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De Beers, Botswana Prep for New Sales Deal
Jul 9, 2018 7:30 AM
By Avi Krawitz
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RAPAPORT... Botswana once again finds itself at a crossroads. The sparsely populated,
landlocked country is in a constant battle to ensure the longevity of its
diamond industry.
Recognizing that diamond mining will not last forever, the
government’s beneficiation program has sought to establish cutting and
polishing, trading, and auxiliary services in an effort to diversify its
industry — and economy — away from its reliance on the mining sector.
Beyond mining
De Beers, which counts around 59% of its production by value
in Botswana, has played no small part in that effort. It did so initially by
earmarking a part of its rough supply to be manufactured in Botswana, and today
there are 18 sightholders with factories in the country. In 2013, De Beers
moved its sales headquarters to Gaborone, meaning that its 10 annual sights
were taken out of London, thus diverting traffic and diamond-related activity
to the African city.
Furthermore, the establishment of the parastatal Okavango
Diamond Company that same year gave the government access to 15% of production
by Debswana, its joint mining venture with De Beers. That was the first time
substantial rough sales from Debswana took place outside of the De Beers
system.
The 2011 agreement that governed those developments is up
for renewal in 2020, and negotiations are expected to begin in the coming year.
For its part, the government is seeking to increase supply to local
sightholders as a means of creating more jobs, newly elected President
Mokgweetsi Masisi told Bloomberg in May.
Some question whether Botswana can handle more
manufacturing, given that a few factories have closed in recent years. If
profitability remains the biggest challenge facing manufacturers, Gaborone has
yet to prove itself as a viable center for high-volume cutting. Perhaps De
Beers can play a further role there, too.
The government will also likely want to increase the
percentage of Debswana supply that Okavango receives. And it might want to
renegotiate greater access to the large and high-value diamonds Debswana
recovers.
Digging deep
Botswana has some leverage in the relationship with De
Beers. It owns a 15% stake in the group, with Anglo American holding the
remaining 85%. And the two are equal partners in Debswana and in DTC Botswana,
which sorts and mixes production for De Beers and Okavango.
De Beers, meanwhile, brings to the table its mining
expertise and budget. In 2010, it committed to investing $3 billion over 15
years in the Cut-8 expansion of the Jwaneng mine — considered the world’s most
valuable diamond-producing asset.
That project is already the main source of ore at Jwaneng and is expected to extend the life of mine to 2030 and by some 93 million
carats. Studies for the viability of Cut-9 are under way, which would further
extend the life of Jwaneng. A final investment decision on the project is
expected later this year, reports a De Beers spokesperson.
De Beers could use the potential Cut-9 investment, as well
as funding extensions at the Orapa and Letlhakane mines, as a bargaining tool
in negotiations with the government.
African investments
De Beers walks a similarly fine line in other African
countries where it operates.
In South Africa, it may have to reduce ownership of its
local businesses from 74% to 70% under the new mining charter, as the
government wants to see more local black economic empowerment (BEE)
involvement. That said, De Beers is engaged in a $2 billion project to develop
underground mining at the Venetia asset. From next year, Venetia will be its
only mine in South Africa, as it plans to close the Voorspoed mine. It has
already sold the Finsch, Cullinan and Kimberley operations over the past
decade.
Meanwhile, in May 2016, De Beers signed a 10-year sales
agreement with Namibia, in which it ceded 15% of local supply to the government
and promised more diamonds to local cutters. The company subsequently announced
major investments in its marine mining operations off the Namibian coast.
It’s that give-and-take that Masisi is hoping will result in
a “win-win” for both parties as they negotiate their next long-term deal —
especially given that so much of Botswana’s future diamond production depends
on Jwaneng’s expansion.
“We have had a wonderful relationship with De Beers, and we
expect that relationship to be even more cemented,” the president told
Bloomberg in May. “The returns [from the Jwaneng development] are going to be
realized in the period of the next deal. This is a marriage we’re after.”
This article was first published in the July issue of Rapaport Magazine.
Correction: Cut-8 is already yielding ore at the Jwaneng mine, not as previously reported that it was expected to start next year.
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Tags:
africa, Anglo American, Avi Krawitz, beneficiation, Botswana, Cullinan, Cut-9, cutting, De Beers, Debswana, DTC Botswana, Finsch, gaborone, Jwaneng, kimberley, Letlhakane, mining, Mokgweetsi Masisi, Okavango, Okavango Diamond Company, Orapa, Polishing, Rough Diamonds, Sightholders, trading, venetia, Voorspoed
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