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Beneficiation in the Diamond Industry

Beneficiation in the Diamond Industry

When compared to other major industries like telecommunications, oil and gas, or consumer electronics, the diamond industry is relatively small. However, as I have noted in the past, the diamond industry employs an estimated ten million people around the world, both directly and indirectly. It also inspires dazzling artistic creations, and offers savvy investors a wealth preservation asset in times of financial turmoil. But some of the most important benefits that the diamond industry creates are often the least well known to the general public and the media.

Every diamond producing country is different in the way it chooses to capitalize on the diamond resources buried in the ground within its borders, but all attempt to leverage diamonds in some way or another to benefit society as a whole. In my next series of articles, I will look at what has become known as ‘beneficiation’, or the downstream benefits that can be achieved by mining diamonds.

The primary meaning of beneficiation in the mining industry is a process in extractive metallurgy that improves the economic value of mined ore by removing non-commercially valuable minerals. The diamond industry has used the term for many years in reference to other downstream activities, such as cutting and polishing, that create additional economic value to a producer country beyond just the value of the rough diamonds it produces. In recent years, the word has been adapted even further, and many now use the term more broadly to refer to the overall benefit achieved through diamond activities in a given nation. This broad definition of the word is what I hope to explore over the next few weeks.

Although the early goals of beneficiation in any country are usually fair and just, the long-term results do not always align with the hopes of its architects. Some countries have been utterly transformed by diamonds for the good, while the benefits to others have not been equitably distributed. Conversely, some countries that have never produced a single mined diamond have become epicenters for the industry. In some places, beneficiation has become a natural byproduct of the presence of diamonds nearby, while in others it has been forced upon the industry in ways that have proven unsustainable. As countries like Namibia and Zimbabwe continue to explore ways to gain more benefit from their diamond resources, the successes and failures of other nations are on display for those who will design future strategies.

The most common form of beneficiation is when a producer nation mandates that a certain proportion of its rough production must be sold to local manufacturers to produce polished diamonds. This ensures additional employment outside of the mining, sorting, and sale of rough stones, and also helps local businesses capture any additional profit margin from manufacturing. Local firms are able to create national marketing campaigns around both the diamonds and the finished jewelry that are mined and cut locally. A Nielson study has shown that 75% of consumers say that a brand’s country of origin is as important as or more important than other drivers such as price, function, and quality. It is no surprise that jewelry manufacturers in many diamond-producing countries have been somewhat successful in selling locally mined and cut diamonds.

However, the largest diamond consuming nations, such as the USA, India, China, Japan, and the Eurozone, produce virtually no diamonds of their own. In contrast, producer nations like Canada, Australia, Botswana, Russia, and South Africa are not amongst the major consumers of diamond jewelry. This means that efforts to cut and sell locally are limited by the internal demand for diamonds, and the majority of finished goods are destined for foreign markets. Perhaps more importantly, the skill of local workers and the development of new manufacturing technologies are an impediment for most producer nations, as countries like India and Israel have excelled in these areas.

Using a broad definition of the word beneficiation shows much additional benefit to a producing country beyond just the downstream cutting and polishing industries. Due to the topography where diamonds are most often found, major infrastructure developments are often needed to bring roads, electricity, and supplies to a diamond mine. This type of investment can, in some cases, be worth billions of dollars to local economies, and provide ongoing benefits long after a diamond mine is shuttered. In some countries, the presence of roads that were built to support diamond mining activities can continue to open up new opportunities in resource extraction and new settlements for decades to come. Electricity infrastructure is another profound benefit of diamond mining, as most diamond producing regions lack adequate power generation prior to it being delivered to support mining work. Countries like Canada and Lesotho provide examples where previously inhospitable areas are now thriving as a result of power infrastructure being distributed for diamond mining.

Further beneficiation from diamonds comes in the form of direct royalties to governments that can be used for the greater good of the economy. Virtually all companies mining diamonds must pay some form of royalty to various levels of government within the region and nation. This is a common feature of all types of mining activities. They range from as little as four percent to more than 20 percent. These royalty payments often become part of a government’s general revenue, which is used as required based on the individual country’s finances. However, different nations have been more and less productive with their diamond income. Botswana, for example, has used diamond revenue to transform itself from one of the poorest nations in the world, to one of Africa’s richest and most productive countries. Other places, such as the Central African Republic, which has plentiful diamond resources, remains amongst the poorest and least developed areas in the world.

Over this next series of articles, I will look at the beneficiation efforts of many different countries to see how some have succeeded, while others have failed. I will try to carve out a roadmap for governments who are currently looking to establish or amend their own diamond beneficiation guidelines for the benefit of future generations.

     The views expressed here are solely those of the author in his private capacity. No one should act upon any opinion or information in this website without consulting a professional qualified adviser.


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 August 2017 Market Report



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