The David Gleason Column
How should anyone price rough diamonds? This is part of the issue at the heart of the recently erupted row between the government diamond valuer and De Beers.
Here are the real problems. De Beers mines diamonds in this country and sells them, almost entirely, abroad through its Central Selling Organisation (CSO). It stands accused, by the way, of running a cartel through the CSO because it is said to control the sale to cutters of about 70% of the world’s rough. I’m not certain this is so because the CSO’s so-called iron grip is about as solid as a rusty bucket – just look at the way the Russians played havoc with the market by selling vast quantities to the international bourses two years ago.
Now then, how should the rough diamonds mined by De Beers and sold to its own CSO be valued? The problem is that buyer and seller are seen to be one and the same; outsiders cry foul because superficially the situation almost begs to be abused. But the world price of rough diamonds doesn’t really have an existence outside what’s established by De Beers in the first place. This is because the CSO buys product from most of the big producers, sells some of it and stockpiles the balance, sometimes for many years.
The CSO’s intention in all this is pretty manifest – it seeks a form of regulation by matching supply to demand. It is genuinely concerned that failure to act as it does will leave this world business prey to all the vagaries attached to uncertain supply/demand patterns. There is nothing new in any of this – De Beers’s directors are on record as talking about this problem for 100 years or so.
So whom, in all this, is to say that the world price of rough is anything other than artificial? A South African government- appointed valuer? Don’t be daft.
One answer being floated in Namibia, where much the same “problem” exists, is to insist that parcels of Namibian rough, perhaps 5% of annual production, must be sold independently; that is, outside the CSO net. That way, or so it’s argued, the “real” price/value of rough can be established. Perhaps. Of course, if by some accident the bourses were to be flooded ahead of the independent sales in Namibian-type categories of stones then bang, down would go the price. Tut, tut.
But this isn’t what the argument is about, even though it may seem that way. When De Beers exports its diamonds, it negotiates with the valuer about the categories into which the rough gems fall. Those categories determine the prices the CSO will seek to get for the rough in world bourses. (PS: There are hundreds of categories.)
But the nub of the dispute is that South Africa’s new diamond valuer appears to be claiming jurisdiction not only over the categories into which the diamonds fall, but is also questioning the pricing structure of De Beers’s book. Another way of expressing this is that the valuer believes he has the right to tell the CSO how it should construct its price book and its categories.
If I am right, this is not about challenging old bastions of South African business – it is about the government dictating how business is to be conducted, period. Not surprisingly, that’s about as welcome as being instructed to swallow a pack of razor blades.
Minister of Minerals and Energy Penuell Maduna has said he will pronounce on the dispute on May 4. I hope he gets things right because if he doesn’t all manner of unpleasantness may be let loose.
The Mail & Guardian’s editor thinks this fight is about tax. So do many others. But it isn’t. De Beers pays tax on what the stones actually fetch. Now you can argue that, had the stones been in a higher category they would command higher prices. That’s fair enough – and that’s what a negotiation is supposed to be about. Whether a government- appointed official should be able, however, to dictate or influence the construct of an entire international price book is quite different.
I addressed the matter of the diamond valuer last year (Torque, Financial Mail, November 13) when I revealed that Charles Wyndham, who is currently with his partner Richard Wake- Walker the Canadian government valuer, was complaining bitterly about inadequate tender notice given by South Africa. He said he was given only 24 hours to get from Europe to deliver a presentation here. As I correctly predicted, Belgian national Claude Nobels got the appointment.
That appointment is now being described as having been arrived at in an “opaque” manner – the suggestion clearly being that we ought to have known more about it at the time. Whatever the rights and wrongs is hardly the issue now. This current farrago is a power demo which involves muscle-flexing and new brooms. It shouldn’t be allowed to get in the way of important commerce.