[miningmx.com] – De Beers Group CEO, Philippe Mellier, said he was
confident the company’s 76 accredited sightholders would continue to buy
unpolished goods from it once it had fully moved its $6bn per year international
sales activities to Botswana capital Gaborone, expected in the latter half of 2013.
“At the end of the day what we have to sell is important to the diamantaires. I’m
pretty sure all of them will be coming here to buy,’ Mellier said. He was speaking at
the launch of De Beers sales division Diamond Trading Company’s (DTC’s)
aggregation facilities in Gaborone. The DTC’s sales comprise about 40% of world
diamond sales.
Aggregation, where De Beers’ international diamond production is mixed or “rolled’
into boxes which are then supplied to sightholders, is a crucial step of the migration
of the DTC activities to Gaborone. The first of some 85 formerly UK-based diamond
sorters have also made the trip out to Botswana, some on five-year contracts.
The migration process will be completed next year when the boxes are aggregated
and sold in Botswana. Currently the aggregated boxes are being shipped to London.
There are ten sights per year, with sightholders hailing from locations as diverse as
India, China, the US and Europe.
The relocation of the DTC’s sales process has been years in the making and stems
from negotiations for a 10-year diamond supply agreement between Debswana,
which is 50% owned by the Botswana government, and De Beers.
Asked if the DTC would have been unilaterally relocated to Botswana if it hadn’t
been a flywheel in the Debswana supply agreement, Varda Shine, CEO of DTC, said:
“I think host countries are increasingly asking for more in all minerals. We were
ahead of the curve and had actually been thinking about such a move for years’.
As part of the supply agreement, Botswana has formed a state-owned diamond
trading company – Okavango Diamond Trading Company – that would buy, market
and sell 10% (rising to 15%) of Debswana’s $3bn/year gem production, equal to
about $300m worth of diamonds annually.
The sale of rough diamonds is expected to stimulate the local hospitality industry in
Botswana, while the establishment of financial services companies in Gaborone,
principally to support the buying activities around the sights, will create more of a
buzz in Botswana the economy, which turns heavily on the fortunes of diamonds.
Shine said Botswana and Gaborone in particular would be indistinguisable from the
place it is today.
Ponatshego Kedikilwe, Botswana’s Vice-President and Minister of Minerals, Energy
and Water Resources, said a number of banks had also signalled their intention to
establish bases in Gaborone, including ABN Amro, a long-standing lender to the
diamond cutter/polishing business in Europe, and the Bank of India, among others.
A division of jewellery Tiffany & Co, already has cutting and polishing facilities in
Gaborone, and others were expected, although the proviso is that they supply to the
local Botswana cutting industry. Said Kedikilwe: “We would like to have
international diamond trade in Gaborone even after we have exhausted our own
diamonds.’
There has been speculation that the emergence of Botswana as a major diamond
hub would imperil South Africa’s local diamond downstream activities, but Mellier
said there would be no change. “There is no risk. In fact, we believe there will be an
overflow affect on South Africa’s industry and in Namibia as well,’ he said.
DIAMOND MARKET
Shine said that every sightholder had taken up the DTC’s somewhat unusual offer of
deferring half of payment for goods in the June sight to March. “Almost everyone
used it [the offer],’ she said in an interview with Miningmx. “As we’ve said,
there has been some stress in the market. That’s because last year’s growth was so
large,’ she said.
The outlook for demand, however, continues to be robust, according to Mellier. He
forecast demand growth of between 4% to 5% this year, notwithstanding a slowing
in the growth of China’s economy. This compares to 10% demand growth in 2010.
From a mid-term perspective, Mellier said diamonds was a growth industry. “There
has been a 30% decline in supply since 2007 and no new major diamond
discoveries have been made,’ he said.
He added that De Beers remained focused on internal growth, but was mindful of
potential merger and acquisition opportunities provided they had the appropriate
scale. “I wouldn’t close the door on it, but many boxes need to be ticked for us,’ said
Mellier. “We have more resources from Anglo American, but I don’t believe there is
especially more opportunity now than a year ago,’ he said.
Anglo American increased its stake in De Beers to 85% after buying the
Oppenheimer & Co 40% stake for $7bn earlier this year. The Botswana government
had a pro-rata pre-emptive right related to its 15% stake in De Beers but decided to
pass up the $1.25bn stake. “We didn’t have the budget for that,’ said Kedikilwe.
