Diamonds Amendment Bill

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Diamonds Amendment Bill

• 11 October 2005

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Aim of Presentation

• Firstly, to point out that the Diamonds Amendment
  Bill does not take into account the nature of
  small scale mining
• Secondly, to illustrate the potential impact of
  the Bill (as it is currently formulated) on small
  scale mining operations, surrounding
  communities and local government

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Small Scale Mining EntitiesGeneral
Characteristics

• Sole proprietors / family owned and managed
  enterprises
• Mining occurs at subsistence level or on an ad
  hoc basis
• Average size of the farm utilised for mining
  activities vary between 20ha and 1000ha
• Extract minerals with basic tools (no mine
  shafts)
• Usually mining on marginal reserves
• Low impact on environment and surrounding
  communities
• Number of people employed vary between 2 and 50
• Have to respond to Mining and Agricultural
  Industry Acts and legislation

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Facts

• Small scale mining entities have a 140 year owner
  management track record
• Structure of the mining entity is the most
  important factor in determining profitability
• Small scale alluvial mining entails extreme risk
  as
• Diamond yield can not be determined upfront
• Distribution of diamonds through gravel is
  irregular
• The appearance of the diamond bearing gravel
  varies considerably in different localities
• Operations are of a marginal nature
• Operations have already limited direct operating
  costs by means of their owner-manager structure
  and can not afford additional costs that can
  negatively impact profitability

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Factors that could negatively impact SSM

• MPRDA
• The strength of the rand
• Possible unintended impact of the Diamond
  amendment Bill

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Comments on Diamond Amendment Bill

• Section 30 substituted for section 59
• Diamond producers to offer unpolished
• Diamonds to State Diamond Trader
• Production cycle
• Marketing Methods
• Market Value of Diamonds
• Additional cost
• 15 Export Duty
• Diamond Production

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Production Cycle
SDT to Evaluate Verify Price
Sale of Diamonds
Independent Verification
Offer to SDT
59(2) Diamond producer to offer all
unpolished Diamonds to SDT, for selection,
specify fair Market value
59(6) Regulator to appoint An independent
valuator Acceptable to the producer 59(8) Cost
will be shared by SDT and producer
59(3) SDT has one week after verification /
fixing of price to buy diamonds
59(9) Period mutually agreed between producer
and SDT before commencement of operation /
production cycle
59(1) (a) Minister shall from time to time
determine percentage of diamonds that may
be required for local beneficiation (59(1) (b)
Percentage may be based on carats or volume
produced 59(2) SDT has option to select
diamonds
5 days from appointment
Time ?
Verification time not stipulated
Time Undetermined
1 week

• Percentage that the
• Minister may select
• has not been capped
• If based on carats
• or volume this could
• mean that potentially
• due to the selection
• option, 10 could be
• up to 90 of the
• R-value of the diamonds
• It is unclear what the
• method is by which
• the state will verify that
• all of the diamonds
• Purchased will indeed be
• used for beneficiation

• Varies by
• circumstances of
• Producer
• Yield
• Cash flow

• How long will it take to
• appoint the independent
• Valuator
• What if valuator is not
• considered acceptable
• by producer
• Bill does not state what the
• course of action is if
• producer and independent
• valuator disagree on price
• Additional cost to producer

• Only 1 buyer initially to
• verify price, unfair as
• price should be determined
• in a competitive open market
• Supply / demand principles
• wont determine price initially

• Marketing only starts
• 2 4 weeks after end
• of production cycle
• Depending on yield, SSM
• cash flow will not be
• able to sustain this period
• of time currently many
• Have to the option to sell
• Weekly or biweekly
• depending on liquidity
• 15 export duty another
• additional cost that
• will more than likely be
• passed back to producer

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Impact on Economic Structure
Municipality
LOCAL GOVERNMENT
Service Delivery
Social Upliftment
COMMUNITIES
Employees and Families
BUSINESS
SSM
MINING
AGRICULTURE
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Impact of the proposed Diamond Amendment Bill

• Small Scale Mining Operations
• Scaling down of operations
• Scaling down on workforce (job losses)

The 69 of Blinkklip members collectively employ
approx. 1180 of people

• Local Communities
• Loss of main breadwinner supporting
• extended families
• Increased poverty

The 1180 of employees on average support 7 other
people SSM indirectly supports 8260 people in
the local community Excludes employees and
dependants supported by other business in the
area
Wolmaransstad ,as many other towns in the North
West Province are heavily dependent on the Small
Scale Mining sector, closing down of operations
will result in ghost Towns

• Local Government
• Increased number of people unable to
• pay for services
• Additional pressure on an already
• compromised local municipality

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Wolmaransstad
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Ottosdal
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Recommendations

• Further research is conducted regarding the
  impact of the Bill on SSM entities, communities
  dependant on SSM operations as well as the
  potential impact on local government
• Review process of beneficiation so as to ensure
  that it contributes to competitiveness in world
  markets without compromising price and therefore
  small scale operations
• Commission an in-depth study regarding the World
  Polished Diamond Market and alternative methods
  to increase competitiveness by means of
  competitive manufacturing costs and not trying to
  become competitive due to obtaining diamonds at a
  lower purchase price

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Conclusion

• It should be noted that in principle the concept
  of beneficiation and what it aims to achieve is
  supported, however it is recommended that the
  consideration is given to the prescribed manner
  in which the bill recommends that beneficiation
  can be promoted.
• The interests of, and benefits to small scale
  mining entities and communities involved in the
  production of diamonds should be weighed up
  against the interests and potential benefits of
  entities that will be formed through the proposed
  beneficiation process
• We would like to see that the Diamond Amendment
  Bill results in a winwin situation for all
  concerned