Commodities and Agriculture: Showpiece diamond mine shares the market's strain
Turbulence in the global diamond markets is being felt even here at Venetia, De Beers' newest diamond mine, 30km from South Africa's borders with Botswana and Zimbabwe. Only weeks before the mine came into production in July 1992 at a cost of USDollars 400m, De Beers' Central Selling Organisation, which controls 80 per cent of world trade in rough (uncut) diamonds, imposed quotas on its producer-suppliers because of a flood of gem stones from Angola. For a time Venetia, the first mine of any sort in South Africa to gain permission for seven-day working, moved to a five-day week. This year it has gone back to seven-day working as the quotas were eased so that the CSO is now accepting 85 per cent of the diamonds it contracted to take from producers. However, there is still turmoil in the diamond market, caused by uncertainty about Russian exports following 'leaks' of stones from that country outside its contract with the CSO. Consequently, Mr Hans Gastrow, general manager, says that this year Venetia will process 4.3m tonnes of ore, 6.5 per cent below its capacity. It is also mining an area of lower grade ore, which has fewer diamonds in each tonne. Mr Gastrow is giving no forecasts but all this implies that output will be well below the 5.6m carats a year De Beers predicted Venetia would yield at full production. Last year the mine, building up rapidly, more than doubled output and processed 3.6m tonnes of ore to recover 4.96m carats. About 70 per cent of Venetia's diamonds are of gem quality and analysts suggest that at Dollars 100 a carat on average the mine is generating annual sales of about Dollars 500m. Mr Gastrow says that, apart from the imposition of the CSO quota, Venetia 'has made a remarkably smooth transition from construction to production'. This year will be a time of consolidation. He insists that the quota is having no impact on employment. Nevertheless, Venetia originally was to have employed 870 and it now has 764. A mine of Venetia's size in the past would have employed 2,000. The total has been kept down here partly by highly automated process plant but also by 'fewer people employed just to see that other people are doing their jobs', according to Mr David Gadd-Claxton, ore extraction manager. Venetia was the first new South African diamond mine for 25 years. It is also the country's biggest diamond mine and a major contributor of export earnings. The mine has also revitalised De Beers' production, as it is accounting for half the group's output in South Africa and replacing production from its 100-year-old Kimberley mines, which are now fading away. Venetia's success is strategically important to De Beers because, when its output is added to that in Botswana and Namibia, it gives the group direct control over more than 50 per cent of world rough gem diamond output. This provides a major base for the CSO to work from and gives it a powerful position from which to negotiate with other producers in the diamond cartel. And, while Venetia is using conventional methods to mine about 500m tonnes of waste and to mine and process 100m tonnes of ore over its projected 23-year life, it is trying some highly innovative ideas about labour relations and environmental issues, at least as far as South Africa is concerned. For example, there are no migrant workers at the mine. Employees are bussed in from nearby towns for 12-hour shifts and then return to their families. Venetia is also breaking with the De Beers' tradition that, for security reasons, no equipment leaves the mine but is burried within the top security area once it is no longer useful. Here worn out equipment will be stockpiled and sold off when the mine closes. It could be worth millions of dollars.
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