DEPARTMENT OF MINERALS AND ENERGY

Presentation to M&E PPC on:Diamond Amendment BillPrecious Metals Bill

THE TEAM Department of Minerals and Energy South African Diamond Board MINTEK

OVERVIEW Background Highlights per Chapter Comparisons

BACKGROUND

SOUTH AFRICA: Largest producer of gold [Contributes 15% of

the world supply of gold] 4th largest producer of rough diamonds,

[Contributes 12% of the world production] Produces 70% of the world platinum supply Trainable work-force THERE IS OVERALL NEGLIGIBLE VALUE ADD

IN ALL THE ABOVE MINERAL COMMODITIES

Rationale for amending the LAW• Accesibility of raw material• Maximise value addition industry• Encouraging FDI and foreign skills in South African

beneficiation projects• Encourage investments in both trading and

manufacturing• Growth of supply side such as manufacturers of

diamond cutting equipment and servicing equipment• SA becoming major international diamond cutting

centre and trading hub• Infrastructure development• Increased participation throughout the value chain

BACKGROUND Contd.

DIAMOND AMENDMENT BILL

Chapter 1: Definitions

Critical new definitions

Beneficiation - polishing or setting in tools or setting in jewellery of diamonds,

Kimberley Process Certification Scheme - the international certification scheme for the international trade in unpolished diamonds negotiated in the Kimberley Process.

Chapter 2A: State Diamonds Trader

Diamond Act AmendmentsNo provision made for the local supply of rough diamonds

State Diamond Trader estadlished:

(a) Power to purchase a %age of mine production

(b) Distribution of the diamonds to local beneficiators

(c) Board of Directors (d) State funded

Chapter 2B: Diamonds and Precious Metals RegulatorDiamonds Act AmendmentsSouth African Diamond Board:

Board of Directors dominated by Industry

Funded through levies

South African Diamond and Precious Metals Regulator:

Representative Board of Directors

State Funded

Chapter 3: Illegal ActsDiamonds Act AmendmentsNo declaration of synthetic diamonds

Assistance allowed to local buyers and sellers at the Diamond Bourse or Trading House

Search and seisure not alligned with Constitution of SA

Declaration of diamonds being synthetic

Assistance to local buyers or sellers prohibited except at Diamond Exchange and Export Centre

Search and Seizure alighned with the Constitution of SA

Chapter 4: Licences and Permits

Diamonds Act AmendmentsDiamond Cutting License and Tool Making Licence

Consolidated Diamond Beneficiation License

Period of validity is one year

Period of validity is five years

Diamond trading House license facilitates local buying and selling of unpolished diamonds in South Africa

Retained in the Bill

Chapter 5: Diamond TradeDiamonds Act AmendmentsDiamond Exchange privately owned

Establishment of State Controlled Diamond Exchange and Export Centre

Chapter 6 : Export of Diamonds

Diamonds Act AmendmentsSection 59 agreements for Export of rough

Unpolished diamonds for export to be offered at export centre and export duty payable

Exports from local trading houses

No exports from local trading houses

No distinction between economically cuttable and non-cuttable diamonds

Distinction made between economically cuttable and non-cuttable diamonds

Chapter 7 : Control measuresDiamonds Act AmendmentsSection 77 dealing only with control of production of diamonds

Section 77A added:Minister must determine terms and conditions under which all producers must offer unpolished to diamonds beneficiation

Determine classes of economically cuttable diamonds

Regulator may exempt non-economically cuttable diamonds from export duty

Chapter 8 : Offences and PenaltiesDiamonds Act AmendmentsSynthetic diamonds not an issue

Protection of natural diamonds through obligatory disclosure of synthetic diamonds

Chapter 9 : GeneralDiamonds Act Amendments

No recognition of socio-economic empowerment

Guidelines for the implementation of broad-based socio-economic empowerment to be established

Imposition of levies Levies no longer payable

PRECIOUS METALS BILL

“Presently governed by Chapter 16 of the MINING RIGHTS ACT, 1967”

The BILL provides for:Acquisition PossessionLocal beneficiation Disposal of Precious Metals

RATIONALE FOR REDRAFTING Deregulation of:

Silver Possession of and trading in Minted Bars (Investment

product) Restrict fabricators to Semi-fabricated Precious

metals Transport Permit deleted Act administered through the SA

Diamond&Precious metals Regulator

RATIONALE FOR REDRAFTING Contd

Introduction of a Beneficiation license for fabrication

Security matters Fabricators (Jewellers and beneficiation

licensees) may not purchase Unwrought Precious Metals

Provision for stolen Precious Metals to be returned to original mine owner if traced

Introduction of an Import Permit

DEFINITIONSMining Rights Act Precious Metals Bill

MINTED BAR: Dimensions, mass, and precious metal contents, marks and registration - prescribed.

SEMI-FABRICATED PRECIOUS METAL: Precious metal alloy in the form of sheet, tube, wire or grain

UNWROUGHT PRECIOUS METAL: Means Unmanufactured precious metal in various forms

UNWROUGHT PRECIOUS METAL: excludes minted bars;Proviso that precious metal will be regarded as unmanufactured if not refined beyond 99.9% purity

MINING RIGHTS ACT PRECIOUS METALS BILL

By National Treasury mainly

Roles for: Mining Commissioner, SAPS CommissionerReceiver of revenue

By Minister of Mineral and Energy through the SA Diamond and Precious Metals Regulator

Role for National Commissioner

ADMINISTRATION OF THE ACT

Mining Rights Act Precious Metals BillPermit for unwrought required for scientific purposes or in connection with any trade, industry or profession (not jeweller).

Permit for unwrought required for scientific purposes or by holders of precious metals beneficiation licences or jeweller’s permits

SPECIAL PERMITS FOR UNWROUGHT

Mining Rights Act Precious Metals BillNo regard to socio-economic empowerment

Regulator must have regard to the promotion of equitable access and orderly local beneficiation of precious metals; andMay have regard to the requirements of the broad-based socio-economic empowerment Charter for the Mining Industry

CONSIDERATION OF APPLICATIONS FOR LICENCE, PERMIT OR CERTIFICATE

MINING RIGHTS ACT PRECIOUS METALS BILLRecovery works licence:

1. Issued by SARS for a magisterial district;2. Included silver processing; 3. Issued for a quarter, or a year and subject to renewal

Refining licence: Issued by Regulator, but

not restricted to a magisterial district;

Issued for 10 years and subject to renewal.

May only sell precious metal in semi-fabricated form to jewellers and precious metal beneficiation licensees

EXTRACTION, SMELTING, REFINING LICENCE

Mining Rights Act Precious Metals Bill Permit for unwrought

precious metal required in connection with any trade, industry or profession.

Temporary or once-off

Precious metals beneficiation licence to buy semi-fabricated precious metal, and to fabricate it into articles other than jewellery.

Issued for 10 years; renewable

Must keep proper books of account in accordance with GAAP.

May not purchase unwrought precious metal

PRECIOUS METALS BENEFICIATION LICENCE

Mining Rights Act Precious Metals Bill Issued by SARS for a

magisterial district to buy and fabricate unwrought

Issued for a year and subject to renewal

Must keep a prescribed register and exhibit to SAPS when requested.

Issued by Regulator to buy semi-fabricated precious metal, and to fabricate it into jewellery.

Issued for 5 years and subject to renewal

Must keep proper books of account in accordance with GAAP

JEWELLER’S PERMIT

Mining Rights Act Precious Metals Bill

Transport permit to transport unwrought precious metal

Copy of licence, permit, right or certificate needed to transport unwrought or semi-fabricated precious metal

Import permit to import precious metal. Documentary proof of origin required.

IMPORT PERMIT & TRANSPORT PERMIT

Mining Rights Act Precious Metals Bill Penalty for very

serious offence R50 000 or up to 10 years imprisonment.

Penalty for less serious offences: R2 thousand or up to 6 months imprisonment.

Powers of police to inspect, search, seize - updated.

Penalty for very serious offences increased to

R1 million or up to 20 years imprisonment.

Penalty for less serious offences increased to R500 000 or up to 10 years imprisonment

SAPS POWERS; OFFENCES; PENALTIES