Guidelines require producers to offer reasonable prices and assortments.
South Africa’s diamond regulator has introduced new guidelines requiring rough producers to offer their goods to local buyers on more attractive terms.
Miners in the country already have to make 10% of their run-of-mine rough available for the State Diamond Trader (SDT) to purchase. After that, producers — or dealers that bought rough from them — must offer the remaining goods for at least four days at the Diamond Exchange and Export Centre (DEEC) in Johannesburg before they can export the merchandise. This gives local companies the opportunity to buy.
The new rules, which went into effect on Monday, aim to ensure that these producers are following the spirit and not just the letter of these laws, thereby genuinely enabling local manufacturers to buy and polish the rough.
Until now, the DEEC process was a formality in many cases, as companies preferred to save the goods for export, market participants told Rapaport News this week. They wanted to retain control of their full production for tender in Antwerp or Dubai or believed they could get better customers and prices overseas. Miners often put them in commercially unviable assortments or priced them at rates that ensured they were unsold.
The South African Diamond and Precious Metals Regulator (SADPMR) wrote to industry members last Friday informing them of the updated mandate.
Under the new system, producers must structure lots so that “reasonably capitalized local buyers can participate competitively,” according to one of the letters from the SADPMR, which Rapaport News has seen. They may not artificially inflate lot value, or combine high-demand or high-value goods with low-demand or low-value goods — a tactic that, according to insiders, some entities had used as a way of making assortments unsellable and ensuring they could keep premium items for export.
If goods remain unsold locally, producers must demonstrate that lots were reasonably sized and priced, the letter added. It outlined a list of acceptable assortments as well as a procedure for disputes should a producer’s price estimate for sales to the SDT differ from the regulator’s.
“The purpose of the assortment guidelines is to create an enabling environment at the DEEC for the realization of the regulator’s [objective] to promote equitable access to, and the local beneficiation of, the republic’s diamonds,” SADPMR said Wednesday in a statement to Rapaport News.
Underpinning the guidelines is a “balanced approach that takes into account the interests of all stakeholders,” the statement continued. “They are not intended to disadvantage the producers, except where the primary objective by the producer/s is to export at all costs.”
The new rules also apply also to dealers wishing to export rough, a SADPMR spokesperson clarified.
South Africa’s mining industry has dwindled because of commercial and regulatory challenges. The country’s biggest operations are De Beers, which owns the Venetia mine, and Petra Diamonds, which extracts rough from Cullinan and Finsch. Ekapa Mining reportedly filed for liquidation after a fatal mudslide, while Trans Hex is producing far less than in the past.
De Beers is exempt from the requirement to offer goods at the DEEC prior to export because it already sells 40% to 60% of the value of its South African production to beneficiation sightholders — its customers that manufacture De Beers rough locally, a spokesperson for the company told Rapaport News Wednesday.
That leaves Petra Diamonds as by far the largest company that will have to comply with the new rules. Last year, Petra moved its Cullinan and Finsch tenders from Johannesburg to Antwerp, and insiders revealed that the company had increasingly been selling in the Belgian city and in Dubai. There is no evidence that Petra had carried out any of the tactics that the rules are addressing.
“Petra is aware of the notices issued by the SADPMR and is assessing the impact it may have on its business but has no further comments at this stage,” a Petra spokesperson said. “As a responsible producer, Petra will continue to comply with the legal and regulatory framework applicable to its operations.”
The issue touches on the challenges the country — and other African nations — have had getting beneficiation to work. Most of the rough that producers sell in South Africa ends up being exported. The new guidelines also require enforcement, which, according to insiders, is not always easy.
“South Africa is big on rules but not implementation,” a local dealer commented.
Main image: A De Beers employee holding three rough diamonds at the company’s sightholder sales building in Kimberley, South Africa. (Ben Perry/Armoury Films/De Beers)
Source : Rapaport