Diamonds: still Africa's best friend. (Mining).

Despite several obstacles, such as the recession in the US and Japan, the growing competition from Canada and the ongoing campaigns against 'conflict' diamonds, the future for diamond mining in Africa remains healthy. FRANCOIS MISSER explains why.

Peter Mee's, the director general of the Diamond High Council, which represents the industry in Belgium, expressed guarded optimism about the future of African diamond mining. In an exclusive interview with African Business at the end of the October World Diamond Conference in Antwerp, Mee's said the demand would be heavily influenced by trends in the United States, which accounts for half the global trade in polished diamonds. He also pointed out that Canada, which attracted 50% of the world's exploration budget last year, is set to pose a serious challenge to African producers.

Mee's dismissed fears, expressed strongly by Maurice Tempelsman, chairman of the New-York based jewel marketing company Lazare Kaplan International, that new developments would lead to over-supply, driving down prices. The extra output, says Mee's, will be absorbed by the rapidly expanding demand in Asia.

During the conference, Du Gong-Pu, the Shanghai Diamond Exchange's SecretaryGeneral said that between 1995 and 2001, the volume of diamond jewellery sales in his country had increased seven fold, from $250m to $1.8 bn (about 6.6% of the world's total market in 2001). Du Gong-Pu anticipates this market to grow at around 20% per annum over the next five to 10 years. This is largely because of the rapid increase of urban elites along the coastal areas and is also the result of an aggressive marketing campaign by industry leader, De Beers.

Guo Tao, senior assistant director of China's National Gemstone testing centre, pointed out that De Beers had begun its campaign in the world's most populated nation as far back as the early 1990s. There is a similar trend in India, which has not only reconfirmed its reputation as a crucial cutting centre, but is also becoming an important consumer.

ADROIT MARKETING STRATEGY

But De Beers is not leaving things to chance. In an adroit marketing move to counter the stigma of 'conflict diamonds it is taking its own cut, polished and mounted diamonds straight to the high street. Its London-based Diamond Trading Corporation (DTC) has just opened its own boutique in Old Bond Street to sell 'conflict free, diamonds of choice' under its own quality banner. Mee's believes that in reaction to this move, others in the prestige retail segment of the market such as Gucci and Cartier will be forced to increase advertising budgets. All this activity is bound to boost the demand for diamonds.

The Canadians have not been slow to react to the taint of 'conflict diamonds'. Authorities the Northwest Territories in Canada award authentication certificates for every polished Canadian Artic diamond in order reassure customers on the origin and quality of the product.

EXPLORATION IN AFRICA

BHP Billiton, like other players of the mining industry, is also pursuing value added opportunities downstream. Vice president, Terry Janes, agrees with De Beers that diamonds are under-branded and under-advertised. Therefore, BHP Billiton which has decided not to renew its three year contract with the DTC, will market its own diamonds and seeks opportunities to work with retailers. It has already launched two diamond branding campaigns - 'Aurias' in Australia and Singapore; and 'Ekati' in Canada and the US.

BHP's exploration is continuing in Africa. The Australian company is prospecting, with Tawana Resources, in Kimberley (South Africa). $1.3m has already been spent on an aerial survey. In association with Motapa Diamonds, BHP Minerals International Exploration Inc has a stake in the Tutume River and Matsitama prospecting licences in northern Botswana.

Meanwhile, Rio Tinto is continuing its exploration with Trivalence on the site of Aredor in Guinea-Conakry where $3.5m have been already invested.

There seems to be a general consensus that the main new developments will take place in Angola. Here, the Russian giant Alrosa, the Brazilian company Odebrecht, the local parastatal Endiama and the Leviev Group plan to increase the output of the Catoca mine from its current level of 2m carats per annum to 5m by 2005.

In addition, the Leviev Group, which is pursuing an upstream diversification of its activities, plans to invest up to $20m to develop the Camafuca deposit, by far the widest kimberlite pipe in the world. Its potential is estimated at 20m carats, equivalent to Botswana's total annual production.

The quality of Angolan gems, this country's potential (it has the largest number of kimberlite pipes on the continent) and the end of the civil war have certainly contributed to De Beers' decision to settle its differences out of court and 'amicably' with Angolan parastatal Endiama and its partners Odebrecht and Ashton Mining.

Despite a global slump of around 17% in world prices, African producers have continued to make profits. Debswana's Jwaneng, Orapa and Letlakhane mines have achieved remarkable financial success; the De Beers operated Marshfontein and Venetia mines in South Africa are topping the list of the world's most profitable operations. Namdeb, generated Namibian $1.02bn intax revenues in 2001 for the Namibian state and a net income of N$507m out of a total turnover of N$3.39bn.

Despite these positive prospects however, there was still concern at the Antwerp conference about the need to ward off the negative impact of NGO campaigns against 'war' diamonds. The industry remembers the catastrophic collapse of the fur industry following campaigns launched by French film actress Brigitte Bardot and other animal lovers against the fur trade.

Maurice Tempelsman reflected the view of many participants when he urged the NGOs to "use their powers of public embarrassment more sparingly' while the President of Botswana, Festus Mogae and the 'emperor' of the diamond industry, De Beers' chairman Nicky Oppenheimer stressed that diamonds were used for the development of their respective countries.

The entire industry has no choice but to commit itself again to support the Kimberley process which aims at curbing the traffic of illegal diamonds through the introduction of certificates of origin.

With the implementation of the Kimberley mechanism slated for early 2003 and the end of the civil wars in Angola and Sierra Leone, Peter Mee's thinks the industry has already entered the 'post-conflict' era. But hurdles remain. One such is the European Union's insistence that the industry must complete inventory of all stocks within six months, before the Kimberley process can kick off. This according to the industry, is unrealistic. (Please see interview with Botswana President, Festus Mogae in the November issue of African Business)