Debswana output steady despite faltering demand
Mbongeni Mguni | Monday October 28, 2019 18:00
De Beers, which owns 50% of Debswana alongside government, has thus far recorded year-to-date sales of $3.21 billion compared to $5.39 billion and $5.31 billion by the same time in 2018 and 2017 respectively.
Rough diamond sales for the year have encountered severe difficulties owing to high levels of inventory in the midstream, where manufacturers are also struggling to secure credit.
A third quarter production update by Anglo American released on Tuesday shows that Debswana’s output for the year up to September 30 remained largely in line with its stated target of about 24 million carats for 2019.
Anglo American holds 85% equity in De Beers, with the Government of Botswana holding the balance. Debswana, meanwhile, typically accounts for more than 70% of De Beers’ production.
Anglo’s figures show that for the year to September 30, Debswana dug up 17.4 million carats in rough diamonds, down two percent from the amount mined over the corresponding period last year.
Production at Debswana kicked off the year at about six million carats in the first quarter, dropping to 5.72 million and 5.7 million in the second and third quarters respectively. De Beers has a policy of mining to demand and minimise stockpiles, a strategy adopted after the rough diamond demand collapse triggered by the global recession in 2009.
In its update, Anglo indicated that while Debswana production was flat in the third quarter, its overall output across operations was down 14.7%. “This was due to planned reductions in South Africa and Canada,” the update reads.
“In addition, we continue to produce to weaker market demand due to macro-economic uncertainty as well as continued midstream weakness.” De Beers revised its 2019 production target down to 31 million carats, from an initial forecast of up to 33 million carats.
Debswana, however, said it would maintain its production guidance of 24 million carats and as such did not expect the slump to affect jobs at its four operating mines.
Analysts said part of the reason Debswana could maintain its target was because the reduction in De Beers’ production will come from mines outside Botswana, as seen in the planned reductions in SA and Canada in the third quarter.
“The production guidance for the year remains within the initially guided range,” Debswana officials told BusinessWeek previously.
“Debswana has not changed its production plans, but as always retains the flexibility to adjust production up or down as per prevailing demand conditions.”
The ‘flexibility’ stems from the tailings plants at Jwaneng and Letlhakane, where Debswana extracts the precious stones from large diamond-bearing dumps built up from previous decades of mining with inferior technology.
Should Debswana be required to reduce its production, it uses the tailings plants, rather than its major mines at Jwaneng and Orapa.
The Finance Ministry, meanwhile, has revised the projected budget deficit for the current fiscal year from P7.3 billion to P7.8 billion on the diamond slump and warned that final figures could be worse.
“Should the situation persist, it may pose further risks to the domestic revenue outlook, as it would affect the growth in mining value added and a spillover to other sectors that depend on mining activities such as manufacturing and finance business services, which include diamond cutting and polishing as well as sorting and valuation,” reads a blueprint for the 2020-2021 budget released recently.