Diamond miners expect market glut to ease

The long-awaited closure of Rio Tinto ’ s Argyle diamond mine in Australia is nearing, and a number of producers of lower-quality diamonds expect better prices for their stones once this happens.

Argyle in Western Australia is a major source of the world’s rough diamonds, described by various analysts as one of the key reasons there is a glut of smaller, lower-quality diamonds, with more than threequarters of its output of about 14million carats in this category.

And then there is the difficulty in India for buyers to secure finance for their cutting and polishing businesses specialising in treating these stones.

Prices have largely stagnated for lower-quality diamonds and there is collective anticipation of an uptick in prices once this major source has stopped.

Rio, the world’s third-largest source of rough diamonds after Russia’s Alrosa and Anglo American’s 85%-held De Beers subsidiary, has said it will close Argyle in 2020 as it nears the end of its economic life. With the closure, Rio’s diamond production, which stood at 18-million carats in 2018, will come from just Diavik in Canada.

De Beers and Alrosa have reported lower revenues from diamond sales so far in 2019.

Firestone, a small company that operates a mine in Lesotho, is sitting on its cash as it waits for the market to improve for the diamonds that form the backbone of its production.

But addressing the underlying malaise in the market would require addressing funding difficulties for cutters and polishers in India and a boost in demand for diamond jewellery.

DELOITTE

Would investors who bought African Bank ’ s shares in a 2013 rights issue have stayed away from the bank had they known that it would go into curatorship eight months later? Logic says probably and so does the auditing watchdog.

Deloitte spent most of past

week defending the 10 charges that the Independent Regulatory Board for Auditors (Irba) has levelled against two of its senior audit partners, who audited the bank’s financial statements in the years leading up to 2014.

In one of the charges, Irba argues that Deloitte’s auditor signed off financial statements that did not disclose concerns about African Bank’s ability to stay in business. These financials formed part of the information investors used to consider whether or not to subscribe for the rights offer, Irba says. There were no concerns raised about African Bank’s liquidity in the rights offer circular.

In December 2013, African Bank’s parent company, Abil, issued 685-million new shares. The rights offer was oversubscribed and the bank managed to raise R5.5bn.

In its defence, Deloitte said the rights offer circular had a different purpose, thus the omission of the going-concern issue.

The firm also argued that the rights issue was fully underwritten by Goldman Sachs. When Deloitte received Goldman Sachs’s written commitment, any uncertainty was removed, it said.

For shareholders who lost their investment when African Bank was placed under curatorship, this explanation is likely to be a bitter pill to swallow. After all, they unknowingly bought into a company that was on the verge of collapse.

The Myburgh commission found that African Bank would have collapsed by late 2013 had it not been for the rights issue.