Presentation to Parliament

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Diamond Marketing Reform in South Africa

• Presentation to Parliament

October 2005
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List of contents

• Introduction.
• South African Mineral Resources.
• Perspective of Diamond Processing in Southern
  Africa.
• South African Diamond Market.
• Why we support the Diamond Amendment Bill.
• Common myths in diamond processing.
• Our proposal.
• Our guarantee for success.
• Critical factors.
• Conclusion.

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1. Introduction

• 1.1 Khadima Mining (Pty) Ltd (Khadima Mining)
• Is a black company owned jointly by emerging
  local entrepreneurs and the Leviev Group.
• It has been established to pursue viable projects
  that beneficiate South African mineral resources,
  especially diamonds, in a manner that promotes
  employment, skills transfer, government revenue
  and development of peri-urban and urban
  communities.
• Is committed to transforming South Africa into a
  diamond-cutting, polishing and jewellery
  manufacturing hub of note within the continent
  and internationally.
• Is passionate about promoting the development and
  marketing of the South Africa Brand of diamonds
  to the international market.

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Introduction (continued)

• 1.2 Leviev Group
• Is the largest diamond manufacturer by value in
  the world with annual turnover from diamond trade
  in excess of US2.5 bn.
• Manages and operates diamond-cutting factories
  worldwide including in countries where the local
  population had no previous experience in diamond
  cutting.
• Has been operating in South Africa for more than
  twenty years.
• Has experience in manufacturing and marketing of
  jewellery for its own account or in conjunction
  with such brand names as Bulgari and Vivid.
• Is the leading global player that has
  demonstrated commitment to establish diamond
  cutting factories in African countries (Namibia,
  Angola and South Africa).

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2. South African mineral resources

• South Africa is endowed with an abundance of
  mineral resources -Gold, Platinum (70 of worlds
  resources), Diamonds(4th largest by value) and
  Precious Stones.
• Yet the country experiences difficulties in
  developing significant downstream industries that
  add value through beneficiation e.g. polishing,
  cutting, jewellery manufacturing, branding and
  marketing.
• The jewellery industry in South Africa produces
  less than 1 of the worlds jewellery, yet South
  Africa produces 16 of global minerals (SA
  Diamond Board).
• Industry has set a target to bring the local
  jewellery industrys global share to 3.5 in the
  next three years. (SA Diamond Board).
• Government intends to beneficiate, especially
  diamonds and precious metals, to enhance
  equitable access to previously denied sectors of
  its population.

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3. Perspective on diamond processing in Southern
Africa

• Botswana, South Africa, Angola and Namibia are
  the worlds first, four, fifth and sixth largest
  diamond producers by value and supply more than
  half of the worlds requirements.
• Yet an insignificant number of people are
  employed in their local diamond processing
  industries.
• Most of the South African rough diamonds are sent
  to London where they are mixed with others goods.
• It is a disingenuous myth that it is not
  economically viable to polish diamonds in Africa.
  This myth has been proven wrong by the Leviev
  Group in Namibia and South Africa.
• As a consequence of this untruth South Africa has
  throughout history lost billions of Rands in
  revenue, jobs, skills transfer and unique
  branding opportunities.
• Sales of rough diamonds from global miners worth
  11.3bn last year equated to 16,7bn worth of
  retail sales. (Chaim Even-Zohar).

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Worldwide diamond processing labour distribution
South Africa
900,000
INDIA
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4. South Africas Diamond Market

• South Africa, the homeland of diamond mining, and
  one of the worlds leading producers of rough,
  should be capable of forming a powerful local
  industry.
• Yet the country experiences difficulties in
  creating a significant local Diamond Industry.
• Only 2,000 workers are employed in the polishing
  industry.
• Other segments of the diamond pipeline and
  supplementary industries are affected as a result
  and not being developed to their full potential.

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South Africas Diamond Market (continued)

• Why the imbalance ?
• Local manufacturing is dominated by sightholders
  who are monitored by a dominant player, guided
  by its interest to maintain control over the
  diamond pipeline.
• Within the framework of rough control, polishing
  is performed by large international companies
  aiming to export their production.
• The established method of exporting the rough
  through Diamond Boards bids leads to higher
  prices, which have adverse effect on the
  economical viability of local operations.
• In light of this situation, the government
  decided to take decisive steps to rehabilitate
  the local diamond market, which will lead to
  utilization of based on its existing potential.

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5. Why we support the new Diamond Bill

• Increase in the added value of local
  manufacturing through
• Increase in the processing and manufacturing
  volume of the industry.
• Turning South Africa into a leading player in all
  phases of the diamond
• pipeline.
• Generation of growth in related fields (tourism,
  banking, insurance, etc.)
• Increase in employment.
• Increase in added financial value of local
  production AB as most of the value is added
  post polishing.
• Investment in training and skills transfer.
• Facilitating entry of emerging diamond polisher
  and jewellery manufacturers through the Black
  Economic Empowerment (BEE) policy.

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Why we support the new Diamond Bill (continued)

• Fostering of investment into, and development of
  local industry.
• Release of the country from controlling and
  interested parties.
• Gaining of control over rough diamonds and their
  processing.
• Guarantee of equitable access to rough diamonds.
• Potential of local branding for South African
  Diamonds.
• Increasing the countrys revenues from
  concessions, export, corporate taxation,
  royalties etc.

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6. Common myths regarding diamond processing

• Diamond industry is the most empowered industry
  in South Africa.
• 50 of production is being cut locally.
• It is not economically feasible to polish
  diamonds in producing countries (Africa).
• Diamonds are, and always have been, highly
  expensive commodity local industry cant afford
  to pay the incredible prices.
• Manufacturers have no flexibility to sell
  diamonds they cannot cut.
• Reform will encourage smuggling and money
  laundering.
• Diamond cutting can be done cheaply in countries
  such as India and China.
• Diamond cutting skills transfer cannot be done in
  diamond producing countries.
• State diamond trader would take away
  responsibility for beneficiation from industry
  and distort market pricing.
• State trader nationalising through the back door.
• Envisaged private investment in the state trader
  would lead to market manipulation.
• No market for South African brand.

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7. Our proposal

• Khadima Minings objective is to utilize LLD
  Diamonds professional expertise and technology to
  maximize value of rough diamonds in South Africa.
• The project envisages establishment of diamond
  cutting and jewellery manufacturing factories in
  both economically deprived rural areas and urban
  centres.
• Total employment is estimated at just under 2000
  jobs specifically targeted at the youth and
  women.
• Vocational training and transfer of skills will
  be undertaken by the best instructors in the
  industry.
• The Project will yield in excess of US 43 m
  added value per annum.
• Direct foreign investment is estimated at US 16m
  and a working capital revolving fund of over
  US100m.
• The company will guarantee the marketing of
  finished products through LLDs network of
  international marketing offices and those of its
  partners.

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8. Our guarantee

• Proven capability and experience throughout the
  diamond production chain including mining, rough
  marketing, polishing, polished marketing, jewelry
  manufacturing, branding, technological
  development and professional training.
• Vast experience in working with governmental
  authorities.
• An extensive background in developing activities
  in Africa.
• Independence from the dominant rough producer.
• Know-how and experience in operating profitable
  systems on various scales.
• Proven capacity to expand local manufacturing.
• Financial capability to support the
  implementation of the plan.

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9. Critical success factors

• Establishment of an independent professional
  state trading authority.
• Immediate and effective control over rough.
• Development of a local diamond market.
• Establishment of an infrastructure and mechanisms
  for developing and securing the future of a
  successful local industry.
• Opening of the market for independent investors.
• Developing a long term plan for the development
  and management of the capacity of the local
  market.
• Speedy implementation of the Bill to guarantee
  sustainable supply for local manufacturing.

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10. Conclusion

• The new Diamond Bill provides an opportunity for
  the transformation of the unique trading
  structure, evolved over more than 100 years of
  moving diamonds (and other minerals) from the
  poorest, yet naturally endowed African continent
  to the rich consumers on the other side of the
  globe.
• This structure robbed South Africa of its
  rightful place among the giants of the global
  industry and relegated its people to continual
  underdevelopment through carefully orchestrated
  myths and structures aimed to serve the
  privileged few.
• Mineral resources are a common right of all South
  Africans and collectively belong to all the
  people of the country.
• The Bill provides Freedom at Last.
• An immediate implementation of well structured
  reform on the basis of the Bill will be
  imperative to prove the viability of the
  Government policy and of the importance of the
  Bill as a cornerstone in the development of the
  local diamond industry.