ODC revenues pass $1bn; De Beers, gov’t wrangle

Mbongeni Mguni | Monday February 20, 2023 06:00

One of a kind: ODC is entitled to purchase up to 25% of Debswana’s production, which has included rare gems such as the Okavango Blue PIC: MBONGENI MGUNI

The revenues in 2022 were an all-time high for the ODC, the 11-year old wholly government-owned company that is entitled to purchase up to 25% of Debswana’s output. ODC was borne out of the 2011 negotiations between government and De Beers for a new sales deal, which saw the state successfully securing an agreement to establish its own diamond trading platform independent of the De Beers sales ecosystem.

The revenue performance in 2022 came off the sale of six million carats, ODC managing director, Mmetla Masire told BusinessWeek.

He said the revenues recorded last year were despite weaknesses in prices in the market.

“The diamond market started very strongly at the beginning of 2022, but after March we started to see the prices decline all the way until the end of the year, although they seem to have stabilised,” he said. “In our first auction this year, there was just a small increase in the margins and we believe we have plateaued and can expect an improvement in the second half of the year.”

Government and De Beers, who are 50/50 partners in Debswana, are finalising negotiations for a new deal that will govern sales from Debswana. The negotiations and the final deal are traditionally a closely guarded secret, but over the weekend, President Mokgweetsi Masisi, hinted that the two long-term partners were having difficulties.

“Support me and the minister and the Cabinet when we say that these diamonds, the revenues coming back to the country must be better, not meagre like they are,” Masisi said at a ruling party rally in Moshupa on Sunday. “Support us because this is the first time we are doing this and we are facing a giant of a company, not a small one. “It’s the first time it has been shaken like this. “These are our diamonds and we want a larger share for us, but through negotiations. “If it gets difficult and talks fail, we will have to say ‘let’s go our separate ways.’”

The two sides began negotiating in 2018 and have extended the existing deal several times since its expiry in September 2020.

Ahead of the new deadline of June 2023, government had said all but two “material issues” had been finalised.

One of these material issues could possibly be raising ODC’s entitlement from Debswana to more than 25%, a possibility Masisi hinted at in a joint press conference with Swiss President, Alain Berset.

Analysts have said raising the ODC’s allocation past 25% comes with its own challenges, as the state diamond trader has frequently struggled to meet the existing threshold. Last year, Masire told First National Bank Botswana’s post-budget briefing that the pandemic had constrained ODC from fully taking up its Debswana allocation.

However, since then, the ODC has expanded its trading platforms.

“This year we are exploring the possibility of having some contracts with other manufacturers/companies,” Masire told BusinessWeek. “Predominantly we will still be driving the auction platform but in terms of de-risking the business and diversification, we will possibly looking at other platforms for selling.”

The MD said while there was a possibility of a global economic slowdown, it appeared China was emerging from its COVID-19 lockdowns which would add momentum to the rough diamond market. China is the world’s second largest consumer of rough diamonds after the United States.

“Generally, the industry has bounced back very strongly post-COVID and we are happy as ODC that we have been able to show that we are structured in a manner that can withstand difficult times. “We are hoping going forward, ODC will be able to ride the wave of any further economic downsides,” he said.