An awful lot of diamonds in Brazil

Tuesday, September 23

Economic growth, political stability and unprecedented access to bank credit are driving a consumer boom in Latin America, particularly in Brazil, which is benefiting from high international commodity prices.  Aware of demand, mining companies are tapping Brazil and Paraguay for their diamond deposits -- reactivating an industry that was overshadowed by the dominance of South Africa from the early 20th century.

Mining resurgence.

Brazil as a Portuguese colony drove the international diamond trade, experiencing a diamond rush between 1725 and 1860, until the Portuguese crown declared a royal monopoly on all diamond mining in the country and levied heavy taxes on mining concessions. With the depletion of shallow deposits and the rise of South African mining, Brazil became a diamond backwater for much of the 20th century. That scenario is now changing as exploration and mining picks up in the interior states of Mato Grosso and Minas Gerais and the coastal state of Bahia.

Paraguay is also seeing an interest in diamond exploration. After finds in the 1960s, miners have begun to map the geology of gemstone-bearing igneous rocks that run from the Brazilian Amazon into Paraguay. Venezuela and Guyana also have some diamond production, while some exploration is also underway in Uruguay.

Panama connection.

With its geographical position at the centre of the Americas and at the mouth of the Panama Canal, Panama City plans to build a 50-storey building to house a tax-free diamond exchange. The exchange will also house a gemological institute, laboratories, cutting and polishing rooms and trading hall: The exchange aims to channel production through Latin America, from mines to the trading floor to retail outlets, changing the status quo of selling output under contract in Antwerp, New York and Ramat Gan, near Tel Aviv.

Panama has applied to join the Kimberley Process, an industry, governmental and civil society initiative to stem the flow of conflict diamonds, which are used by rebel movements to finance wars against legitimate governments. Trade in diamonds today in Latin America is largely informal and many diamonds are sold on the black market to avoid taxes, particularly in Brazil, where levies are high and market prices are 15% lower than in Europe.

Indigenous issues.

Some of Brazil's richest diamond deposits are in the Amazon rainforest that is also home to indigenous peoples. Some lawmakers and mining companies say formal mining would halt damage to Indian lands and allow the state to levy royalties on miningm, which would go back to Indians. However, environmental groups argue that the government will be unable to regulate even legal mining deep in the rainforest. Currently, illegal, small-scale miners known as garimpeiros scour Brazil's Amazon for gold, diamonds and tin, polluting rivers and cutting down trees. In 2004, 29 garimpeiros were killed when they tried to take diamonds from the Cinta Largain tribe's land in western Rondonia state.

Amid a commodities boom in Latin America, Brazil and to a lesser extent Paraguay are well placed to benefit from their diamond resources, while the planned regional diamond exchange could help to diversify Panama's economy, as consumers should see better prices and more choice -- so long as the environmental and social consequences in the Amazon can be controlled.