The State Diamond Trader (SDT) has reported significant financial underperformance in its latest annual report, raising alarms about the health of South Africa’s diamond industry.
Against a backdrop of declining production levels and market prices, the SDT fell short of its budgeted purchases target by R290 million, acquiring rough diamonds valued at only R606m.
Moreover, its sales performance fared even worse, with a staggering shortfall of R309m, as it managed to achieve a sales value of just R631m, equating to a meagre gross margin of R10m. This gross margin is a dismal R34m below the entity’s budgeted expectations.
Peter Major, a director a Mining at Modern Corporate Solutions, yesterday raised concerns that the situation may reflect deeper underlying issues than what raw figures suggest.
“The losses are probably worse. If you follow the rule of thumb, it’s quite worse,” Major remarked following the SDT’s presentation before the Parliamentary Committee on Mineral and Petroleum Resources.
“Why is the State playing referee and player in the market? The taps are just running open and there is nobody to speak for the money going down the drain.”
In a striking reflection of the market’s downturn, SDT’s annual report showed a dramatic 29% decrease in carats and a staggering 37% drop in value of rough diamonds inspected, which were provided by 35 producers.
This downturn was attributed primarily to a substantial fall in production levels—more than 60%—by the industry’s largest players.
The average dollar price per carat also saw an 11% decline compared to the previous financial year. The overall numbers reveal a catastrophic 109% drop in sales value and a staggering 94% decline in carats sold, plummeting from R1.3 billion to R631m.
This downturn was further compounded by the SDT’s carryover stock from the previous financial year, which accrued losses due to a rapid decrease in rough diamond prices amid depressed market conditions.
The margin situation underscores the SDT’s struggle as it considers profits and losses from all trading activities over the 2023/24 financial year, resulting in a gross margin percentage of just 2%.
Segmentation analysis shows that niche and large/medium beneficiation contributors represented a surprising 68% of the total sales value, a jump from 38% in the previous financial year.
However, the SDT has struggled to address disparities within the market, with its efforts severely hampered by continued depressed market conditions.
Establishing its position as a vital catalyst in the industry, the SDT carries a mandate to support the equitable access to and beneficiation of South Africa's diamond resources.
It aims to stimulate growth and participation within the country’s diamond-cutting and polishing sectors, particularly empowering Historically Disadvantaged South Africans.
Yet, of its 12 strategic targets for the current financial year, only five were achieved—a dismal 42% success rate, underscoring the significant challenges ahead.
Repeatedly citing past failures, Major stated, “Every time I see an official document from the State institution, I know it is gobbledygook. It’s been downhill for several years now.”
Such statements encapsulate the feeling of concern surrounding the SDT’s ability to navigate through these turbulent financial waters and its pivotal role in positively reshaping the future of South Africa's diamond industry.
BUSINESS REPORT