· Introduction

· The State Diamond Trader (SDT)

· The Role of Industry Players

· Incremental Costs of Mining in SA

· Further Considerations

· Regulatory Concerns

· Conclusion

• Recommendation

Introduction (1)

• Anglo American supports Government's objectives of seeking to:

• Increase access to rough diamonds for manufacturing

• Promote and further develop the domestic diamond beneficiation industry

• Establish SA as an even more significant diamond beneficiation centre
• Provide a platform for broad-based socio-economic empowerment

• This submission should be viewed from the perspective of an investor in the diamond industry

• We are concerned that legislation in the form of the Diamonds Amendment Bill (the Bill) is seeking to provide such a solution in the absence of an agreement amongst stakeholders of the common facts regarding the industry

• We are also concerned that such insufficient time has been given to addressing legislation that will have a significant impact on the diamond industry

· We are of the view that the legislation in its current form may not deliver on its stated objectives

The State Diamond Trader (1)

· The Bill constitutes in effect a form of wholesale State regulation of what has until now been a selfsustaining diamond industry in South Africa

· Uncertainty of take-up of quantity, type and quality of diamonds by the SDT will adversely affect planning for producers and may adversely impact investment in production capacity

· The SDT's intention to secure sufficient low cost stones for local beneficiation may prejudice market pricing mechanisms

The State Diamond Trader (2)

The ability of the SDT to cherry-pick locally produced diamonds, before such stones are able to be sold to third parties or exported to other markets by producers may compromise their ability to market the remaining stones to clients

· The state should not play the dual role of trader and regulator

The Role of Industry Players

· Domestic diamond production has quantities of appropriate stones to local manufacturing market insufficient supply the local manufacturing market

· Local production is supplemented by means of the importation of rough diamonds from other producing countries, without which the local manufacturing industry's future viability will be compromised

· Marketing initiatives by producers and their customers are critical to maintaining and enhancing consumer interests in diamonds

• Additional potential costs levied on the mining industry

• 8% royalty on diamond revenues
• 15% export duty on rough diamonds
• Review of mining tax regime

• Many diamond mines are marginally profitable even before these additional costs

• Increasing costs will lead to further mine closures and threaten the livelihoods of thousands of workers

• A regulatory impact assessment and cost benefit analysis should be undertaken

• Rough stones which are permanently exported are those uneconomical for the domestic industry to beneficiate - a 15% export duty may render them uneconomical to produce

• Existing investors will be adversely affected

• SA will be a relatively less attractive mining investment destination

• The Bill does not provide measures to improve the economics of the cutting industry in SA

Regulatory Considerations

· Section 2 of the Diamonds Act states that the Minister may by notice in the Gazette make any provision of the Diamonds Act apply in respect of any other mineral

· In light of the interventions proposed by the Bill, this section can introduce greater uncertainty and undermine investor confidence in the entire mining industry should it not be removed from the Act

Conclusion

• The Bill in impact on the mining its present form will have an adverse employment, growth and investment in industry

· It will directly discourage further investment in the exploration and mining of diamonds in South Africa

· It represents a radical departure from stated Government policy and is unlikely to achieve its objectives

• It may undermine the Kimberley Process

Recommendations (1)

· Strongly encourage the investigation of proposals & alternative strategies for promoting the diamond industry

· Ensure that all the economically cuttable diamonds currently supplied to the local industry are in fact cut in SA

· Strive to increase the categories of diamonds that can be cut and polished in SA by improving the economics of diamond cutting in this country

· Encourage further development of all aspects of the downstream pipeline, including jewellery design, manufacture and retail

Recommendations (2)

• Due to the far reaching and potentially adverse implications of the Bill on the industry, more time should be allocated for further deliberations and engagement regarding the Bill

· We stress that the 15 working days given to provide input regarding this important legislation was inadequate