ODC eyes 25% of Debswana output
| Friday June 20, 2014 18:32
As part of a 10-year agreement of 2011 with De Beers, the fledgling ODC currently has access to 14 percent of Debswana output (three million carats) being sold via auctions as Botswana seeks to develop its own price book through the independent window.
Speaking to a diamond magazine Jckonline during his recent visit to the USA, Minerals Energy and Water Resources Minister Kitso Mokaila said that their next negotiations with De Beers will determine how much ODC will get.
“If we feel ready and we (ODC) are getting there, we may demand more. Actually, it says in the sales agreement that if we don’t get an agreement, Okavango will automatically get 25 percent. But any agreement is dependent on the supplier and De Beers coming to agreement on something. We are also mindful of the fact that De Beers brings a lot of experience, about technology, about the fight against synthetics, and the technology that comes with that - it has penetration that is second to note,” said Mokaila.
ODC, which started operations last year, was established as a key part of Botswana’s plans to establish diamond trading and other diversified diamond-related activities in the country. According to a 2011 agreement, ODC sells government’s share of Debswana’s production, 10 percent of which was available retrospectively from the beginning of 2011. The share increases by one percent each year until it reaches 15 percent in 2016.
In the interview, Mokaila said that the ODC is equipping government with first hand experience of what actually happens in the market by eliminating the middle, De Beers. “As a producer, obviously, we have a long partnership with De Beers, and De Beers has basically been our way of taking our diamonds to market. We created ODC to learn how to bridge the gap between producers and consumers. That gap can only be bridged by understanding what the end user wants, what we as a producer want, and trying to find out what works for both of us. Basically, by eliminating the middleman.
“Analysts says it looks like the producers want to drive the price higher, while the end of the chain, the retailers, are saying the price is too high. One of the biggest risks is, you don’t want to price yourself out of the market. Therefore, bridging that gap is important for that understanding,” he said.
ODC buys partially sorted diamonds from De Beers Global Sightholder Sales (DGSS) and then sorts the goods into its own sales assortment before inviting its customers to view and purchase the stones through an auction process. On average Okavango sells about 250,000 carats of rough diamonds per auction with projected annual sales of about $400 million (P3.5 billion) and buyers from Botswana and all over the world can participate in ODC’s sales and access Botswana diamonds at market-determined prices.
ODC is this year planning to introduce fixed-term supply contracts in 2014 to become a direct competitor to De Beers.
Currently, the fledgling state-owned diamond company only sells through auctions. The decision by ODC to venture in contract sales will see the state owned company competing directly with De Beers, which sells 90 percent of its $6 billion a year supply to handpicked, contracted buyers (sightholders).