|
|
Botswana Rises
Editorial
Aug 17, 2012 6:00 AM
By Avi Krawitz
|
|
|
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 avi@diamonds.net.
This article is an excerpt from a market report that is sent to Rapaport members on a weekly basis. To subscribe, go to www.rapnet.com or contact your local Rapaport office.
Copyright © 2012 by Martin Rapaport. All rights reserved. Rapaport USA Inc., Suite 100 133 E. Warm Springs Rd., Las Vegas, Nevada, USA. +1.702.893.9400.
Disclaimer: This Editorial is provided solely for your personal reading pleasure. Nothing published by The Rapaport Group of Companies and contained in this report should be deemed to be considered personalized industry or market advice. Any investment or purchase decisions should only be made after obtaining expert advice. All opinions and estimates contained in this report constitute Rapaport`s considered judgment as of the date of this report, are subject to change without notice and are provided in good faith but without legal responsibility. Thank you for respecting our intellectual property rights.
|
|
|
|
|
|
|
|
|
|
Tags:
Avi Krawitz, Botswana, De Beers, Diamond Trading Company, diamonds, DTC, DTC Botswana, Okavango, Okavango Diamond Company, Rapaport, Toby Frears
|
|
|
|
|
|
|
|
|
|
|
|
|