03 September 2020 – South Africa’s junior and small-scale diamond mining sector, once a thriving contributor to the economy, is on its knees, mostly because of regulatory uncertainty and government red tape. Covid-19 could be the final nail in the coffin.
The discovery of alluvial diamonds in the unique secondary deposits of the Middle Orange River downstream of Hopetown in South Africa in 1867 was the catalyst that initiated the development of the mining industry in Southern Africa.
“Compared with its heyday between the 1990s and early 2000s, today’s junior diamond mining sector is but a shadow of its past. In 2000, prior to South Africa’s changes to mineral policy ownership and regulation, and introduction of new ownership requirements this key industry supported some 2000 small and medium sized private and listed operators,” says Lyndon De Meillon of the South African Diamond Producers Association (SADPO), the organisation that represents the junior diamond miners of South Africa.
A recent 2019 study by Sinazo Dlakavu of the AEON Institute at Nelson Mandela Bay University has shown that ownership is now down to about 200 operators, a decline of 90%. A small part of this is due to geological factors, but most of all this decline is due to ineffective mineral policy, challenging regulatory requirements, and excessive red tape.
The South African Diamond Producers Organisation (SADPO) has noted that diamond production in South Africa in 2018 amounted to about 9.25-million carats. Kimberlites produced 9.03-million carats, with De Beers and Petra Diamonds accounting for roughly 4.68-million carats and 4.35-million carats, respectively. Other, smaller kimberlites produced about 10 000 cts, while alluvial deposits and marine deposits accounted for about 160 000 carats and 50 000 carats, respectively.
“The above-mentioned statistics indicate a strong decline in South Africa’s diamond production from 15.8-million carats in 2005, with consequent negative impacts for the economy, foreign earnings, employment, and communities in key mining provinces and areas,” says Gert Van Niekerk the chairperson of SADPO. “This is especially true of the Namaqualand area on the West Coast of South Africa, and equally true of the Northern Cape – including the once famous diamond centre of Kimberley – and the North West province.”
Upside potential of the sector
SADPO and other highly knowledgeable diamond operators and geologists such as John Bristow, stress that the situation should not be as dire as it has become, given the upside remaining widespread and voluminous alluvial diamond deposits in Namaqualand, the Northern Cape, and the North West province.
“These extensive secondary or alluvial diamond deposits were formed through millions of years of weathering and denudation of the southern continent and the dispersal of diamonds from their primary sources (kimberlites) into streams and rivers, and ultimately to the sea (West Coast).”
This process is accompanied by an increase in average value per carat as poor quality and flawed stones experience progressive attrition and are destroyed over greater distances.
The recent studies by AEON have shown that the remaining 200 private companies involved in mining alluvial diamonds and small kimberlites operates in the North West Province, northern Free State, Northern Cape regions, and north-west coastline of South Africa, with a few more disbursed outliers such as Krone, an alluvial deposit effectively downstream of the world class Venetia (De Beers) kimberlite hosted diamond mine. There are a few small listed operations in the 200 total, “though the small listed companies generally find it difficult to survive when mining these ultralow-grade, low-margin deposits, due to their higher cost structures related to compliance and financial reporting.
Distribution and geology
Alluvial diamond deposits can be divided into coastal deposits and inland deposits. The coastal deposits are distributed along the west-coast of South Africa from the mouth of the Oliphant’s river into northern Namibia.
According to De Meillon these diamonds were brought to the coast by ancient river systems during the uplift, erosion, and drainage evolution of Southern Africa. “Diamonds found along the coast are characterised by a relatively small size but exceptional quality, owing to the attrition process that they undergo during their [journey] to the coast. Alluvial deposits, higher up in the fluvial system – closer to the source kimberlites – inland, have a larger average stone size,” says De Meillon.
Van Niekerk says that South Africa has a unique small-scale and junior diamond sector. “This sector developed over a lengthy period of time, with hard-earned experiences, skills and expertise, assisted by innovative geological work, drilling, digital terrain and three-dimensional modelling of drill data, drones, and modern diamond processing and recovery techniques, providing a platform for exploitation of these deposits,” says Van Niekerk.
The exceptionally low and ultralow grades, and nugget affects are the key challenges facing this sector and inherently result in some niche deposits only capable of providing a short-term life-of-mine (LOM) of between about eighteen and thirty six months, compared with some of the more extensive low-grade deposits, particularly those on the Middle and Lower Orange River sections providing longer LOM operations of up to five years and longer.
“Millions of years of erosion have left only remnants of the old river courses, especially on the middle and upper reaches of the drainage systems of South Africa – this implies that the industry requires a very efficient permit application system where applications for prospecting, mining and water rights are processed within 12 months in order to plan to move to the contiguous ore bodies on adjacent properties,” says De Meillon.
“Regrettably the one-policy-fits-all approach, and the red tape imposed by the various government [departments and] agencies are particularly disadvantageous to the junior mining sector.”
Both Van Niekerk and De Meillon highlight that these mostly remote alluvial diamond mines and operations are crucial to the economies of the small towns in these regions, as unemployment is often close to 70%. “Towns like Douglas, Prieska, Bloemhof, Wolmaransstad, Schweizer-Reneke [among others] will struggle to survive without this [sector],” says Van Niekerk.
Based on current production rates, SADPO says that South Africa still has a large enough resource to sustain diamond mining operations for at least another century based on current rates.
Challenges and oppportunities
Investing in alluvial diamond deposits have always been difficult to sell, says De Meillon. “The main reasons for this are the low and ultralow grades. The so called “nugget effect” of these deposits also present challenges in determining long term profitability and predicting the grade. Hence, the inability of being able to achieve an indicated-resource or reserve status and therefore a bankable status.” However, with robust geological modelling, experience, low cost operations, and technology advances, these deposits can be successfully exploited.
The main stumbling block to the optimal development of the alluvial diamond resources remains the lack of a properly recognised and supported small and junior mining sector in South Africa, with specifically developed legislation. “If a small aggregate mining company also struggles to comply with legislation designed specifically for large mines and public companies, imagine the difficulties faced by junior diamond operators,” says De Meillon.
De Meillon highlights that junior diamond miners have developed practical tools to delineate, evaluate, and exploit these deposits, despite the hostile legislative environment, because these deposits “yield the world’s most consistently and highest diamond value in respect of dollar per carat values, with large (up to about 300 cts) and internally flawless D-colour stones recovered regularly”.
In this respect and given the positive role that these operations and mines can play in creating jobs in poor provinces and rural areas, there should be a concerted effort by policymakers to ensure that the legislative and regulatory regimes are revised to create an enabling environment for this sector.
Van Niekerk and De Meillon further note that a small miners development fund to drive transformation and job creation should be established, and that access to information and technical assistance from the Council of Geoscience and Mintek should be a priority for juniors.
Supply and demand challenges
The past 12 months have been tough for most local and international diamond miners, with the Covid-19 pandemic providing additional challenges. Although alluvial diamond producers generally produce diamonds at the top end of the quality spectrum, they have not been spared.
De Meillon notes that during recent economically challenging times and the latest Covid-19 negative impact on the diamond market, even special stones typical of the South African alluvial deposits have seen a sharp reduction in price compared to smaller quality stones. “There can be no doubt that the diamond industry and specifically the alluvial diamond mining industry will be in for a rough ride during 2020. The longer-term forecast remains positive though.”
South Africa’s alluvial deposits are world famous for the special stones they produce. For example, prior to the pandemic induced market downturn, sections of the Middle Orange River having the highest average value per carat (see Table 1) compared to any other deposit in the world.
Table 1: Summary of the typical grades and average diamond values of the alluvial deposits in South Africa.
|Deposit-Types||Distribution||Average Diamond Values – USD/carat*
(bottom cut-off of 2.00mm)
(<0.15 carats per hundred tonnes – cpht)
|Middle Orange River (MOR) – Hopetown to Douglas (N Cape Province)||USD3000 – USD5000|
|2||Low Grade (0.2 – 0.6 cpht)||MOR – Douglas to Prieska (n Cape Province)||USD1 500 – USD2500|
|3||Intermediate Grade (0.5 – 1.5 cpht)||Lower Orange River (Northern Namaqualand)||USD1 200|
|4||Intermediate Grade (0.5 – 1.5 cpht)||North West Province – Schweizer Reyneke-Bloemhof-Wolmaranstad Triangle||USD700|
|5||High Grade (5 – 25 cpht)||West Coast (Namaqualand) land and marine deposits (N Cape Province)||USD250 – 500|
“In the section of the Orange river between Hopetown and Prieska, average values of USD2500/ct are common with certain deposits averaging double this and more. However, these high value deposits can at best be described as ultralow grade. Along the middle Orange river grades typically vary between 0.1 carats per hundred tonnes (cpht) and 0.3 cpht. This, coupled with the unpredictability of the grade, ensures that these deposits are “best suited to for small and junior mining entrepreneurs with an above average appetite for risk”.
Grades in other areas like the North West province are significantly higher, but the average diamond values are again much lower, adds De Meillon.
Technological advances over the past 20 years and the strength of the dollar have progressively changed the economic parameters resulting in many previously unprofitable deposits being mined.
Over time, operators began to understand their diamond size and value distribution much better. In the Northern Cape, along the Vaal, Orange and Riet river deposits, this led to an increase in the bottom cut-off size as in general, 80% of the value is represented by the +2 ct fraction. Most operators now de-sand their plant feed at 4mm to 6mm bottom cut-off. The associated screening technologies to remove this fraction have seen huge improvements. As the -6mm fraction historically represented 30% to 40% of the plant feed volume, a much higher value feed is now presented to the plant, which has downstream spin-offs other than economies of scale.
Slimes dams are now a fraction of their previous size and water consumption can also be cut by as much as 75%. As the sand fraction is removed dry during the screening process, it can immediately be used for rehabilitation. The mining footprint of these operations can be kept a lot smaller as rehabilitation takes place much quicker.
De Meillon, who has done considerable regional and detailed investigation of these deposits, notes that most operators employ the latest diamond recovery technologies (see Table 2) in their operations. Bulk X-ray units have made diamond recovery more efficient, and the “high-tech, containeriaed recovery systems” and closed-circuit camera systems can be observed and managed remotely. They have also assisted in limiting product theft and shrinkage.
Table 2: A summary of some of the modern technology applications for successful junior diamond mining
|1||Modern Drone Technology||Accurate survey, Accurate surface elevations to identify terraces and channels||Very useful on old deflated deposits|
|2||Reverse-Circulation Drilling||Accurate mine planning to identify minable gravels and stripping levels|
|3||Digital Elevation Modelling||Modeling of drill bedrock data to identify scours in the ancient river bedrock to identify areas where heavy minerals would concentrate|
|4||Geographical Information Systems (GIS)||Manage large volumes of surface elevation, survey and drill data.|
|5||3D-Moddeling packages||Used to identify potential high grade areas|
|6||In-Pit Screening Units||Efficient Removal of the oversize at the mining face has lead to large cost savings||Large cost savings , water savings and|
|7||High-frequency De-sanding Screening||Efficient removal of the -3-6 mm fraction has revolutionized the industry.||Allows the mining of ultra-low grade, high diamond value deposits|
|8||Modern diamond X-Ray Recovery systems eg, Bourevestnik (BV)technology (Russian)||Primary and concentrate diamond recovery||Modular and containerized units; high security|
|9||X-Ray Tomography Mineral Particle Sorters (XRT)||Efficient recovery of large and Type II diamonds||One of the reasons why so many large stones have been recovered in the past 5 years|
|10||Remote CCTV Security and Site-Monitoring Technology||Remote monitoring of sensitive areas on mines as well as access routes have cut diamond theft significantly.|
In respect of the future of this sector, Van Niekerk highlights SADPO has in recent years played a key role in building up a membership of small and junior diamond miners so as to provide a platform to help sustain and redevelop the sector.
“In doing so SADPO has also made considerable efforts and interventions to highlight necessary legislative challenges, reduce red-tape, and to provide solutions to sustain and grow this key sector and drive transformation. Most of all South Africa currently lacks a healthy junior exploration and mining sector,” says Van Niekerk. De Meillon see the revival of South Africa’s junior diamond sector as the catalyst for the growth of successful junior minerals sector which can also drive transformation in the sector.
The Covid-19 pandemic is proving to be most challenging for the diamond sector, but the small and junior diamond entrepreneurs are resilient and already many of these operators are adapting to the harsh challenges created by Covid-19.
Importantly, the quality of the exceptional alluvial diamonds produced by these junior operators will be amongst the first to show recovery of demand and prices once the pandemic impacts decline. The turnaround by these low-cost operators has quicker and greater potential upside in an enabling policy environment than is the case for many other large diamond mining operations due to many of the bigger companies being highly indebted prior to the pandemic imposed lockdowns and related market and pricing challenges.