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South Africa Stalemate Has Not Effected Diamond Pipeline - June 1999 The De Beers sight, due to take place May 5 but postponed two days, concluded well as sales volume continued to rise. The sale was delayed due to the continuing diamond valuation dispute between De Beers and the DVIC Valuations Ltd. Although De Beers did not import any diamonds of more than 10.8 carats, the Company sold between $400 and $450 million – the figure is still an estimate at this time – worth of diamonds, as expected. This is up 20% from than last year’s corresponding sale of $375 million. This is the fourth sale of the year of the 10 normally held by De Beers annually. The suspension of imports over 11 carats may prove, in this case, to be the proverbial straw. The diamond cutting industry in South Africa relies heavily on De Beers, as do most aspects of the diamond trade. While South Africa remains the third largest producer of diamonds, world-wide, as much as ninety-percent of that product is from De Beers’ mines and those diamonds are shipped to De Beers’ CSO in London. And, while De Beers – with it’s estimated $4.2 billion in diamond stocks in London and it’s other suppliers around the globe – can resist the taxman’s siege indefinitely, the South African government is certainly in no position to wage an indefinite blockade. Government Responses Responses from the South African government have been clear since the beginning of the difficulties. Earlier in the month Penuell Maduna, South Africa’s Minerals Minister, found both the Government Diamond Valuator (GDV) and De Beers to be at fault in a report from the taskforce investigation led by Maduna’s director-general. In part of the government report from the investigation the taskforce said that, although De Beers did not accept the legitimacy of DVIC Valuations Ltd. placing different values on export diamonds from De Beers’ own appraisal, DVIC in turn did not release diamonds for an independent valuation within the period stipulated when De Beers had disputed its valuation. In discussing the possible outcome of the situation Maduna did not exclude the possibility of the government charging retroactively the 15% export tax – for De Beers that would mean 11 years worth of back taxes. He did, however, recommend that De Beers and GDV to settle the issue between them. But Victor Sibiya, President of the Diamond Board of South Africa – the government body that supervises the DVIC – says De Beers is to blame for the export impasse. An Issue of Money? How one might go about assessing retroactive taxation and the amount to be charged will certainly be a complex question, particularly as the 15% De Beers did not pay in export duties certainly did appear in taxes the mining arm of the Company paid to the government on it’s income and profits. In short, one wonder if the bottom-line issue for the South African government is really that of past valuation. De Beers Consolidated Mines paid approximately $64 million in taxes to the South African government in 1998, clearly the Company cannot be said to be some sort of tax deadbeat. So what’s the real issue here? Does the government simply want De Beers to pay more in taxes, which it may well? Is this a way of expressing concern over the recent move of Anglo American to London and the imminent company-wide internal review De Beers has launched? Or is it simply that, as Michelle de Villiers, for De Beers, has said, "...a few teething problems have been experienced…"? Meanwhile, De Beers goes about its business: the Company acquired 21.3% of Anglovaal Mining Ltd. for $120 million. Clearly De Beers has no intention of allowing the absurdities of politics to interfere with the bottom-line, even on its own home front. And it is just that attitude that of De Beers that has kept the industry stable for so many years. And, as an additional shot in the arm for De Beers, the Namibian government voted down the proposed Diamond Act by a vote of 80%. v |
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