The Debswana Board of Directors has set up a sub-committee that will advise on a new mechanism through which proceeds from the company’s diamond sales will henceforth be distributed to the shareholders.
All along the policy has been such that money accrued to Debswana was immediately passed on to shareholders.
But as a result of the lessons recently learnt, going forward the company is likely to reduce the amount and frequency of the money it passes on so as to keep substantial reserves.
In an interview with Sunday Standard, Debswana Managing Director Blackie Marole said the policy has always been not to keep any substantial proportion of the sales in the company bank account, but rather to pass it on to Botswana Government and De Beers – the two equal shareholders of Debswana.
He said notwithstanding the current problems, the solvency of Debswana is not in question.
If anything, he said, the issue is how much of the proceeds should be passed on to shareholders.
Marole said the fact that Debswana seems to have been caught off guard by the current crisis, should in no way be interpreted as “unwise” on the part of his management team.
“The policy of not keeping money in the Debswana account has worked for the last forty years. We should not all of a sudden appear as unwise. We have always relied on diamond sales,” he said.
“Like everybody else we believed that diamonds were forever,” he said as he paraphrased the De Beers strap line.
Debswana management has come under heavy criticism since it emerged that the company did not have sufficient financial reserves to see them through the economic downturn that has seen diamond sales plummet to the lowest ebb since 1982.
Many people have been asking questions of what the policy is with regard to the billions that Debswana generate every year.
As it turns out, the company never keeps any more money in its bank accounts than is necessary to run the production processes before the next sale.
On whether the time has not yet come for the shareholders to now give Debswana a financial rescue package, Marole said that was not yet necessary.
He said the company had sufficient reserves in the bank, which he said are also augmented by different credit facilities from the banks.
He also underscored the fact that while diamond sales have plummeted, the truth of the matter was that Debswana was still trading in diamonds.
“With hindsight the Board will decide on how to pass on the proceeds to the shareholders. But for the moment I wouldn’t say we need cash. We are making sales and we have bank facilities,” said the Debswana MD.
He said as yet there are no plans on the table to retrench staff, not least because the two shareholders are agreed that any policy undertaking should at least for now be informed more by compassion than economics.
This is in keeping in line with the long held Botswana Government policy that Debswana should be viewed not just as some kind of a cash cow, but more as a national asset that is used to help in other social responsibilities like employment creation; a view that has however not always been entirely embraced by De Beers.
De Beers have for some time now been lobbying to be given a Debswana Management contract.
The Johannesburg based miner has always argued that through such a contract they would go a long way in optimizing Debswana efficiencies – an argument skeptics have always shot down by pointing out its not possible without mass layoffs that the Botswana Government can ill-afford.
Marole said retrenching the company’s employees could prove counterproductive especially because the Debswana will still need them in the wake of an economic recovery.
“It is very difficult to get the kind of employees you need to drive the company of Debswana’s complexity,” he said.
He said any exit will be wholly voluntary.
He said as of April 14, all Debswana operations, except Damtshaa Mine and Orapa N0 2 Plant will resume operations.
During that time focus will be on the low grade ore that has been stockpiled over time.
The idea, said Marole is to reduce mining inputs, which by far constitute the bulk of production costs.
Under the new scaled down operations regime, Marole estimates that Debswana will save P125 million a month.
Any surplus labour will be redeployed to the currently vacant positions inside Debswana.
At Orapa and Letlhakane mines, the company will make use of its surplus labour rather than external contractors.
Further than that workers will be offered extended leave on a retainer basis depending on the outcome of the ongoing negotiations to pay them subsistence fees.