Factors influencing exploration investment decisions in the diamond industry in South Africa

Abstract

Investment decisions are in general complex in nature, with the investor having to acknowledge, review and analyse several factors prior to making a sound investment decision. The diamond mining industry has seen significant challenges and faces the prospect of a widening demand and supply gap in its medium- and long-term future. Investment decisions within the industry are becoming more challenging with multinational companies requiring ensuring investment decisions are met with the utmost rigor to provide a significant return to the shareholder and ensure sustainability of these decisions over the longer term.

The study recognised the state of the diamond industry and the real threat that will arise as a result of the widening demand and supply gap, that may only be narrowed through the addition of sustainable resources to increase the supply prospects in the future. This study focused on the decision to investment in exploration activities in the diamond industry, and the consideration of which factors are of greatest significance to the decision to commence exploration activities in a country. The study found that political, economic and legislative factors are paramount to influencing exploration investment decisions, with the five most significant factors identified as: absence of legislation, enforcement of legislation, government stability, protection of legal system, risk of nationalization within a list of twenty-six factors