By James Macharia
JOHANNESBURG (Reuters) - South Africa, the world's largest producer of precious metals, will force companies to process minerals locally if they do not do so voluntarily under a new government initiative, a top official said on Wednesday.
South Africa's plans to change the laws governing its mining sector to create a vibrant local processing industry and help lock in wealth in the world's top producer of gold and platinum and fourth largest diamond producer by volume.
If companies fail to adhere to the rules, they will be pushed to do so through legislation, Sandile Nogxina, director general of the minerals and energy department said.
"If there is non-compliance, we will have to go and legislate beneficiation (processing)," Nogxina said.
"It will depend on whether the players do it. So do it voluntarily or we will force you to do it."
Nogxina spoke at the launch of African Romance, a new black-owned South African diamond cutting and polishing firm that is taking advantage of the new initiative.
He said his country, Africa's biggest economy, was a big exporter of rough diamonds, but lagged many other non-producers when it came to the lucrative value-adding processing sector.
"Twelve million carats of diamonds left the country in 2005, of which only one percent or 120,000 carats were beneficiated here," Nogxina said, giving his backing to African Romance.
Nogxina said the new rules on beneficiation, long-awaited by the mining sector, were still going through final touches, but he could not say when they would be ready.
The rules would try to transform South Africa's role as a minor player in the money-spinning cutting and polishing business dominated by low-cost manufacturers China and India, and Israel and Antwerp (Belgium), all non-diamond producers.
STATE DIAMOND TRADER
The new rules would compel miners to first offer their diamonds to the newly-formed State Diamond Trader, which will buy 10 percent of locally-produced diamonds at market prices for resale locally, mostly to black cutters and polishers.
The state trader said last month it could buy diamonds valued at some $140 million a year from firms such as De Beers, the world's top diamond producer.
De Beers is 45 percent owned by Anglo American Plc.
Industry players have in the past said sanctions against firms who fail to comply with government beneficiation targets could harm the industry in the long run by forcing the closure of marginal mines and small diamond producers, leading to job losses and a fall in diamond output.
But South Africa's government is forging ahead with the rules, and is using diamonds as a test-case for other minerals, such as uranium and platinum, as part of a beneficiation policy which seeks to broaden access to the country's mineral wealth.
On whether South Africa would offer subsidies to help boost firms formed locally to process minerals, Nogxina said it was unlikely that there would be financial or tax incentives.
"South African businesses always tell us not to be involved in business but to regulate. At this point in time there are no plans to offer such (financial or tax) incentives, but we may offer regulatory incentives," he said.
"Those companies that participate in beneficiation in South Africa can offset their beneficiation against BEE (black Economic Empowerment targets," he said.
BEE is an affirmative action programme driven by South Africa's government to redress the exclusion of blacks from the mainstream economy under decades of apartheid white rule.
