The location of De Beers’s South African diamonds is now a major stumbling block in talks between the state and the giant to resolve the deadlock over gem exports. Mungo Soggot reports
The battle between De Beers and the government has intensified amid accusations by state diamond officials that De Beers has backed out of an agreement to return to South Africa its huge stockpile of local diamonds.
The government’s new diamond valuator says it wants the stockpile in South Africa so that it can have jurisdiction over it. De Beers took its stockpile, believed to be worth hundreds of millions of rands, to its Central Selling Organisation (CSO) in London a year before the 1994 elections. The diamonds are kept in sealed cases that are only supposed to be opened in the presence of the valuator.
The proposed return of the stockpile was part of a deal aimed at resolving a stand- off over the way the valuator evaluates De Beers’s diamonds before the company ships them to the CSO, the organisation through which De Beers controls its worldwide diamond cartel. The location of the stockpile is one of several points of contention that have arisen between the government and De Beers since the confrontation began in March.
The battle started when the new valuator – whose appointment has caused a significant deterioration in relations between the state and De Beers – held back a consignment of De Beers diamonds on the grounds that the diamond giant had valued them at less than their true market value.
De Beers argues that it itself is effectively the diamond market – a reasonable contention where South Africa is concerned, considering the company accounts for 95% of diamond exports. The valuator, meanwhile, has argued that the company has been undervaluing its goods for, among other reasons, tax purposes.
There still appears to be no end in sight to the dispute, which has already caused considerable disruption. Not only has De Beers been unable to export, but its joint venture partners on its South African mines have had their profits hit by the hold-up.
The head of the valuator, Claude Nobels, confirmed that De Beers had refused last week to return the stockpile after initially agreeing to do so in a recent round of negotiations. Sources close to the valuator signalled it was unlikely a permanent agreement would be struck without the return of the stockpile. “We have now unilaterally demanded that the stockpile be returned. It is a condition they will have to meet,” one official said.
De Beers said this week: “The question of the stockpile and its valuation has been part and parcel of our difficulties with the GDV [government diamond valuator] since March. The subject matter is therefore not new, but in view of the fact that discussions are ongoing at this stage it would be discourteous of us to our negotiating partners in government to discuss the matter in any great detail until a solution has been found.”
Sources close to the government valuator have accused De Beers of trying to “wear out” the state in the negotiations, and point to the latest twist over the stockpile as evidence.
Officials said the two sides had settled on a temporary agreement in terms of which about 75% of the De Beers diamonds held up would be exported at the prices set by De Beers, with the remaining 25% to be exported later, on terms set by the valuator. A source said this agreement had several other legs – including the return of the stockpile. The official said that after the deal had been struck, De Beers had said it wanted to split the agreement and take more time assessing the implications of the return of the stockpile from London. Nobels confirmed this.
State officials also said that in the wake of the latest clash, the valuator told De Beers it would put out to tender a portion of the company’s diamonds that it had held back from export – a move aimed at testing De Beers’s prices against the market.
Tracey Peterson, De Beers’s senior communications officer, confirmed that about 70% of the held-up gems had been exported, but said no tender order had been delivered to De Beers for the remainder of the goods.
Meanwhile, Nobels said he was concerned “by De Beers’s tactic” of trying to discredit him and his company.
De Beers has never publicly attacked Nobels or his company, DVIC. But some of its associates in the diamond industry have raised concerns about them, and expressed fears that Nobels is motivated by an unreasonable antagonism towards the diamond giant.
One independent analyst said this week that the latest insistence on the part of Nobels that the stockpile be returned was unreasonable, considering the stockpile diamonds could in any case only be opened in the presence of the valuator.
The former minister of minerals and energy, Penuell Maduna, intervened in the dispute in April by appointing an inquiry into the confrontation. In his findings, he criticised De Beers for suggesting that the valuator was supposed to merely rubberstamp the company’s gem pricing structure.
Maduna was coy about whether the government planned to hit De Beers with a retrospective extra tax bill if it concluded its product had been consistently undervalued.