Diamond-mining giant De Beers will continue operating in Botswana after signing a new 10-year agreement in principle with the government there late on Friday night after months of negotiations, but some of the finer details still have to be ironed out.
In terms of the new sales agreement Debswana Diamond Company's rough-diamond production runs until 2033, with new 25-year Debswana mining licences valid until 2054.
The parties still have to finalise the implementation of the formal sales and mining agreements, and an interim agreement will preserve the terms of the most recent sales agreement which expired on 30 June, the parties said in a joint statement.
“The transformational new agreements between Botswana and De Beers reflects the aspirations of the people of Botswana, propels both Botswana and De Beers forward, and underpins the future of their Debswana joint venture through long-term investment,” the statement said.
The new deal was signed at midnight on Friday after fears the parties would not reach an agreement before the existing arrangement expired.
Under the old partnership, Botswana took 25% of the rough diamonds mined in its partnership with De Beers, through the Debswana Diamond Company, which the parties jointly own. In terms of a 2011 marketing and sales agreement for the production of rough diamonds from Debswana, De Beers kept 75% of the production.
The Botswana government wants to increase its share of the rough diamonds mined by Debswana by 25%, which will culminate in a 50/50 partnership.
This week, before the deal was signed, a government official who spoke on condition of anonymity told Business Times that Batswana (people of Botswana) now know more about diamond mining than those who signed the first partnership deal with De Beers 54 years ago.
The Botswana government will be on their own, and the question is whether they can do a better job and earn bigger revenues
— Asief Mohamed, chief investment officer at Aeon Investment Management
The talks this week were described by someone close to negotiations, who declined to be named, as tense, “with the parties pushing each other around”.
Negotiations have been under way since earlier this year, with the Botswana government indicating that it is resolute in demanding a bigger slice of the pie.
“We do feel that De Beers has, for years, been unduly benefiting far more than us, Batswana, who are the owners of the diamonds,” the government official said.
Botswana’s minerals & energy minister, Lefoko Moagi, told the media in Gaborone on Wednesday that they were hoping for a “shared-win or win-win” deal with De Beers.
He said they understood that the outcome of the talks will have a serious impact on the diamond industry.
Asked last week about the future of Debswana if De Beers walked away from Botswana, Asief Mohamed, chief investment officer at Aeon Investment Management, said it depended on how good the Botswana government was at marketing diamonds.
“De Beers is a well-oiled machine, [so] if Botswana cannot do a better job than De Beers in managing the supply and demand, Botswana might end up worse off. If they are confident they can do a much better job than De Beers and make profit, then so be it.”
Russia and Botswana are the world’s biggest diamond producers.
Mohamed said Botswana could partner with Russian diamond producers, but that option was problematic. “People are not going to buy Russian diamonds, or blood diamonds.”
Seleho Tsatsi, investment analyst at Anchor Capital, said Botswana is the world’s second-largest diamond producer and De Beers has a long history in the country.
“De Beers has contributed an average of just over $700m a year in operating profit to Anglo American over the past decade, though that figure is cyclical given the volatility of the business.
“The business is meaningful to Anglo American. Over the past four years, however, De Beers has contributed less than 10% to Anglo American’s total operating profit, given very strong profitability recently in other parts of [Anglo’s] business.”
Debswana was established in 1969 as an equal partnership between De Beers and the Botswana government. It employs 5,000 people full-time and about 6,000 part-time in its four mines, Jwaneng, Orapa, Letlhakane and Damtshaa, which produce 95% of Botswana’s stones.
In February, speaking at a ruling party rally near Gaborone, Botswana President Mokgweetsi Masisi described negotiations with De Beers as equivalent to “shaking a giant”.
Masisi threatened to walk away from the talks if Botswana did not get a bigger share of Debswana’s output by marketing outside the De Beers system, according to Reuters.
Botswana is the world’s leading diamond producer by value and second only to Russia in terms of volume. Besides Botswana, De Beers has mines in SA, Namibia and Canada.
The negotiations with De Beers have coincided with Botswana’s government concluding a partnership with Belgian diamond purchasing and refining company HB Antwerp, which set up an office in Gaborone in December.
The Botswana government owns a 24% stake in HB Botswana, HB Antwerp’s first diamond manufacturing facility outside Belgium.
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