The government of Botswana and De Beers are currently negotiating mining licences at the same time they are negotiating a new marketing and sales agreement.
The marketing agreement has already been postponed three times, amid speculation that Gaborone is looking to change the structure of its partnership to generate more revenue.
Through the state-owned Okavango Diamond Company, the government currently receives 25% of Debswana goods for independent sales.
President Mokgweetsi Masisi was quoted earlier this year as saying that his government wants a larger share of local output and that it is prepared to leave the talks if its demands are not met.
Independent diamond industry analyst Paul Zimnisky told Rough&Polished’s Mathew Nyaungwa in an exclusive interview that Masisi’s threats were mere posturing as the relationship between Botswana and De Beers is “too big to fail”.
NB: Zimnisky publishes a professional monthly subscription-based industry report called “State of the Diamond Market” that includes all of his data, forecasts and analysis.
He also publishes a rough diamond price index.
Below are excerpts from the interview.
What is your opinion on reports quoting President Mokgweetsi Masisi as saying that the Botswana government wants a larger share of local diamond output or that it may end discussions with De Beers if its demands are not met?
I do think there is some posturing going on regarding some of the sound bites. That said, Botswana has historically been a hardline negotiator and there is a lot at stake for both sides. Remember that these negotiations are two-pronged and include the 10-year marketing agreement and also the 25-year mine license agreement.
But, all in all, despite how long and drawn out the negotiations have been so far, I would be quite surprised if a deal is not struck this year. I think the relationship is “too big to fail” for both sides.
How far can De Beers concede to the Botswana government’s demands?
From De Beers’ standpoint, I think they genuinely believe that the current agreements are balanced and fair and that there is not a lot of room for further concessions. Further, De Beers soon needs to make multi-billion-dollar capital commitments to extend the life of both the Jwaneng and Orapa mines, so they understandably want a long-term agreement to be sorted out beforehand. So again, a lot is at stake.
What effects do threats to dump De Beers have on the country's investment climate?
Again, I see this as mostly posturing. I think behind the scenes the negotiations are probably constructive and mostly cordial. The relationship between the two parties is probably one of the best in all of mining (between a corporation and a government). I do think they value each other and appreciate the larger relationship. Although these are long, complex agreements, so by nature there is always going to be a lot to sort out.
I think when this is said and done Botswana will remain one of the best justifications in Africa to do business. To put this in context, look at what happened in Tanzania with Barrick Gold a few years back and what is happening today in Chile with lithium. In contrast, the government of Botswana has a history of standing strong for its people, but at the same time seems to understand the value of foreign and private investment. There is always a healthy balance, and Botswana seems to get that.
How would the country's economy be affected if South Africa, Namibia, and Canada demanded an end to diamond aggregation in Botswana?
Botswana has the most leverage because the assets are so good. For example., Jwaneng alone produces 17% of the global supply by value and 10% by volume. That's hard to match.
Botswana presently obtains 25% of Debswana's output for independent sale through the parastatal Okavango Diamond Company. What do you think Botswana will get out of the ongoing negotiations?
I think Botswana has been very clear about wanting more transparency in rough pricing and wanting to expand beneficiation. However, diamonds as a commodity are unique, though, in that there are 10,000 different categories of rough, so the way that De Beers currently sells, via contract, exists for a reason. I would guess that there is more room in the negotiations for further beneficiation than for more independent sales volume. But there is probably going to have to be some give on both sides.
If Botswana receives a larger stake than the present 25%, how would this affect De Beers' future negotiations with Namibia?
The production volume out of Namibia is quite small compared to that of Botswana. That said the offshore production business in Namibia is very good and the diamonds are quite special. But, I don't see the negotiations between De Beers and Botswana having a big impact on the relationship between De Beers and Namibia, which appears quite strong.
The government of Botswana revealed late last month that it is planning to purchase a 24% share in a three-year-old entity called HB Botswana. How will this benefit the country?
I think Botswana sees this as a way to check the “additional price transparency box” while also providing value beyond the upstream segment of the business, which is beneficiation. At the end of the day, this relationship (and financial stake) is rather small compared to that between De Beers and Botswana. However, Botswana probably sees this as a way to diversify its relationships a little bit. Further, HB said they will be hiring upwards of 500 people as part of the venture. If they follow through on that, it would provide a nice boost in more-specialised domestic employment.
Mathew Nyaungwa, Editor in Chief of the African Bureau, Rough&Polished
