South Africa's small-scale and junior diamond mining sector has shrunk from roughly 2,000 active companies to about 20 over the past two decades, according to Lyndon de Meillon, owner of Paleostone Mining — a decline with direct implications for India, which cuts and polishes the majority of the world's rough diamonds.

Writing on the state of the industry, de Meillon said South Africa's diamond sector splits into two segments: junior and small-scale alluvial mining, concentrated in the North West, Northern Cape and Limpopo provinces and along the West Coast, and large-scale kimberlite mining led by listed companies such as De Beers and Petra Diamonds.

While alluvial mining accounts for only 4% to 5% of South Africa's diamond output by carat weight, it contributes about 25% of the industry's annual value, he said, pointing to the segment's larger average stone size and higher share of gem-quality output — the category of rough most sought after by cutting centres such as Surat and Mumbai.

De Meillon attributed the sector's decline to the 2004 Mineral and Petroleum Resources Development Act, black economic empowerment equity requirements introduced without financing support, the 2007-08 global financial crisis, and subsequent updates to the Mining Charter and the Diamond and Precious Metals Act. Rising electricity, water, fuel and labour costs have added further pressure, he said.

He noted that a small group of well-capitalised companies is now acquiring mining rights and rough-diamond stocks from distressed producers, buying up most available rough and financing smaller buyers — a trend that could limit alluvial production reaching the open international market, including Indian buyers. "The outlook for the diamond industry remains highly uncertain," he said, adding that larger and fancy-coloured stones are likely to see price gains while smaller stones continue to face pressure from lab-grown competition.