Tuesday, July 5, 2022

What the new diamond sales agreement means to Botswana, De Beers

On Friday, Botswana moved closer to seeing the true value of its diamond when a deal was signed with De Beers to relocate DTC operations from London to Gaborone.

The agreement will boost the country’s Diamond hub dream and help the secondary diamond trading while it will simultaneously make sure the South African diamond company access to uninterrupted supply of rough diamonds from Debswana.

Chairman of De Beers, Nicky Oppenheimer, summed up the new arrangement, saying: “It is a negotiation that is not easy; but I am happy that the agreement is fair to both sides.”

The deal is fair to Botswana because, for the first time, the country will have direct access to the market as it will sell 10 percent of Debswana production independently from De Beers.

This will allow the country to ‘judge’ the market and get better value for its produce. The current market trends are that emerging diamond producers are getting fair values from their produce in auctions and alternative markets that include India and China.

Since it started mining diamonds in the 1970s, Debswana has been selling its diamonds exclusively to De Beers.

“This monumental development should now enable De Beers customers/ sightholders to purchase their rough diamonds from Gaborone and initiate the much needed critical mass for secondary diamond trading in Gaborone,” Energy and Water Resources minister, Ponatshego Kedikilwe, said.

“This agreement will give us direct access to the market which we believe should, among other things, facilitate the development of the downstream diamond industry in Botswana,” he added.

Under the deal, government will also like to see the industry moving to jewelery manufacturing where it wants to borrow a leaf from Antwerp. Kedikilwe was recently in the Belgium diamond city in a bid to attract manufactures who can attach diamonds to watches.

“…….the agreement provides government with an independent sales channel which will provide government with an opportunity to develop an independent price verification system and gain wider understanding of the diamond business”.

De Beers on the other hand will have long term (10 years) security of supply as Botswana produces more carats than any other company operations.

“As part of this agreement, Botswana has preserved and enhanced a highly successful route to market, focused on maximising the value of her natural resource and De Beers has secured long term and uninterrupted access to the largest supply of diamonds in the world,” Oppenheimer said.

Debswana produces almost 70 percent of De Beers out and insiders say it was a deal that De Beers could not resist as government had options to get value for its stones.

RBC Capital Markets Ltd. in London said a 10-year agreement is better for De Beers than a five year pact given a growing shortage of rough and the need for De Beers and the Botswana government (which owns the other 50 percent of Debswana) to work closely on the large capital programs at the Jwaneng and Orapa mines.

“De Beers should benefit from a longer agreement as it removes the periodic disruption in having to wrestle with a new pact every five years,” said Des Kilalea, an analyst at RBC Capital Markets Ltd. in London, in an emailed comment.

“In a world with looming tightness in rough diamond supply, the certainty of a long-term agreement over the world’s largest source of rough is welcome.”

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