Mining

Dark clouds gather over South Africa’s diamond legacy

South Africa’s diamond mining production has hit a 10-year low, as the precious stone is losing its shine.

South Africa has a long and storied history as a major diamond producer. The 1867 discovery of diamonds near the Orange River sparked a massive diamond rush, forever changing the landscape of the region.

Kimberley, the centre of the rush, became a booming mining town and a key source of diamonds for the world. This prominent position as a top producer continued for well over a century.

However, data from the Outlier revealed that, before 2023, the country produced an average of 8.5 million carats a year. By 2023, production had dropped to 6.1 million carats.

“The reason for the drop is that De Beers’ Venetia diamond mine reached the end of its open-pit operations in December 2022,” the publication explained. 

The mine accounted for 40% of South Africa’s diamond production, according to the Minerals Council.

Despite this decline, South Africa remains among the top 10 diamond-producing countries, contributing 5% of the world’s diamonds. 

The largest producers are Russia with 37.3 million carats and Botswana, with an output of 25 million carats, according to 2023 Kimberley Process data.

De Beers, the world’s leading diamond company, is facing significant challenges as its sales have plummeted due to the growing popularity of much cheaper lab-grown diamonds. 

This has caused De Beers’ parent company, Anglo American, to consider selling or spinning off the diamond giant.

Analysts believe this move reflects the harsh reality of a declining natural diamond market. 

Sanlam Private Wealth investment analyst Christiaan Bothma has said he doubts Anglo American will get full value for De Beers in the current climate.

De Beers has attempted to stimulate sales by slashing prices, but these efforts haven’t yielded success. Sales for the latest quarter dropped 18% compared to the previous period.

Source: The Outlier

Consumers have been increasingly ditching natural diamonds in favour of cheaper and more ethical alternatives. 

While some people are opting for second-hand engagement rings, according to the Telegraph, the industry’s real threat is from lab-grown diamonds. 

According to Statista, the market value of lab-grown diamonds amounted to more than $20 billion (R362.25 billion) in 2021 and is expected to surge significantly to nearly $52 billion (R941.86 billion) by 2030.

They estimated that global nominal lab diamond jewellery sales would amount to $18 billion (R326 billion) in total in 2024. 

From this total, $7 billion (R126.79 billion) is expected to be incremental sales, meaning that these sales do not displace natural diamond sales. Accordingly, $11 billion (R199.24 billion) in lab diamond sales is expected to replace natural diamond sales. 

Peter Major, director of mining at Modern Corporate Solutions, told Kaya Biz that the demand for natural diamonds and their supply are declining. 

“This is probably the scariest threat diamond mining has faced in the past 100 years,” he said. 

This decline extends beyond De Beers. A PwC report revealed that South Africa’s mining industry, as a whole, is facing dwindling reserves and profitability concerns. 

The report, which analysed 29 domestic mining companies, showed that combined net income slumped to R108 billion in their latest financial year from a record R206 billion last year.

PwC said this was because of lower commodity prices, crippling power cuts, rail network constraints and rising costs. 

Despite the decline in earnings, the industry’s profitability is still more favourable than the R32 billion recorded in 2019 or the loss in 2018.

The mining sector’s woes will affect the government, which has benefited from windfall taxes and royalties in the past two years. The sector’s reported tax expense declined by 34%. 

Mined materials accounted for around 58% of total exports in the first six months of 2023 at R575 billion. 

While South Africa’s mining sector faces a host of challenges, one is often overlooked – the country’s dwindling reserves.

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