South Africa’s State Diamond Trader (SDT) is looking to purchase rough diamonds from other countries, in particular Zimbabwe, as it was unable to procure sufficient local goods to advance South Africa’s beneficiation sector.
The trader noted shortcomings in its
current operations since it can only buy run of mine production from
local diamond mining companies, the majority of which is not suitable
for cutting and polishing.
The SDT is a government entity
mandated to buy up to 10 percent of South Africa’s run of mine diamond
production to make available for local manufacturers to develop the
country’s cutting and polishing industry. Critics of the legislation
governing its operations have long argued that the run of mine
production would not provide sufficient gem-quality diamonds to ensure a
vibrant beneficiation industry.
Target clients generally
require a narrow range of rough diamonds that produce round, 1 carat and
larger, SI1+ clarity, I+ color polished stones, the trader explained in
its annual report for fiscal year that ended March 31, 2012 published
The trader reported that only 6 percent of South
Africa’s production by volume, representing 51 percent by value, was
suitable for beneficiation in the fiscal year. While the legislation is
unlikely to change in the near future and local producers appear
unwilling to supply better quality goods to the SDT beyond what they are
required by law, the trader said it is looking at alternative sources
from other countries.
“This risk [of unsuitable supply] could be
mitigated by purchasing suitable rough diamonds from other countries,”
said Yekani Tenza, the chairperson of SDT’s audit and risk management
committee. “In this case the State Diamond Trader would not be bound by
the run of mine purchasing format, effectively selecting rough diamonds
suitable for cutting and polishing in South Africa.”
reported that progress has been made with regards to the possible
purchase of goods from Zimbabwe but these have been held up by a number
of logistical issues.
Profitable For Now
the fiscal year that ended on March 31, 2012 the trader bought just 4
percent of the country’s production, compared with 9 percent in the
Purchases by value fell 47 percent year on year
to $46.9 million (ZAR 410.4 million), while volume declined 65 percent
to 293,087 carats.
“As a result of the general price volatility
within the diamond industry, the State Diamond Trader had to decline the
purchase of a number of productions to ensure maximum trading within
such adverse trading conditions,” said Futhi Zikalala, the chief
executive of the SDT. “The main reasons for the decline were the prices
at which rough diamond were presented and a subsequent lack of demand.”
fell 47 percent to $92.6 million (ZAR 810 million) due to lower
available production and an unsustainable rise in prices in the first
half of calendar 2011. The trader sold goods to 58 companies during the
fiscal year, compared with 60 in the previous period.
its mandated clients with historically disadvantaged South African
(HDSA) backgrounds rose 65 percent to $1.2 million (ZAR 10.6 million),
while sales to large and medium sized companies fell 39 percent to $38.9
million (ZAR 340 million). Sales to niche clients - those without HDSA
backgrounds that employ fewer than 10 people – increased 44 percent to
$9.3 million (ZAR 81 million).
The trader reported that profits
fell 45 percent to $1.5 million (ZAR 12.9 million) during the fiscal
year. Zikalala noted that profitability was achieved by upholding its
operational policies relating to purchasing, production, sales and stock
holding, but warned that future performance largely depends on supply.
the long term profitability will be ensured through the efficient
distribution of those rough diamonds deemed not suitable for local
beneficiation,” she said. “The suitability of rough diamond production
for beneficiation purposes impacts the sales of the State Diamond