Diamonds Amendment Bill 11 October 2005

Firstly, to point out that the Diamonds Amendment Bill does not take into account the nature of small scale mining Secondly, to illustrate the potential impact of the Bill (as it is currently formulated) on small scale mining operations, surrounding communities and local government Aim of Presentation

Small Scale Mining Entities General Characteristics Sole proprietors / family owned and managed enterprises Mining occurs at subsistence level or on an ad hoc basis Average size of the farm utilised for mining activities vary between 20ha and 1000ha Extract minerals with basic tools (no mine shafts) Usually mining on marginal reserves Low impact on environment and surrounding communities Number of people employed vary between 2 and 50 Have to respond to Mining and Agricultural Industry Acts and legislation

Facts Small scale mining entities have a 140 year owner management track record Structure of the mining entity is the most important factor in determining profitability Small scale alluvial mining entails extreme risk as Diamond yield can not be determined upfront Distribution of diamonds through gravel is irregular The appearance of the diamond bearing gravel varies considerably in different localities Operations are of a marginal nature Operations have already limited direct operating costs by means of their owner-manager structure and can not afford additional costs that can negatively impact profitability

Factors that could negatively impact SSM MPRDA The strength of the rand Possible unintended impact of the Diamond amendment Bill

Comments on Diamond Amendment Bill Section 30 substituted for section 59 Diamond producers to offer unpolished Diamonds to State Diamond Trader Production cycle Marketing Methods Market Value of Diamonds Additional cost 15% Export Duty Diamond Production

Production Cycle 59(9) Period mutually agreed between producer and SDT before commencement of operation / production cycle Varies by circumstances of Producer Yield Cash flow Offer to SDT 59(1) (a) Minister shall from time to time determine percentage of diamonds that may be required for local beneficiation (59(1) (b) Percentage may be based on carats or volume produced 59(2) SDT has option to select diamonds Percentage that the Minister may select has not been capped If based on carat”s or volume this could mean that potentially due to the selection option, 10% could be up to 90% of the R-value of the diamonds It is unclear what the method is by which the state will verify that all of the diamonds Purchased will indeed be used for beneficiation Time: Undetermined Time: ? Verification time not stipulated 5 days from appointment SDT to Evaluate & Verify Price 59(2) Diamond producer to offer all unpolished Diamonds to SDT, for selection, specify fair Market value Only 1 buyer initially to verify price, unfair as price should be determined in a competitive open market Supply / demand principles wont determine price initially Independent Verification 59(6) Regulator to appoint An independent valuator Acceptable to the producer 59(8) Cost will be shared by SDT and producer How long will it take to appoint the independent Valuator What if valuator is not considered acceptable by producer Bill does not state what the course of action is if producer and independent valuator disagree on price Additional cost to producer Sale of Diamonds 59(3) SDT has one week after verification / fixing of price to buy diamonds 1 week Marketing only starts 2 – 4 weeks after end of production cycle Depending on yield, SSM cash flow will not be able to sustain this period of time – currently many Have to the option to sell Weekly or biweekly depending on liquidity 15% export duty another additional cost that will more than likely be passed back to producer

Impact on Economic Structure MININGAGRICULTURE BUSINESS Municipality Employees and Families Social Upliftment Service Delivery SSM COMMUNITIES LOCAL GOVERNMENT

Impact of the proposed Diamond Amendment Bill Small Scale Mining Operations -Scaling down of operations -Scaling down on workforce (job losses) Local Communities -Loss of main breadwinner supporting extended families -Increased poverty Local Government -Increased number of people unable to pay for services -Additional pressure on an already compromised local municipality The 69 of Blinkklip members collectively employ approx of people The 1180 of employees on average support 7 other people – SSM indirectly supports 8260 people in the local community Excludes employees and dependants supported by other business in the area Wolmaransstad,as many other towns in the North West Province are heavily dependent on the Small Scale Mining sector, closing down of operations will result in ghost Towns

Wolmaransstad

Ottosdal

Recommendations Further research is conducted regarding the impact of the Bill on SSM entities, communities dependant on SSM operations as well as the potential impact on local government Review process of beneficiation so as to ensure that it contributes to competitiveness in world markets without compromising price and therefore small scale operations Commission an in-depth study regarding the World Polished Diamond Market and alternative methods to increase competitiveness by means of competitive manufacturing costs and not trying to become competitive due to obtaining diamonds at a lower purchase price

Conclusion It should be noted that in principle the concept of beneficiation and what it aims to achieve is supported, however it is recommended that the consideration is given to the prescribed manner in which the bill recommends that beneficiation can be promoted. The interests of, and benefits to small scale mining entities and communities involved in the production of diamonds should be weighed up against the interests and potential benefits of entities that will be formed through the proposed beneficiation process We would like to see that the Diamond Amendment Bill results in a win–win situation for all concerned