South Africa diamond law would hit De Beer

CAPE TOWN - South Africa's proposed amendments to its diamond law could lead to the demise of De Beers' powerful marketing arm and spark mine closures, the firm and its biggest shareholder said overnight (NZ time).

The government wants to open up the distribution of diamonds, currently tightly controlled by De Beers' Diamond Trading Company (DTC), to stimulate more jewellery manufacturing and gem cutting in South Africa, the world's fourth-largest diamond producer by value.

De Beers currently ships South African production to London, where the DTC creates a global mix along with output from other countries such as Botswana, then distributes the supplies to cutters and traders around the world.

"The Diamond Bill will have the effect of compromising the DTC's future viability," said Anglo American Plc, which owns 45 per cent of De Beers, the world's biggest diamond producer.

"Elimination of South Africa's unpolished diamonds from the DTC's aggregation of production might lead to the demise of the DTC should other major producer countries follow suit with similar legislation," Anglo's South African unit said in a written submission to parliament's minerals and energy committee.

The companies were responding to a draft government bill that would restructure South Africa's diamond mining sector, proposing the creation of a state diamond trader and imposing a 15 per cent export levy.

Anglo American and De Beers are due to testify on Wednesday before the parliamentary committee considering the bill.

De Beers said in a separate submission that additional costs in the proposed legislation would hurt mining operations.

"The bill could render marginal mines uneconomic and could harm small operations the most," it said.

"Any intervention that impacts on the profitability of the marginal mines is likely to jeopardise the viability of at least some of these mines, resulting in job losses and even possible mine closures."

South Africa's Chamber of Mines estimated that 8,550 jobs could be lost in the industry as the 15 per cent levy forced companies to shut unprofitable mines. This compared to only 400 jobs created through new diamond processing opportunities.

Anglo said the bill's export levy, together with a separate proposed royalty, could damage the climate for wider mining investment.

"These costs will have a major adverse impact on the returns of existing and potential future investments, making the mining industry particularly unattractive to investors, particularly foreign investors," Anglo said.

Commenting on the government's aim to spur more local diamond processing, Anglo said many South African diamonds were too small to cut within the country.

"Some 50 per cent by value of South Africa's production is not economic to cut and polish in South Africa ... South Africa simply cannot compete in this regard with countries such as India and China," Anglo said.

- REUTERS