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Botswana Rises


Aug 17, 2012 6:00 AM   By Avi Krawitz
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RAPAPORT... There was a buzz emanating from Botswana this week felt well beyond its borders as De ‎Beers launched its aggregation activities in Gaborone and Okavango Diamond Company ‎finally appointed a managing director. Considering that Botswana is bound to set a ‎number of milestones along its journey to establishing its diamond trading hub in ‎Gaborone, these developments will no doubt prove significant among them. ‎

The state-owned Okavango appointed Toby Frears, a former head of diamond sorting ‎and valuing operations at Diamond Trading Company Botswana (DTCB), as its chief and ‎set him a target to launch sales in the second quarter of 2013 – albeit more than a year ‎after initially planned. A five-member interim board, chaired by Diamond Hub coordinator ‎Jacob Thamage, was also created. ‎

Amid a bit more fanfare, De Beers announced that its all-important Diamond Trading ‎Company (DTC) aggregation division has successfully shifted from London to Gaborone. ‎From now on, production from all of De Beers mines across Botswana, Canada, Namibia ‎and South Africa will be sent to Gaborone, where it will be mixed and sorted into various ‎categories before being sent to London for distribution to sightholders. Eventually, by the ‎end of 2013, the so-called London sights will move to Gaborone and this week’s ‎announcement is the most noteworthy step to date toward that end-goal.‎

De Beers said the aggregation move came two months ahead of schedule – although it is ‎now three years since the initial deadline passed. Tough and prolonged negotiations with ‎the government, which led to last year’s 10-year supply agreement directing both these ‎developments, delayed proceedings. ‎

Either way, it means that approximately 32 million carats of diamonds worth about $6 ‎billion will be handled in Gaborone on an annual basis. Not a small amount by any ‎standard. Although trading has not yet commenced in the city, it signals that Botswana ‎has further diversified its industry beyond mining and its fledgling cutting sector.  ‎

The trading boost will come when Okavango launches its first sale. Seemingly ‎overshadowed by the DTC relocation, the establishment of Okavango is in many ‎respects more meaningful, given the impact that it will have on Botswana’s economy –‎certainly complementing the DTC move – and its potential position as a new entity in the ‎global diamond trade.  ‎

Okavango should rank among the top six or seven rough diamond suppliers once it gets ‎going. In 2013, when it begins selling – and when it will presumably start buying its ‎allocated Debswana supply – the company will have the right to 12 percent of ‎Debswana’s production, which will rise by 1 percent each year until it reaches 15 percent ‎in 2016. A 10 percent allocation was available retroactively from January 2011.‎

Based on Debswana’s production of 22.89 million carats in 2011, Okavango would have ‎access to between 2.7 million and 3.4 million carats a year from its launch, which is ‎expected to increase along with Debswana’s production levels. While Kimberley Process ‎‎(KP) data valued Botswana’s production at $170 per carat in 2011, Okavango’s supply ‎would be estimated to be worth $459 million to $583 million at the lower estimate. ‎Ultimately, the sales price per carat will likely be higher.‎

The volume of diamonds that Okavango is able to sell at any given time and the prices it ‎achieves may prove an important bellwether for the industry. And the benefit to ‎Botswana is clear. ‎

For the first time, full revenue on a portion of Debswana production will be channeled ‎entirely to the Botswana government – and not shared with De Beers, its Debswana and ‎DTCB joint venture partner – which will provide a welcome boost to its budget. It will also ‎introduce an opportunity for the country to effectively brand its diamonds as purely ‎‎“Botswana Diamonds” given that there will now be large quantities of unaggregated ‎Debswana diamonds available on the market. ‎

While DTC sightholder representatives and brokers will travel to Gaborone on an almost ‎monthly basis to receive their sights, the Okavango sales will create additional tourist and ‎business traffic through the city as diamond buyers – assumedly non-DTC sightholders ‎prominent among them – will travel to buy from the company. ‎

Furthermore, the sales will provide the government with market intelligence that will help ‎it leverage some influence via its 15 percent minority stake in De Beers – particularly as ‎Anglo American is now ready to close its buyout of the Oppenheimer’s stake in the ‎company. ‎

Thamage stressed that Okavango will be characterized as an open and transparent ‎business – perhaps attempting to alleviate concerns regarding those very issues. Much ‎depends on how the company develops its strategy and Frears has his work cut out in ‎the coming months.‎

He noted that the board will prioritize developing and implementing Okavango’s launch ‎plan, putting together a sales and administration team – including appointing his deputy –, ‎developing its strategy and operating plan, defining the sales model and identifying and ‎equipping suitable premises for the start of trading activities in the second quarter of ‎‎2013. The market will be waiting with interest at how these developments evolve.‎

But other questions remain. DTCB also needs to iron out its relationship as a service ‎provider to Okavango. The supply chain will see Debswana production sent to DTCB, ‎which will then allocate Okavango’s and DTC’s respective shares. As Paul Rowley, ‎acting chief executive of DTCB, who is overseeing the DTC relocation, noted in an ‎interview with Rapaport Magazine earlier this year, Okavango’s supply cannot reflect ‎DTC boxes or selling assortments due to competition laws. With Okavango’s ‎management team now taking shape, the two companies are expected to start thrashing ‎out the details.  ‎

Another unknown is who it will sell to? How will buyers apply for a license to buy the ‎goods, and how lengthy or bureaucratic a process is that? Will they eventually be able to ‎sell to each other signaling the establishment of a secondary rough market in Gaborone? ‎And will Okavango’s next step involve facilitating polished trading, or will that be left to ‎other players? ‎

It won’t be the first time that rough diamond sales are conducted in Gaborone ‎independent of De Beers. Firestone Diamonds and Lucara Diamonds have each been ‎selling production from their respective mines there in the past year. ‎

But Okavango marks a rise in scale and will firmly place Gaborone on the rough buying ‎map, while DTC’s aggregation move – and the pending London sight relocations –‎highlights the city’s global importance even further. After years of planning and promises, ‎suddenly this week, Botswana has its end goal in sight. Not only is it the world’s top ‎diamond producing country with a growing beneficiation sector, but it has now emerged ‎as the most important rough distribution center.‎

The writer can be contacted at

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Tags: Avi Krawitz, Botswana, De Beers, Diamond Trading Company, diamonds, DTC, DTC Botswana, Okavango, Okavango Diamond Company, Rapaport, Toby Frears
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