Debswana, the diamond mining company, said it will monitor production as the market is currently depressed, but the miner remained optimistic of recovery despite worrying developments in the Eurozone and North America.
The company, owned 50/50 by government of Botswana and De Beers, said it will, however, produce 24 million carats this year and double waste mining next year in preparation for the future.
Debswana’s Managing Director, Jim Gowans, said on Thursday he was ‘quite confident’ about the market, but warned they will watch production.
“In terms of production next year, we will be looking at maintaining the same,” he told reporters.
The production level last year was 22.2 million carats and producing 24 million carats this year will be an 11 percent improvement from 2010.
This will, however, be less than the peak production of 34 million carats in 2006. Since then Debswana production has averaged 30 million carats until 2008 when the global financial crisis hit.
Debswana benefited from a significant improvement in rough diamond sales during 2010, relative to 2009.
This was driven by improved demand for rough diamonds and a strong recovery of rough diamond prices over the course of the year. Debswana produced 22.2 million carats in 2010, 4.5 million more than the 17.7 million carats produced in 2009, and diamond revenue increased by 49 percent.
Even with improved market conditions in 2010, management continued to run the operations with caution. The general principles established in 2009 ÔÇô ensuring flexibility around production, cost containment, cash preservation, capital rationing, retention of core skills and maximisation of shareholder distributions whilst maintaining adequate liquidity in the business ÔÇô were followed through in 2010.
Gowans said the forecast for waste mining in 2011 is 69.3 million tones and the figure will double next year.
Of the 124 million tones of waste mining expected in 2012, Cut 8 will account for half of the figure or 94 million tones while the rest will be for normal mining.
In 2010, Debswana commenced the Cut-8 extension project at Jwaneng Mine.
The project represents the largest ever investment in Botswana and is expected to extend the life of this mine to at least 2025. Cut-8 is expected to create more than 1,000 jobs and yield 100 million carats over the life of the mine.
The project will strengthen the local economy and transform Jwaneng Mine into one of the world’s few super-pit mines.
The cautious approach to carat output follows the volatile diamond markets where traditional markets that include the U.S and Eurozone are still battling to come out of recession and face failures to re-pay debts amounting to trillions of dollars.
Currently, demand is driven by the Asian giants of China and India while Japan is still depressed because of the earthquake that hit one of the largest world economies.
Japan has over the years been a significant market, coming second after the U.S.
“Uncertainty in the Eurozone is having an impact (on the market), although it is a small market. But we will adjust our production,” added Gowans.
However, the MD said there are encouraging sites with Thanksgiving in the United States better than what people thought.
Debswana is currently implementing a new strategy that will attempt to make the company a world class mining outfit.
Currently, Botswana has the world class assets and the strategy is to align them to international standard and also to improve shareholder returns.
Debswana, which operates 4 mines in Jwaneng, Letlhakane, Orapa and Damtshaa is also undergoing a restructuring exercise that will see 700 employees leaving the company this year and next year.
Apparently, this unpopular exercise is a necessary evil that has to be made to make the company sustainable.
“We have to manage ourselves so that we get full value of the dollar we are spending,” Gowans revealed.
The exercise will also see the company integrating employees into one building to save money.
Already, 400 employees have left the organisation and ‘the rest will leave the company in the next month or so’ according to the MD.
The exercise comes at a time when Debswana is facing competition from other mining houses that are starting operations in the country and the existing ones. Gowans admitted they were losing artisans and engineers, but said they monitor staff turnover on retention basis.
Comparably, the company’s staff turnover is still low at 6 percent, a figure which is inclusive of the separation exercise.
“There are areas where turnover is high like artisans and engineers,” said one company official.