De Beers criticises State Diamond Trader

Brendan Ryan | Mon, 01 Mar 2010 11:57

[miningmx.com] -- DAVID Noko, who steps down as MD of De Beers Consolidated Mines (DBCM) at the end of March, says the State Diamond Trader (SDT) needs to be fixed.

Asked about widespread diamond industry dissatisfaction with the SDT Noko told Miningmx, "that area is a mess. It needs to be fixed and I believe government is committed to fixing it. This is a temporary setback.”

The SDT was set up by government in 2007 with major support from De Beers and the Industrial Development Corporation (IDC). It aimed to increase the supply of rough diamonds to local polishers and cutters.

De Beers seconded a number of key technical staff to the SDT and the IDC agreed to provide funding through a R60m rollover loan.

The SDT is mandated to buy up to 10% of South Africa’s rough diamond production at “market-related” prices.

Crucially, at the same time as the SDT came into operation, De Beers shut down its Diamdel subsidiary.

Diamdel’s function was to provide rough diamonds to smaller SA cutting and polishing firms which were not part of the group’s main rough diamond sales system.

This consists of 10 "sights" per year, at which rough diamonds are offered for sale to a specifically chosen group of customers.

The end result has been a shambles because the SDT has not fulfilled its function of providing the diamonds. This has resulted in extensive job losses in the local cutting and polishing industry.

De Beers MD Gareth Penny faced a barrage of questions and complaints about the situation in early December, when De Beers held a “town hall” meeting for the local diamond industry in Johannesburg.

Among the demands being flung at him was that Diamdel should resume operations.

Penny agreed that De Beers would set up a task team under the guidance of Diamond Trading Company SA MD Faried Sallie to work with government to find solutions.

Noko told Miningmx the problem lay with the bureaucracy within the SDT, and a different approach was needed.

“The emphasis must be placed on efficient access to diamonds, whereas at the moment the emphasis in the SDT sits on legal compliance issues and issues around the operations of the government diamond valuator.

“They need to get the rough diamonds to the buyers. It will be fixed,” he said.

Noko said he had nothing lined up after his departure from De Beers. He said he had not been retrenched and that his departure was by “mutual agreement” with the group.

He joined DBCM in 2002, became general manager of Kimberley Mines in 2004 and took over from Jonathan Oppenheimer as MD in February 2006.

At that time DBCM – the SA operating arm of De Beers - was producing about 15 million carats annually and employed nearly 11,000 people.

After a series of asset sales and staff reductions, DBCM now employs some 2,500 people and produces around 7m carats annually.

Noko said: “It’s a smaller company and I think it’s time to appoint someone younger to take over and lead it forward.”

Noko is a mechanical engineer with an MBA who worked for SAB, Pepsi Cola and Air Chefs before joining De Beers.

Asked whether he might join another diamond company - like many other De Beers executives who have recently left the group - Noko said he was interested in remaining in the diamond sector but not “in a production space”.

He added he saw scope in the downstream selling and marketing of diamonds, but did not want to get into the cutting and polishing industry.

Noko defended De Beers’ decision to sell the Cullinan mine to Petra Diamonds, which has made significant changes to the mining and recovery methods to ensure the safe recovery of large diamonds from the operation.

Petra has just sold a 507 carat diamond recovered from Cullinan for $35m - the highest price ever paid for a rough diamond.

Petra has also just announced plans to increase production from Cullinan from just under 1m carats in 2010 to 2.6m carats by 2019.

When De Beers sold Cullinan to Petra, it estimated the mine had a five-year economic life. According to Petra, that life is 21 years on the current mine plan and could be extended to 50 years.

Noko said: “At that point I owed the banks R4bn and could get R1bn from selling Cullinan. It was the right decision to make, keeping in mind that De Beers had also taken a decision to facilitate the entry of smaller players into the diamond industry.

“Petra also has an altogether different mining approach and model to De Beers. They are boutique miners, while we have always been a volume-driven company.”