Diamond Finance Consulting

Introduction to Beneficiation
 

For the benefit of readers who are unfamiliar with ‘beneficiation’ I include below an article that first appeared on www.diamond-portal.net and which is a first in a series of articles I am writing on the subject. 

Beneficiation

[Origin: 1870–75, Americanism; < Sp benefici(ar) to benefit, profit from (especially mining or farming) (v. deriv. of beneficio < L beneficium;  

From Canada to Africa, governments are forcing the DTC to sell rough diamonds locally to manufacturers who are obligated, through a system of beneficiation, to polish them in factories which employ their populace.

The philosophy is that between the mine and the ring, a lot of value is added to each stone.  When the rough is sold directly from the mine and polished elsewhere, the added value leaves the country never to return. If diamond manufacturers are forced to polish some or all of their stones in the country of the mine then some of that added value will stay in the producing country.

And, by employing thousands of locals in semi-skilled positions their governments hope that their economies will benefit from the extra revenue and that the corollary will be skilled positions as artisans and professionals.

The Issues
The concept of beneficiation is laudable, but history has shown that beneficiation is not so straightforwardly successful.

The best example is Russia which used to sell its rough at a discount if it was manufactured locally. This worked for a few years, and rough customers were willing to forgo the low efficiency of the Russian factories as they were more than compensated by the price discount; however, once the discount was reduced, the polishing industry started to disappear.

Fortunately for Russia, increasing oil and gas revenues picked up slack in the economy.

How to be Successful

Many diamantaires have tried to manufacture diamonds in countries around the world where labour was cheap or where governments offered subsidies to create jobs.  But these projects were frequently not economically viable, either because the local workforce was not suited to diamond polishing or because the government assistance was subsequently removed.

In order for beneficiation to succeed, a clear long term strategy is required to help the local diamond polishing industry.  But a lot of effort is required by the producing governments to make sure beneficiation starts smoothly.

-                      Administration has to be smooth, helpful, professional and non-intrusive;

-                     Fiscal policies have to be designed which attract other aspects of the pipeline to be added to the polishing activities;

-                      A whole range of physical infrastructural aspects have to be addressed including  transport, security, hotels and facilities surrounding the factories;

-                     Access to local skilled professionals;

-                     Provisions of locals prepared for working in diamond factories;

More than this, though, governments must understand that diamonataires are businessmen who excel at buying rough, polishing the stones and selling then on down the pipeline – and making a profit.  Governments have to work hard to ensure that at sooner rather than later, their beneficiation policies also create profit for the diamantaires.

The next few articles will look at a variety of infrastructural, commercial, legal and fiscal issues have to be addressed for the longer term success off beneficiation.  We shall also address what the long term aims should be.

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Copyright © 2008 Diamond Finance - Last modified: 11/23/08