Diamond bill may hurt Trans Hex - analyst
June 9, 2005
By Nicky Smith
Johannesburg - The government`s plans to levy an export tax on diamond producers and become a buyer of rough stones in the local market might damage junior Trans Hex and end up hurting efforts to create jobs, an analyst said yesterday.
In terms of the Precious Metals and Diamond Amendment Bill, the government plans to create a central selling organisation to supply rough diamonds to the local market.
The government`s desire is to enlarge the diamond cutting industry by legislating that a certain percentage of mine production be sold to the central selling body.
Abe Mngomezulu, a deputy director-general of minerals and energy, explained that an independent appraiser and the mining company`s valuator would each appraise a stone and agree on a price.
This would cut out Trans Hex`s tender-based marketing system, where the bidder who offers the highest prices gets the stones.
Henk de Hoop, an analyst with Barnard Jacobs Mellett, said if the tender system was tampered with or an export duty introduced, it could sterilise a `fair proportion` of Trans Hex`s low grade resources.
Trans Hex`s latest full-year earnings showed its net earnings margin was just over 9 percent.
De Hoop said: `Forcing effectively lower revenues on diamond miners is likely to sterilise a fair proportion of the very resources the government wants to have feeding a beneficiation industry.
`The desired job creation and export value creation might end up being marginal or even negative.`
A common complaint from the local cutting industry is that it is not able to source rough stones.
But Bernard van Rooyen, a director of Trans Hex and Mvelaphanda Resources, its largest shareholder, was adamant that `there is no shortage of rough, all they have to do is buy`.
However, local cutters cannot pay as much as Indian or Chinese diamantaires, whose labour costs are much lower.
Van Rooyen said cutting costs in India were about 10 percent of local costs of at least $60 (R400) a carat.
`With a bit of a subsidy, we may be able to get some small polishing outfits going,` he suggested, but if the government wanted cheap diamonds, `it will have to subsidise them otherwise it will walk straight into the constitution`.
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