Beneficiation: A Road Worth Traveling, But Destination Difficult To Find

A conversation with the minerals and mining minister of an African diamond-producing company a couple of months ago really served to highlight the point at which beneficiation has arrived. And I am not sure that road traveled so far is particularly impressive.

A decade has passed since then South African President Thabo Mbeki really brought the issue to the attention of the global diamond industry. That's rather ironic, of course, since his country has arguably achieved the least in this respect.

From a Western perspective, I suspect the feeling is that an awful lot has been achieved to the point that it is felt by many that not much more needs to be done. Then there are many people who claim that the experience has proven that beneficiating African stones cannot profitably be achieved.

They argue that since a massive infrastructure already exists in India for manufacturing diamonds, then there is little point in building whole new manufacturing centers in African states. The cost of creating a manufacturing base in African producing states, along with training staff and carrying out the actual cutting and polishing work is, indeed, very high and the per carat price is higher than that for goods polished in India.

Botswana forced the mighty De Beers to bend to its will in 2010 by agreeing to move the vast majority of the activities of the then Diamond Trading Company to Gaborone. After decades of being based in London where aggregation, sorting and distribution took place, those tasks were transferred to Botswana in return for the country's government agreeing to extend its mining deal with De Beers.

De Beers also agreed to supply sights to firms in Botswana with the diamonds to be manufactured in the country. And another outcome was the establishment of the Okavango Diamond Company which independently sells 15 percent of Debswana's production.

A similar type of agreement was signed by De Beers with Namibia last year. Clearly, the Namibian government carefully studied the deal with Botswana and looked to achieve similar results. Namibia received a significant increase in rough diamonds made available for beneficiation as a result of the agreement, with $430 million of rough diamonds being offered annually to Namibia Diamond Trading Company (NDTC) customers. As part of the agreement, all Namdeb Holdings’ Special Stones were to be made available for sale in Namibia. In addition, the agreement provided for 15 percent of Namdeb Holdings’ run-of-mine production annually to be made available to a government-owned independent sales company called Namib Desert Diamonds Pty Ltd.

The African minister in question was very voluble in stating that although the cost may be high, Western producers and manufacturers have a moral duty to keep the stones in the country in which they were mined, while buyers around the world have a similar duty to pay the extra cost since his, and other states, have had their valuable resources extracted at incredibly low cost for many decades.

To be frank, it's difficult to argue with that. However, at a time of great challenges and razor-thin margins for members of the diamond pipeline, it doesn't seem to make a lot of sense for manufacturers who are buying rough stones at unreasonably high prices to have to subsidize the home governments by establishing plants to polish them before exporting them in order to provide those governments with higher revenues.

Frankly, I don't know what the answer is. African producer states are still not receiving fair levels of income for their diamonds, that's clear, and more still needs to be done to correct that. On the other hand, manufacturers cannot be expected to absorb the cost. And the industry is struggling to raise sales at the retail end, so it's hardly realistic to expect that consumers will be willing to pay extra – even when it is explained to them that the diamonds are helping to provide an income for millions of Africans.

Happy to hear your views on this subject.

Have a peaceful and pleasant weekend.