Botswana has secured an unprecedented 50-50 split in its diamond riches that will kick in 10 years from now following “highly complex” negotiations with mining giant De Beers.
Under an in-principle agreement reached last weekend, Botswana’s share in the partnership immediately rises from 25% to 30%, and De Beers obtains an extension of Debswana’s mining licence to 2054.
De Beers CFO Sarah Kuijlaars said the licence extension was a confidence-boost for a stable longer-term flow of diamonds.
“We have now provided stability for the industry and are continuing our leadership role. Ultimately, consumers will have the confidence, when they make the special purchase, they understand the journey from the mine to the finger,” she said.
Debswana, which mines and markets rough diamonds from Orapa, Jwaneng, Damtshaa and Letlhakane, is jointly owned by De Beers and the Botswana government.
Kuijlaars said the negotiation process had been extremely complicated. “We have been involved in it for many months and many years, because it [the agreement] covers the sales agreement. It is hugely complex. Covid interrupted the ability to meet face-to-face, and the complexity of the negotiations does not allow doing it over [Microsoft] Teams.”
She said De Beers wanted to ensure the government’s share of the diamond pie was enlarged in a “measured” way.
The sight-holders have invested huge amounts of money in the country, into local beneficiation factories, and we all have a shared interest in securing the continued success of the beneficiation factories
— De Beers CFO Sarah Kuijlaars
“The sightholders have invested huge amounts of money in the country, into local beneficiation factories, and we all have a shared interest in securing the continued success of the beneficiation factories.
“We are also continuing to support Botswana’s involvement in the whole value chain. It’s not just the cutting and polishing but also moving into manufacturing of jewellery, we will do that in partnership with players in Botswana.”
As part of the previous 2011 sales agreement, De Beers relocated its trading activities from the UK to Botswana, so its clients now travel to Gaborone for the sightholder sales rather than London.
The deal will also see De Beers setting up a 1bn pula ($750m) “diamonds-for-development” fund to boost the Botswana economy.
Kuijlaars said the next step for the new agreement was to obtain the approval of Anglo American shareholders.
Ben Davis, an equity research analyst focused on mining at Liberum Capital, said: “It certainly appears that Botswana has got a better deal, but for Anglo American this looks increasingly like a noncore holding for them, given the challenges to the diamond sector and diminishing economics of the partnership.”
Securing a more favourable deal for Botswana has been an key objective for President Mokgweetsi Masisi since he was elected in 2019. His Botswana Democratic Party (BDP) has been in power since independence from Britain in the mid-1960s.
Under the previous agreement, De Beers took 90% of the rough diamonds produced while Botswana received just 10%. However, in 2020, Masisi’s government pushed for Botswana’s share to be increased to 25%, which has now risen to 30%.
De Beers’s mining licence still had six years to run but minerals & energy minister Lefoko Moagi said it had been extended now because of the long time frames involved in mine investment.
“Everyone putting their money in those projects must be assured of the returns post the expiry of the mining licence [in] 2029,” he said.
Moagi said the Botswana government had “certain demands” in the negotiations. Top of the agenda was “to move away from the upstream side of the business, where we produce rough [diamonds], to ensure that we get into the mainstream, where we do the cutting and the polishing”.
The minister said it was important for Botswana to get into beneficiation as a finished product could carry a price tag six times higher than the value of the rough diamond it was made from.
He said as part of the De Beers agreement Botswana citizens would be empowered to take a greater role in the value chain, so that they would be able run the industry “even beyond De Beers”.
Asief Mohamed, chief investment officer at Aeon Investment Management, said the agreements were positive for both sides.
“This package of in-principal agreements will have a significant bearing on investment in Jwaneng and Orapa, including going underground,” he said. “This is probably the more important consideration as Anglo American probably has alternative higher-returning prospects, such as in copper mine expansion.”
Mohamed said giving a greater share of rough diamonds to the Botswana government would have little financial impact on Anglo American as margins on sales were relatively low.
De Beers also operates the Venetia diamond mine in Limpopo, and in Namibia it has a marine diamond recovery vessel, the $420m (R8bn) custom-built Benguela Gem. It also has interests in Canada.
Kuijlaars said the company was undertaking exploration activities again in Angola. “We have many global opportunities which we will pursue in addition to this milestone in Botswana we have just achieved.”
Kavis Kario, secretary-general of the BDP, said: “We are very elated because we have a visionary leader in our president... At the right time of our development, he has decided to take a direction that speaks to value-chain development.”
He said the revised agreement with De Beers “basically means we are now free to have relationships with other firms that would want to partner with us in [diamond cutting and polishing], with HB Botswana being in a better position because we have a relationship with them”.
HB Botswana is the local arm of HB Antwerp, a diamond trading and processing firm.
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