[miningmx.com] — IN A massive shake-up of the diamond industry “status quo’ De Beers is to relocate its entire London-based diamond sales operation to Botswana’s capital Gaborone by the end of 2013.
Many of the staff of the Diamond Trading Company (DTC) – the group’s marketing arm – will relocate to Gaborone while the international “sightholders’ who fly to London 10 times a year to buy diamonds from De Beers will now have to fly to Botswana.
In return, De Beers has secured a ten-year contract for the continued sales of diamond production from Debswana – the 50/50 JV between De Beers and the Botswana government which accounts for some 70% of the group’s production.
That’s double the usual five-year period for which previous marketing agreements were struck.
De Beers chairman Nicky Oppenheimer said at a signing ceremony held in Gaborone on Friday that “Botswana has preserved and enhanced a highly successful route to market focused on maximising the value of her natural resource”.
“De Beers has secured long-term and uninterrupted access to the largest supply of diamonds in the world.
“This is a once-in-a-generation opportunity for Botswana and De Beers to shape the future of the diamond industry. Together we will create the world’s greatest diamond hub.’
Cynthia Carroll, CEO of Anglo American which holds a 45% stake in De Beers, said “we believe in diamonds; we believe in this agreement and we are very happy to be here. Our stake in De Beers is very much a core asset.’
Botswana’s strategic aim is to maximise the benefits the country receives from its diamond industry. The intention is to position Botswana as the world’s leading hub for rough diamond sales as well as the cutting and polishing of the rough gems and the manufacture of diamond jewellery.
While both Oppenheimer and Botswana’s Minister of Energy, Minerals and Water Resources Ponathshego Kedikilwe expressed satisfaction with the new contract, it would appear that Botswana has gotten the best out of the agreement.
Oppenheimer said “the negotiations were tough and tensions did arise but this is an agreement which we feel is fair to both sides.”
De Beers executives reckoned the financial impact of the deal on the group’s profitability was neutral but said details were confidential.
The outcome goes way beyond the previous agreement struck between De Beers and the Botswana government for the group to bring all its international production to Botswana to be “aggregated” and prepared for sale before being flown to London.
Kedikilwe pointed out that one of the benefits from the new arrangement was that around $6bn annually was going to be chanelled through Botswana’s banking system.
“We hope to establish here within the next 10 years something that will be better than Antwerp.’
MARKETING
Botswana has also achieved another strategic aim it has long cherished which is the right to market diamonds independently of its partner.
From this year the Botswana government will be able to sell through its own marketing channels 10% of the run-of-mine production from Debswana and this will rise to 15% over a five-year period.
Kedikilwe said this was aimed at improving the Botswana government’s understanding of the marketing side of the diamond business as well as “verifying’ the sales processes carried out by the DTC.
“From the De Beers side we welcome this because anything that gives confidence in the prices paid is something that De Beers is completely in favour of,” said Oppenheimer.
The issue was a serious bone of contention some ten years ago prior to the business makeover that De Beers went through, because some in the Botswana government felt they were not getting a fair deal selling the country’s diamonds through the De Beers system.
At a press conference held after the ceremony, Kedikilwe said the negotiations had been extremely tough but denied that the Botswana government had “twisted De Beers’ arm’ to get what it wanted.
“We are skilful enough not to have to do that. That’s not in our interest. We indicated the importance of the long-term relationship ensuring confidence in the industry,’ he said.
Botswana holds a hugely powerful position because its three mines – Jwaneng, Orapa and Letlhakane – account for the bulk of De Beers production.
They produced nearly 70% of the 33 million carats that De Beers produced in 2010 and their role is crucial given predictions of a looming diamond supply crunch.
Demand for diamonds is booming but no major new diamond mine has been discovered during the past 20 years and, were one to be found today, it could take up to 10 years before production from that mine reaches the market.
Oppenheimer said he believed De Beers’ sightholders would be “delighted’ to come to Botswana instead of London and he hoped they would take holidays while in the country and so boost the local tourist industry.
