De Beers To Fight S.A. Minister's Denial of Export Exemption in Court

Finance and Trade
01/06/2017 09:21

According to a report by Martin Creamer in Mining Weekly Online, South Africa's Minerals Minister Mosebenzi Zwane has taken the seemingly odd decision to deny diamond mining company De Beers Consolidated Mines (DBCM) an exemption from a 5% levy on exports of rough diamonds to Botswana for aggregation. "Aggregation", as Mining Weekly Online describes, "is the process of mixing like-for-like rough diamonds from mines in South Africa, Botswana, Namibia and Canada and sustaining the South African diamond cutting and polishing industry and jobs in the process." The system until now has been that De Beers South Africa receives an exemption on those exports, and once the aggregation process is complete, rough diamonds of higher value are re-imported back into South Africa for cutting and polishing, a diamond beneficiation exercise that provides jobs and adds value.

"But", as Creamer continues, "Minerals Minister Mosebenzi Zwane has denied De Beers an exemption to enable this, despite the company exceeding all the legislated criteria for its 2017/18 levy exemption application and having a track record of never missing an exemption since its enactment in 2008. As a consequence, De Beers RSA has approached the Pretoria High Court to set aside the Minister’s decision." He explains that De Beers must sell at least R3-billion (US$228.5 million) worth of rough diamonds, with 40% of them going to South African diamond cutters and polishers, to qualify for the exemption in terms of Section 74 of the Diamond Export Levy Act. What makes the minister's decision so odd is that De Beers had its levy exemption application turned down despite the fact that it, "more than trebled the required total sales level to R9.47-billion (over US$722 million) in the 12 months in question, with 43.3% going to local cutters and polishers ... doing far more than the law demands and thereby boost local beneficiation and simultaneously sustaining large numbers of direct and indirect jobs." 

Creamer continues, writing, "De Beers’ South African sightholders alone sustain more than 300 direct jobs in their cutting and polishing factories, representing 80% of the total local employment numbers, but sustaining employment at this level is dependent on local companies being able to access higher value rough diamonds from aggregated international production, which facilitates the running of viable businesses. Section 74 was developed by the South African government to incentivise large diamond producers to support diamond manufacturing in South Africa, which it has succeeded in doing." Forcing De Beers to pay the levy will impact its efforts to support many local businesses and initiatives, and comes at a very difficult time for several diamond miners operating in South Africa, such as Rockwell Diamonds, Trans Hex and DiamondCorp. Creamer suggests that the outcome of the court case is a matter of national interest.