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RAPAPORT... Debswana, the diamond mining joint venture between De Beers and the Botswana government, is planning to cut production by about 20 percent in 2009 to meet the global slump in diamond demand.
“The current international financial crisis is affecting the mining sector worldwide and Debswana is not likely to be spared the adverse effects of this development,” said Esther Kanaimba, public and corporate communications manager at Debswana. “The global recession may impact demand for rough diamonds in the short term, and Debswana is fully prepared to reduce production to be consistent with the prevailing level of demand for new rough diamond supply from our clients.”
Kanaimba told Rapaport News that the economic downturn would not affect Debswana’s production or sales forecasts for the remainder of 2008, but the company would cut back next year by about 20 percent, in line with the De Beers Group’s stated policy.
“If things improve we will be ready to ramp up production again, but for now our goal is to avoid stockpiling at all costs,” Kanaimba said. She explained that the company was considering a number of options in the short term, including the reallocation of resources to projects that contribute to growth and sustainability, such as waste mining.
De Beers announced recently it would scale back production at its global operations in response to the changing market dynamics, but did not say by how much. De Beers Canada managing director Jim Gowans this week told Reuters that De Beers production in Canada would also decline by 10 percent to 20 percent in 2009.
Botswana is the world’s largest diamond producer by value and is heavily reliant on the trade for economic growth. Diamonds account for about two-thirds of its exports and nearly half of government spending. A significant and sustained production decline could therefore have a ripple effect on the economy.
Keith Jefferis, managing director of Econsult Botswana and former Deputy Governor of the Bank of Botswana, said in an email to Rapaport News that the country would probably meet its diamond sales target for 2008, given the high exports seen during the first eight months of the year. As a result, he explained that government has accumulated financial surpluses, equivalent to around one year of spending, from which it can draw to keep spending at budgeted levels in the short term.
Jefferis warned, however, that the strategy of using accumulated savings to buffer the impact of a downturn in the global diamond market can only be sustained for a few months. “If there is no recovery in sight by the middle of 2009, Botswana will have to acknowledge that the market for its major export has changed and the country will have to start adjusting to lower levels of income and cuts in government spending,” he said. “As the flow of bad economic news from the major world economies continues, and the likelihood of a long and deep recession increases, the need for such an adjustment scenario becomes more likely.”
Debswana accounted for about 66 percent of the De Beers Group's total production in 2007, with 33.638 million carats. Production fell 1.4 percent to 16.171 million carats in the first half of 2008.
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