The small and junior diamond mining industry in South Africa is in dire straits, says South African Diamond Producers Organisation (Sadpo) vice chairperson Lyndon de Meillon.

“Over the past 16 years, we've lost about 90% of the companies involved in the sector and about 20 000 jobs. Covid-19 has exacerbated the situation to a point where the industry might disappear in the next ten years if we don't take urgent steps to rectify things,” he tells Mining Weekly.

De Meillon explains that overregulation has suffocated the industry, owing to the excessive costs involved in remaining compliant, with the added Covid-19 regulations ballooning these costs even more.

“We need a regulatory regime that is investor friendly and simple,” he implores.

De Meillon acknowledges that the Draft Artisanal and Small-Scale Mining (ASM) Policy 2021, which was published for public comment last month, is a step in the right direction, but notes that the policy needs to include the small and junior diamond mining industry.

“Very few local diamond deposits can actually be worked by hand or by pick and shovel, owing to the very low-grade nature of the deposits,” he explains.

The inclusion of the small and junior mining industry in the ASM policy will go a long way towards reducing the impact of Covid-19 on the junior diamond mining sector for the foreseeable future, he adds.

De Meillon says that Sadpo has drafted a proposal on what needs to be done to rescue the ailing small and junior diamond mining industry, which has shrunk from about 2 000 companies operating in South Africa in 2004 to about 200 at present.

“Essentially, the regulations and legislation in place for larger mines are not suitable for small and junior mines, as they cannot comply with all of it,” he explains, adding that as much as 8% of the turnover for small and junior diamond mines is spent on compliance-related costs.

“This level of compliance-related costs is crippling for small, privately owned, unlisted companies that are mining marginal ultralow grade deposits, and which do not have access to large amounts of cash,” he says.

The Covid-19 pandemic has highlighted the structural problems and “enormous” inefficiencies in the middle management systems in the South African government, De Meillon believes.

He says a more agile and swift regulatory environment that issues permits and authorisations in a fast and efficient manner is essential to the survival of the industry.

“Time is money and cash flow is king. Instead, juniors and small-scale diamond miners have to deal with a sluggish, unproductive, inaccessible system that increases operating costs to such an extent that they are forced to close down,” he laments.

South African Struggles

Last year, Sadpo assisted government by relaying information to its members regarding the rules of the various lockdown levels, how to apply for Temporary Employer Relief Scheme benefits, and relaying the rules for restarting operations with Covid-19 health and safety protocols and permits in place. 

During that time, De Meillon says there was much uncertainty regarding the diamond price. While global diamond prices fell by as much as 25% globally during the outbreak last year, South African prices decreased even more sharply – by as much as 70%. The main reason for this decline was that buyers were not able to travel.

“There are examples of diamonds that were sold abroad for almost three times the price of what was offered in South Africa,” he says. 

To limit the impact of these extreme price drops on local diamond producers, Sadpo approached government and explained that if the 5% export levy on diamonds were to be lifted temporarily, it would make it easier to export diamonds swiftly.

“We saw that there was a large difference in price between what we were getting in South Africa and what we would get abroad because markets in Antwerp and Dubai were still operating fairly normally under Covid-19.”

Unfortunately, government did not react in time and local diamond prices recovered before it could be implemented.

“It would have made a big difference to us if we could have got government to react timeously,” says De Meillon.

However, the recovery of the market bodes well for this year.

With many diamond producers stopping or lowering their diamond production during the early stages of the outbreak, a shortage was created, leading to a reduction in stockpiles among diamond mining majors, such as De Beers and Alrosa, for the first time in about a decade.

De Meillon believes that this served to create more of a balance in the market.

Since October last year, diamond prices have improved significantly, leading to a strong start to this year, albeit still unstable.

“The big problem is that, where there's uncertainty, companies stop spending on exploration, drilling, new equipment and greenfield projects,” De Meillon says, which he notes has an impact on supplier industries and jobs in various sectors.

“This is especially concerning for small-scale diamond miners in rural areas, where suppliers and service providers in small towns play a crucial role in keeping costs down. Their survival is crucial to the industry,” he concludes.