Gov't budgets P890m for HB deal
Mbongeni Mguni | Monday February 12, 2024 06:00
While Finance Minister Peggy Serame revealed on Monday that the HB deal was one of three strategic acquisitions government was budgeting for in the 2024–2025 financial year, she did not give specifics of the amounts involved.
However, the draft budget estimates published indicate that government intends to pay P890 million or $65.1 million for the stake in the Belgian diamond trader.
In her budget speech, Serame said the deal was of strategic importance to the country.
“The acquisition demonstrates government’s commitment to investing in strategic assets for furtherance of socio-economic development,” she said, speaking broadly about the three acquisitions.
Besides the HB Antwerp deal, government has also budgeted P1 billion to acquire 45,000 hectares of land from the Tati Limited Company and another P750 million for a partnership with CTL Amedica, an American medical device firm that last year pledged to establish in Botswana.
The setting aside of funds for the HB deal marks a major milestone for the long-drawn-out negotiations between government and the Antwerp-based firm.
Initially announced by President Mokgweetsi Masisi in March during the opening of HB’s local facility, the deal involves Botswana taking up 24% equity in the private company and granting it the right to purchase 10% of state-owned Okavango Diamond Company’s (ODC) production for five years.
The volume of stones under the deal is estimated at 600,000 carats, although this is due to increase this year in line with the terms of the ODC’s growing allocation from the new deal with De Beers.
HB Antwerp’s bargaining chip is that it purchases rough diamonds from producers based on estimated polished prices, rather than the industry standard of using rough diamond values. The proposition has proved attractive to government which is pushing for greater value addition in the precious stones beyond mining.
According to HB Antwerp, “the projected polished price is determined using state-of-the-art scanning and planning technology and is then adjusted through top-up payments based on actual polished sales, less a fee, and the cost of manufacturing”.
HB Antwerp’s first foray into Botswana was via a six-month deal with Lucara in 2020, later extended to 24 months and expiring in December 2022. Under the deal, all +10.8 carat diamonds from Lucara’s Karowe mine, which have historically accounted for approximately 60% to 70% of the company’s annual revenues, were sold to HB Antwerp at prices based on the estimated polished outcome of each diamond.
According to HB Antwerp, the arrangement resulted in 40% higher diamond royalties to the Botswana government in those two years.
A further 10-year deal between HB and Lucara was abruptly terminated last September, just nine months into the extension, with Lucara citing “material breaches of financial commitments”. Before that, the Belgian diamond trader was shaken after one of its co-founding partners initiated a lawsuit alleging he had been unfairly kicked out of the firm. The partner later dropped the lawsuit and was reinstated into the firm.
Masisi has kept faith in HB through its challenges, defending the planned deal from criticism that the Belgian firm was too young and untested.
“We are all saying it’s a young company, it’s only two years old, so what?” Masisi said last April at a ruling party press briefing. “When you look behind what makes that company, there are generations, loads of years of experience.
“The totality of the years of experience exceeds 100. “These are made up of founders of HB who come from diamond families themselves, their parents and in some instances, their grandparents were involved and these are companies that were there and they decided to form this. “It doesn’t lack intellectual capital, or technocratic capital or technological capital. “This company is solid and if you judge by the performance over the life of its existence, exceptional.”
He added: “Due diligence digs all these things out. “It’s a start-up. It’s smart to invest in a start-up that you have confidence in. “You stand to gain the most, fastest. “Why should you go and buy in a mature company? “You want profits, output from a company. “It’s just like with human species or animals; if you want children, you don’t start where the capacity has ended.”