FROM MINE TO MISTRESS

Finweek English Edition - - Companies & markets - DAVID MCKAY davidm@fin­week.co.za

THE PASS­ING OF the De Beers syn­di­cate has opened some in­ter­est­ing pos­si­bil­i­ties for the world’s other di­a­mond min­ers. One spin-off, for in­stance, is that there’s more scope for ver­ti­cal in­te­gra­tion. Just as De Beers sells its own di­a­monds in spe­cially branded De Beers stores, so lesser lights are seek­ing to ac­cess the more lu­cra­tive re­tail end of the di­a­mond mar­ket.

Etr­uscan Di­a­monds is a newly formed com­pany that has an­nounced its in­ten­tion to list on the JSE in the next 12 months. It’s build­ing a small­ish mine about 150km from Jo­han­nes­burg in Ven­ters­dorp, which, at full ca­pac­ity is to pro­duce 500 000 carats of rough di­a­monds. An in­ter­est­ing de­vel­op­ment, how­ever, is that it is hook­ing up with an undis­closed em­pow­er­ment part­ner that will cut and pol­ish its di­a­monds, and then sell them in its own shop.

Kevin McNeill, ap­pointed Etr­uscan Di­a­monds’ pres­i­dent, is not able to dis­close the name of the part­ner, but the ad­van­tages of the move are all to do with the much higher mar­gins re­tail sales en­joy over the busi­ness of min­ing rough goods. Sell­ing stones by auc­tion at “gate of mine” is an in­dus­try val­ued at R88bn/year ($12bn). But the value chain is such that there’s some R460bn/year ($63bn) avail­able at the re­tail level.

“The aim is that we’d par­tic­i­pate in the prof­its of the down­stream mar­ket while the di­a­mond cut­ter and pol­isher gets a guar­an­teed sup­ply of di­a­monds,” says McNeill. And as de­mand for di­a­monds grows, as it’s fore­cast to do from 2008, it will be­come in­creas­ingly im­por­tant for lo­cal pol­ish­ers to se­cure pro­duc­tion.

McNeill, mean­while, says Etr­uscan Di­a­monds is fo­cus­ing on de­vel­op­ing its Hart­beeslaagte/Blue Gum project near Ven­ters­dorp and hopes it can bring its Tirisano prospect out of moth­balls. Tirisano is an in­ter­est­ing case be­cause it’s op­er­ated by Mve­laphanda Ex­plo­ration, owned by Mve­laphanda Re­sources (Mvela Re­sources). Etr­uscan Re­sources, the di­a­mond firm’s ma­jor share­holder, has of­fered to buy the mine from Mvela Ex­plo­ration, but the SA em­pow­er­ment firm has re­fused.

“I think they’re wait­ing for the rand to weaken fur­ther,” says McNeill, con­ceal­ing his ir­ri­ta­tion well. Per­haps if Trans Hex, in which Mvela Re­sources has a stake, con­tin­ues to strug­gle, the re­open­ing of that mine might come soon enough. “It’s got a damn good mill if only we could get our hands on it.”

Look­ing for prof­its down­stream. Kevin McNeill

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