Opinionista Amo Marengwa 3 May 2021

South Africa’s archaic legislation is strangling the junior diamond mining industry

Legislation should recognise the uniqueness of SA’s alluvial diamond mining industry to unlock its wealth and potential for job creation.

First published in the Daily Maverick 168 weekly newspaper.

South Africa’s alluvial diamonds have the potential to create sustainable jobs, drive inclusive growth and aid our economic recovery from the Covid-19 pandemic. But that will only happen if we change the archaic, rigid diamond mining legislation strangling the junior diamond mining industry in this country.

It shouldn’t cost more than half a million rand and take a year to get a permit, when the average life of an alluvial diamond concession is about 1.3 years. But it does. Alluvial diamond operators shouldn’t have to comply with 10-year social and labour plans when the average life of an alluvial mine is only one to two years. But we do.

That’s because current legislation does not distinguish between a large diamond mine, and a small, family-run, alluvial operation-like mine. Unlike big diamond mines, smaller alluvial diamond mines are largely nomadic in nature. Mine operators work in an area for 12 to 18 months, and move on once they have extracted the alluvial diamond deposits there.

Yet we are governed by the same mineral policy, regulations and stringent health and safety standards designed for large-scale, fixed mining operations. These include exorbitant application fees and expensive geological studies that accompany them, along with monthly inspections, electrical and hygiene costs.

Rethinking mining legislation

Thousands of alluvial diamond operators have buckled under the financial weight of the government’s regulations and closed up shop, taking with them 20,000 jobs.

In 2004, there were an estimated 2,000 small diamond companies employing about 25,000 people in South Africa. Today, there are fewer than 200 alluvial diamond operations employing just 5,000 people.

The “one size fits all” approach to legislation has failed. We need to rethink the rules and overhaul the systems that stand in the way of establishing a flourishing junior diamond mining industry.

Even the concept of small-scale mining needs to be diversified.

Artisanal and small-scale mining groupings must include prospecting and exploration and should be divided into different categories, based on the size of the land and the number of people employed.

There isn’t just one type of junior diamond mining operation. An artisanal mine employing 10 people per shift has very different needs to a junior miner employing 50 people. Similarly, the needs of small-scale and prospecting operations with fewer than 35 employees need to be accommodated.

There should also be a different type of permit for each of these operations to cater for the unique groupings that exist in the small and junior mining sector. Current legislation and permits simply do not take into account the diversity of the sector.

We accept the need to work safely and responsibly, but the legislation must be enabling rather than restricting.

Simplifying the process of applying for mining rights is crucial. Right now, the mere application for a small, five-hectare mining permit – before the applicant has even bought a pick and shovel – costs well over R150,000 and involves a long paper trail from several government departments to obtain multiple approvals.

What we need is a one-stop shop, where I can receive my mining right and water usage licence at the same place, at the same time.

A century of diamonds – and jobs

The wealth and job creation potential of the alluvial diamond sector is enormous. There are significant alluvial diamond deposits in Namaqualand, the Northern Cape, North West and the northern parts of the Free State. These deposits are large enough to sustain diamond mining operations for at least another century.

Crucially, most of these alluvial deposits are located in rural areas where unemployment rates reach 70% in some instances. The methods we use to mine diamonds make us a massive job creator. Although the alluvial diamond sector produces only 4% to 5% of the diamonds in South Africa, we supply almost half of the jobs in the entire diamond industry.

The junior diamond mining sector produces job-creators, rather than job-seekers. We wouldn’t only create businesses and wealth for ourselves, but also help to create jobs for others – thus ending generational poverty in some of South Africa’s most impoverished areas.

Poor legislation, over-regulation and the staggering costs of permits and applications have led to the rapid growth of illegal mining. Illegal operators – usually referred to as zama-zamas – must be brought into the legal and regulatory framework.

Making policies and regulations more inclusive benefits everyone.

Thinking outside the BEE box

When my brothers and I started our company, called Blue Banjo, we were granted a prospecting right on a property that had previously been well explored and mined. So, the potential for success was high. Yet no bank or financial institution – not even the Industrial Development Corporation –was willing to back us. Our experience is not unique. There are no proper support mechanisms for new – particularly young and black – entrants to the industry.

The battle to find funding forces many black mining entrepreneurs to give up and rent out their land to the better-established white miners.

Exploration is a good capital-raising space for junior black miners, but the Mining Charter fails to leverage this.

The current 30% black equity ownership laws don’t provide the enabling framework that we require.

Emerging black miners don’t have the funds to buy those stakes and can’t afford to wait five years or longer for trickle dividends to pay them off, assuming white-owned companies will finance them.

If established miners were to assist emerging miners by contributing just 1% of gross sales to a non-governmental Mining Development Fund, young black junior diamond mining entrepreneurship would thrive. The fund would support black mining entrepreneurs to raise capital for projects at the development stage and develop them to the point where they are both stable and sustainable, as well as attractive for acquisition by larger companies.

Alluvial diamond mining is less capital intensive than most other small and mid-tier mining activities, particularly when compared with gold and base metals.

With the growing international shortage of larger (+2 carats) high-quality gemstone diamonds, and synthetic gems putting pressure on the small or melee end of the market, South Africa’s alluvial industry should be a growth sector, not one in decline. So, the opportunities for new black entrepreneurs are definitely there.

All that is needed is for the policymakers to recognise that the current guidelines are not based on the realities facing small, privately funded, entrepreneurial diamond mining businesses.

The alluvial diamond sector stands ready to be a driver of transformation and an incubator of black-owned and operated entrepreneurial mining businesses – but only if the government recognises the uniqueness of the alluvial diamond mining sector and introduces tailored legislation.

This would open the way for the junior mining sector to create wealth and jobs. DM168

This story first appeared in our weekly Daily Maverick 168 newspaper which is available for free to Pick n Pay Smart Shoppers at these Pick n Pay stores.

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  • Of course, the ability to compete, for young new entrants to any industry, is the same for any South African, regardless of colour. That said I fully agree that the raft of legislation, including BEE, is the single biggest reason our economy is shrinking.
    So short sighted of the ANC.

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