The current sales agreement, which requires Debswana to sell all of its production via the Diamond Trading Centre (DTC) is just weeks away.
Already there is a Botswana version of “WikiLeaks” suggesting that the country was expected to continue selling its diamonds through De Beers' Diamond Trading Centre (DTC).
Citing information leaked from negotiations between De Beers and the Botswana government, a local paper, the Botswana Gazette reported that although the southern African nation would want to consider other sales options, it would remain “stuck” to DTC marketing route, at least for now.
Botswana Gazette reported that the negotiations had been conducted on the background that there was a suite of agreements — the Jwaneng lease agreement, the sales agreement and the DTC Botswana joint venture — that together govern the mining and sale of diamonds in the southern African nation.
The paper alleged that the arrangement would likely continue as it helped provide price stability in the market despite the shortcomings that had been identified in the past.
DTC had been found to be extremely high cost with an effective commission rate of 12.5 percent (including broker fees), Botswana Gazette reports.
The paper also reported that Botswana had been advised not to open an independent (non-DTC) market window in the short term.
Opening a non-DTC market window would exacerbate the fall in rough diamond prices and could also cause damage to the long term value of diamonds, the paper reported.
DTC, which sorts, values and sells approximately 40 percent of the world’s rough diamonds by value and 75 percent by volume stopped buying diamonds in the open market in 1999 in favour of rough diamonds from De Beers operated mines.
The paper further claimed that it was suggested during the talks that any move to set up a new sales agreement would destabilise De Beers at a time when it was financially weak.
De Beers’ net profit during the first half of 2009 tumbled 99 percent to $3 million from $316 million a year earlier while sales of unpolished diamonds fell 57 percent to $1.4 billion.
The fall in profits was a result of the global economic downturn that ravaged the diamond industry forcing demand and prices of gems on a downward trajectory.
It had cut its production as consumers conserved their cash for more routine expenditures.
However, the diamond giant posted a jump in first half net earnings after one-off items to $255 million from $3 million during the same period in 2009.
One of the issues the paper said was a bone of contention during the discussion was that of the DTC price book.
Botswana was of the view that the price book undervalued diamonds from Debswana.
Conversely, De Beers said that this argument stemmed from an incomplete understanding of the price book.
De Beers’ Head of Media Relations Lynette Gould had also told Rough & Polished last November that it had an “excellent” track record of achieving the “best” long term, sustainable price for its diamonds and it was entirely within De Beers’ commercial interests to achieve the best prices for the products it sells.
The reports, if true, that Botswana will continue with the current sales arrangement would not be that shocking, looking at statements made by De Beers officials a couple of months ago regarding the sales arrangement.
One could deduce the confidence that De Beers exuded over the talks by merely reading what the group executive director, Stephen Lussier said earlier in the year.
He said De Beers had a long term relationship with the government of Botswana and did not think that the negotiations would be about undermining the DTC Botswana, which both parties had set up together.
“If we do that then I am sure De Beers will lose out in one way and government will also lose out in another way,” he said.
Gould was second to display the group’s confidence in a possible return of the current arrangement, but slightly adjusted.
She told Rough & Polished that the more successful De Beers was as a business, the greater the ability of Botswana to achieve its development goals.
Botswana had a 15 percent stake in De Beers, 50 percent in Debswana, and 50 percent in DTC Botswana.
She said over 80 percent of all income realised by Debswana was channeled into the government’s revenues, making it the single most important source of financing for government-led development efforts in Botswana.
Gould also noted that De Beers “understood” Botswana’s desire to develop a downstream diamond industry and would work with the government to achieve this in such a way that was beneficial to all parties.
“However, we will of course, look to have full and frank discussions with our partners to ensure that we are all satisfied with how we progress the partnership,” she said.
We now wait for the official communication on the sales agreement with a bated breath.
Mathew Nyaungwa, Rough&Polished, from Namibia
