After the longest negotiations in the history of Debswana shareholders, De Beers and Government have finally concluded the sales agreement that gives Botswana a direct access to the changing diamond market.
Under the 10 year agreement, signed in Gaborone on Friday, the Diamond Trading Company International (DTCI) will relocate its sights and operations, which include professional, skills, equipment and technology, from London to Gaborone by 2013.
De Beers chairman, Nicky Oppenheimer, admitted the difficulties that come with such negotiations, but said the conclusion shows that his company’s success is possible with a ‘profound understanding that the aspirations of our partners must be at the core of our business’.
“It is a negotiation that is not easy; but I am happy that the agreement is fair to both sides,” Oppenheimer said.
The deal states that from the sales base in Gaborone, DTCI will aggregate production from De Beers’ operations worldwide and sell to international sightholders.
However, Diamond Trading Company (DTCB) will continue to sort and value Debswana’s production before selling it to the DTCI.
On the other hand, DTCI will continue to support the local cutting and polishing industry in Botswana and will increase the commitment by making more diamonds available for manufacturing in Botswana from US$500 million (P3.5 billion) to US$800 million (about P5.6 billion) per annum in 2014.
There are currently 16 sightholders in the downstream industry that have created over two thousand jobsÔÇöa number which is likely to double if the agreement is implemented.
The deal will also allow Botswana to have a say in the market as it will purchase and sell independently 10 percent of Debswana production. The number will rise to 15 percent over 4 years.
De Beers will take 90 percent and sell it to its channels while the 10 percent is meant for Botswana to ‘judge’ the market, where auctions and emerging markets that include China and India have changed diamond market.
The two Asian markets are likely to surpass the U.S, which accounts to 45 percent of the diamond market.
“We have developed the window (10 percent) to sniff how the market reacts. The industry is changing and the market itself,” the minister of Minerals, Energy and Water Resources Ponatshego Kedikilwe said.
The agreement between the two Debswana partners has been stalling with a deal supposed to have been concluded in December 2010, but it failed. The shareholders were then forced to operate under an extended short term contract.
One diamond analyst said recently the sales agreement was being stalled by Anglo American, a senior partner in De Beers’ formation, over the share that Botswana is getting from the current arrangement.
“Anglo American has apparently had it with Botswana. A senior finance official at Anglo American has intimated to various confidants that the company is being held hostage by Botswana,” wrote Chaim Even-Zohar in the Diamond Intelligence Brief.
However, Permanent Secretary to the President Eric Molale said the deal is beneficial to the two parties.
“We were merely negotiating a commercial contract and government was not wielding a stick,” Molale said.
De Beers is 45 percent held by Anglo American, 40 percent by Central Holdings (a company owned by Nicky Oppenheimer’s family) while Botswana government holds the remaining 15 percent by Botswana.