The diamond giant’s deal with an empowerment company, giving it far-reaching rights, could breach competition law, writes Wisani wa ka Ngobeni
Diamond giant De Beers has signed a confidential agreement with a black economic empowerment mining group that gives it extraordinary powers over the black company’s future dealings.
The Mail & Guardian is in possession of the contract between De Beers and the empowerment group New Diamond Corporation (NDC).
The agreement, which was signed over a lucrative diamond mining venture in Limpopo in 1999, seeks to give De Beers control over any future activities whatsoever by NDC in the diamond industry.
Lawyers told the M&G on an unattributed basis that the agreement raised the possibility of collusive behaviour that could violate South African competition legislation.
One said it was possible the contract was not even enforceable. The lawyers said that the controversial clause in the agreement was unusual as it dealt with matters that went far beyond the Limpopo joint venture.
The agreement says: “NDC agrees in favour of De Beers that, except in accordance with the intention expressed in this agreement, it will not be associated in any manner, whether directly or indirectly or through associated holding or subsidiary companies, with any venture, negotiation, tender or proposal incidental to the diamond industry unless De Beers has been offered, in writing and with reasonable notice, an opportunity to participate on equal terms and has declined to do so in writing, within a reasonable period after receipt of the said notice.”
It continues: “NDC also agrees not to invest in any manner in any company, enterprise or partnership engaged in the mining or marketing of diamonds unless De Beers has been offered, in writing and with reasonable notice, an opportunity to participate on equal terms and has declined to do so in writing, within a reasonable period after receipt of the said notice.”
De Beers has long had to defend itself against allegations of monopolistic behaviour. Since the company’s inception it has sought to control and manipulate the supply of diamonds to the world market. By doing this, it maintains the prices of diamonds.
The United States has declared such behaviour monopolistic, barring De Beers directors from coming to the country. De Beers recently settled a $20-million class action in the US in which it was accused of price fixing industrial diamonds.
The European Union’s competition arm has also launched an investigation.
While De Beers has sought to convince the industry that it is moving away from control of supply and more towards the retail sector, few in the tightly knit industry believe the company has really abandoned its monopolistic strategy. At the same time, De Beers has lost control of key supply sources in Russia, Canada and Australia.
In South Africa De Beers has also long faced allegations of manipulating the industry for its own purposes. The main attack has been that the company has discouraged the development of a local cutting and polishing industry, as this could undermine its control.
De Beers has consistently denied this. It has an extremely close relationship with the state organs dealing with the industry both in apartheid times and now. The Diamond Board, for example, has several De Beers’ employees and sightholders (rivileged clients) on its panels.
The tie-up with NDC over the Marsfontein venture in what was then the Northern Province was De Beers’ most important black empowerment move to date.
The exact nature of the NDC-De Beers agreement in the Marsfontein deal comes ahead of publication of the revised Minerals Bill, which is likely to transform the industry drastically.
Ministry of Minerals and Energy representative Kanyo Gqulu this week said the Mineral Bill is deliberately designed to give preferential treatment to black mining companies in terms of mining permits and licences. NDC and through it De Beers is set to enjoy such benefits.
NDC comprises New Diamond Holdings, Letlotlo Investment Holdings, African Renaissance Holdings, and Transcontinental Diamond Corporation. Its directors include Tiego Moseneke, the younger brother of Judge Dikgang Moseneke; Vincent Msibi, a Mmabatho-based doctor; and Ronald Suresh Roberts, a lawyer and writer. Other NDC directors include Kennedy Memani, Murray Coutts-Trotter, Gavin H Pieterse and Alan Smith, who is the CEO.
In another empowerment venture, De Beers recently announced its joint exploration joint-venture deal with Tokyo Sexwale’s Mvelaphanda group. The company also sold its mothballed Kamfersdam mine to the NDC for R38-million.
All of this is crucial in the light of the looming Minerals Bill, which obliges South African mining companies to get into bed with black empowerment partners.
De Beers said this week its agreement with the NDC does not contravene competition law. The company also denied seeking to control an emerging company.
The company said it had “on various occasions stated its support for the government’s initiatives to foster black economic empowerment mining companies and we believe we are making a meaningful contribution to changing the nature of diamond mining in South Africa.
“We wish to state that De Beers always seeks to have commercial transactions with black economic empowerment groups. These relations are based on commercial principles and therefore the partners we have are robust in a business sense.
“The clauses [in the agreement with NDC] have not restricted our largest partners, NDC, in the Marsfontein project from expanding their operations in diamond mining ventures beyond partnerships with De Beers. It is a fact that our partners have operations unrelated to our company,” the company said.
In his response, Moseneke, who is the NDC executive chairperson, agreed that the NDC-De Beers agreement in question provides De Beers with participation rights in future NDC projects. However, he said, since the conclusion of the agreement, the NDC has acquired various other assets and De Beers “has not exercised any of its rights as contemplated in the said agreement”.
“On the contrary, NDC has concluded a further transaction with De Beers in terms of which NDC acquired a 100% interest in the Kamfersdam mine. De Beers will have no remaining interest in this mine. NDC is an independent, black-controlled diamond mining company. Neither the Marsfontein agreement nor any other agreement the company has concluded undermines its independence, integrity and growth prospects.”
The deal involves the high-grade Marsfontein Mine near Potgietersrus. De Beers transferred its 60% stake in the mine, which it holds in a joint venture with Canadian-listed SouthernEra Resources, to a new company (Newco).
De Beers sold off up to 35% of Newco to a consortium of black economic empowerment partners led by NDC. Other partners include Domba Investments, Umnotho weSizwe Investment Holdings and Vuwani Projects. De Beers has 51% stake of Newco, NDC 24%, Domba 5% and Umnotho and Vuwani both have 3% each.
The only project in which De Beers and NDC share an interest was the Klipspringer JV held 50:50 between Steppon [Newco] and SouthernEra. NDC has a marketing/offtake agreement with De Beers, whereby the latter buys all of the former’s diamond production, Moseneke said.
Last week the M&G revealed how Moseneke’s company was embroiled in a row involving diamonds with members of a disadvantaged Northern Cape community.
The community of Schmidtsdrift, a forlorn settlement outside Kimberly, claim the NDC acquired its diamond mining operations in the area illegally. They say their community property association did not have a mandate to sign up the joint venture with the NDC.
The NDC dismissed this, saying the association has consulted widely with the community. The NDC is yet to pay the community royalties, and has accumulated more than R1-million as a result.