Debswana cautiously optimistic in 2016
Brian Benza | Friday March 18, 2016 14:26
Briefing the business community on Wednesday, managing director Balisi Bonyongo said the ingestion in the diamond pipeline that crashed demand and prices leading to a 38 percent drop in earnings for the company last year, seems to be dwindling.
“Due to the challenging environment, we had to reduce production by 3 million carats from our target in 2015. Despite the sluggish demand, we did not cut our workforce as we redeployed the workers that were affected by the mothballing of the Damtshaa operation.
This year, we have seen improved sentiment as De Beers’ first two sights saw improved sales.
However, we will not be caught in the lull that there has been a complete recovery,” he said.
Last month De Beers, which sells about 85 percent of Debswana production to handpicked buyers, reported that rough diamond sales increased to $610 million in the second cycle of 2016 as demand continued to show signs of improvement.
Sales in the first cycle in January were at $545 million, more than double the sales in December last year.
According to Bonyongo, while production will remain flat this year, the company will focus its mining activities on core assets such as Jwaneng and Orapa No 2 plant and reduce operations at its low vales assets, which have lower margins.
Due to expected lower revenues, Debswana is also looking to improve operational efficiencies to cut both operational expenses as well as capital expenditure. Currently Jwaneng Mine alone uses 2.4 litres of fuel per month, a bill that Bonyongo said they were looking at ways of reducing.
“We are looking at things like the lifespan of tyres for our trucks. A single tyre costs half a million and we believe we can save a lot of money if we can extend the tyre lifespan from the current 4,500 hours to 6,500 hours,” he said.
From a high of 34 million carats in 2007, diamond production, which contributes just over 20 percent to Botswana’s GDP and 65 percent to foreign exchange receipts, has plateaued in the last few years as Debswana caps production to match weakening market conditions. In the medium to long-term, De Beers expects industry fundamentals to strengthen as global diamond production plateaus and demand continues to steadily increase.