MOHSEEN

African Romance chief
executive officer Mohseen
Moosa.

The South African diamond beneficiation industry is facing a major dilemma in its efforts to grow and play a meaningful and increasing role in the production of high-quality polished diamonds.

Making this point in an interview with Mining Review Africa, African Romance chief executive officer Mohseen Moosa says that sufficient rough diamonds are available, but at exorbitant prices. He emphasises that the local beneficiation industry has the skills and technology to produce polished stones for both domestic and export sales. “It’s nonsense to say we don’t.

“African Romance, which has only been polishing diamonds for about a year, is one of a dozen or more good-sized polishing houses in South Africa, a unique facility created in the country to demonstrate excellence in Africa,” Moosa says.

“As far as quality is concerned, we have our diamonds certified by two top independent laboratories – the Gemological Institute of America (GIA) and the European Gemological Laboratory (EGL) – both of which have laboratories in South Africa.” The GIA is by far the premier body in the world, and the EGL is also highly regarded.

“Some 90% of our diamonds are graded by them as excellent and the other 10% normally come back as very good. Grading at both laboratories is anonymous, and they don’t know if any diamond they grade is from South Africa or anywhere else. Each diamond is checked by about 15 gemologists, they log their views into the computer, and the computer comes up with the average. Bear in mind, we cannot control the weight, colour or clarity of any stone but we do control the cut, and we do this with pride.

“I must mention that South Africa cannot compete effectively with India or China on diamonds below a quarter carat, but then who wants to polish those small stones in a marginal profit environment,” Moosa says. “But in cutting and polishing any stone above a quarter carat, we can compete strongly against any other polisher anywhere in the world in terms of price of the finished product."

Funding, not Skills, is the Problem
Although African Romance has the capacity to produce some 40,000 carats a year at full stretch, it is currently turning out around 2,000 carats a month – say 25,000 carats a year. “This is about 15% of total South African production of polished diamonds,” Moosa estimates.

“The challenge is in gaining sufficient access to finance, the working capital the beneficiation industry needs to secure rough diamonds and compete against international buyers,” he insists. “Local operators must be funded adequately.

SYLVIA

Sylvia Seletswane, who has 12 years’
experience as a marker, sets the parameters
for how this particular stone should be
cut and polished.

“Our banking system and banking institutions need to understand the diamond beneficiation sector. We don’t have banks in this country that fully understand the diamond industry in general and the beneficiation sector in particular. There are no banking products in South Africa like those offered by the leading international banks specialising in diamonds and gemstones.

“Secondly, we need to improve access to rough diamonds for the local polishing sector, and I think the State Diamond Trader, which is mandated to pick up 10% of production in the industry and to distribute it locally, is on the right track."Moosa makes the point that a substantial proportion of South African rough diamonds go to the London diamond trading company DTC – this includes all De Beers production – and it distributes this to siteholders. So if you are a De Beers site-holder you will get access to those diamonds. The other companies make their diamonds available through a tender process to any buyer who bids the highest price, and these tenders are attended by 40 or 50 buyers, or more. Local buyers have to compete against international buyers with financial muscle.

“There are two legs,” Moosa points out; “we need to have the right financial products in place to be able to secure these goods, and we need to have the right mechanisms, like the State Diamond Trader, in place to allow South Africans to compete adequately for these goods."

POLISH MAN

African Romance operations manager:
Diamond Polishing, Thys Lehman, who
has 53 years of experience in
analysing rough diamonds
.

Added to this is the price issue and, according to Moosa there is something uncomfortable happening in the price environment.

Polished Diamond Prices Lag Behind Rough
“Rough diamond prices have increased by up to 30% over the past 12 to 18 months,” Moosa calculates, “and is out of kilter with the value of the polished product. Most analyses of the price environment show that polished prices are rather flat.

“Something has to happen. Either polished prices will increase substantially, or rough prices will have to diminish. Bear in mind that if polished prices increase sharply, consumers will have to carry the can, and in a recessionary climate there’s a big question as to how many consumers will come to the party,” Moosa says. “Currently it’s not a luxury goods purchasing environment. Motor vehicles sales are down, house prices are down, luxury items are not consumer priorities at the moment, and a price increase in polished diamonds will probably lead to shrinkage of the market,” he suggests.

“It does not make sense to push the price of product up, because the industry will simply look for substitutes to provide the emotional experience it wants. That’s what diamond purchases are all about, an emotional experience. And if the emotional experience of buying diamonds is no longer affordable, consumers will channel their luxury spending in another direction and your market will shrink.

“The bottom line is that South Africa produces about 16 million carats of rough diamonds a year, of which 40% are gem quality. The question is where do the diamonds go? In terms of beneficiation, between 120,000 and 140,000 carats are cut and polished in the country.”

The beneficiation industry is growing in southern Africa, according to Moosa. “Government policy in most diamond producing countries in Africa has been that they want beneficiation to take place locally, so international polishing houses have been moving into southern Africa to set up beneficiation operations in countries like Botswana, South Africa and Angola.

“I think we are proving that we have the skills and abilities and can compete in the international market place. It’s about having more people believe in this sector like we do,” he says. “If there are people who want to buy our diamonds, we have the people, skills and technology to beneficiate them. We are proving that Africans are not only good for digging holes in the ground to take out minerals; we can handle the high value-add aspect as well. All we need is the market, the funding and the rough purchasing mechanisms.”