to 300.
From 1969, Dali Diamond was a DTC sightholder and from 1994 it became an ALROSA client. This is an international company working in all fields of diamond business and having its offices in Shanghai, Paris, Tel-Aviv, New York and Tokyo.
In the end of August, the National Assembly of South Africa approved a tax for exporting diamonds. The passed law is to guarantee access for the local diamond cutters and polishers to regular supply of sufficient quantity of rough diamonds.
The National Assembly amended the initial schedule of export taxation decreasing the tax rate from 15 to 5 percent. According to the local information sources, although the tax bar was set at a lower height the law enforcement terms became stiffer.
As it is reported, Minister of Finance Trevor Manuel declared that the law was aimed at providing such a quantity of rough to the local market, which would exceed its capacities. The system stimulating sales of rough diamonds inside the country is to give sufficient quantities of rough to the local market letting excessive stock out of the country untaxed.
One should recollect that De Beers and the government of South Africa disagree on how to develop the diamond processing industry. Jonathan Oppenheimer, one of the company’s executives, publicly aired his opinion that the government should subsidize diamond processing since, as he believes, the South African stones will not stand competition with those manufactured in India and China where the labour cost is much lower.
According to the local mass media, the Minister of Finance of South Africa noted that the above tax was playing the role of a fine for diamond mining companies, which were reluctant to meet the needs of domestic factories.
The government of Sierra Leone has approved a new law concerning the distribution of licenses for cutting and polishing diamonds on the territory of the country.
The government concentrates its efforts on turning the diamond industry into a tool to increase employment and raise the level of incomes of the population. According to a local information source, many foreign companies (including those from the USA, Russia and Britain) have already expressed their interest towards opening diamond-processing factories in Sierra Leone. Here it is believed that despite significant efforts and expenses required to set up such enterprises in the initial period due to the need of a great quantity of rough diamonds and a large number of skilled workers, the end benefits from domestic diamond processing for the country’s economy is obvious.
Angola is planning to open the second diamond cutting plant, which may start its operation already in the end of 2008.
According to the report by “Jornal de Angola”, a local newspaper, the new plant will be built by Endiama, an Angola government-owned diamond company, in partnership with an unnamed foreign investor and local businessmen.
The new plant will be built taking in account the increased quantity of diamonds mined in the country and the political interest in developing the diamond industry in Angola, said Alberto Fançony, Planning and Investments Executive of Endiama. The new plant may be built in the province of Lunda Sul.
The first diamond cutting enterprise (Angola Polishing Diamond) was opened in 2005. According to the newspaper, the construction of this plant was worth $10 million and now it is capable to process diamonds for an amount of $20 million in a month.
Finally, it should be noted that in the end of August at a session of the Russian government there was raised a question related to the necessity of increasing the supply of rough diamonds mined by ALROSA to Kristall, a diamond-cutting plant in Smolensk.
Western industrial mass media did not comment this event but highlighted it by publishing a great number of reports from Russian news agencies.
Rough&Polished