Debswana unfazed as diamond market slumps
Mbongeni Mguni | Friday August 9, 2019 14:59
Debswana is the world’s largest producer of diamonds by value and a key economic entity, contributing about a fifth of the gross domestic product (GDP) and about two thirds of foreign currency revenues.
De Beers, which holds 50% equity in Debswana alongside government, has recently noted a slump in sales of rough diamonds due to high inventory levels in the market’s midstream, a segment that includes cutting and polishing firms as well as jewellery manufacturers.
While De Beers revised its 2019 production target down to 31 million carats, from an initial forecast of up to 33 million carats, Debswana, which annually produces up to two-thirds of De Beers’ output said it was holding steady. Earlier in the year, the local diamond giant unveiled a target of 24 million carats for 2019, marginally down from last year.
“It should be noted that the De Beers Group’s production guidance for the year was initially set to be in the range of 31-33 million carats and has recently been revised down to the bottom of this range at 31 million carats.
“Therefore, the production guidance for the year remains within the initially guided range.
“As such, 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 group’s corporate affairs manager (external communication), Agatha Sejoe said in a written response to BusinessWeek.
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.
BusinessWeek is also informed that Debswana’s maintenance of its production despite De Beers’ reduced target could be due to the fact that other De Beers mines in South Africa are expected to lower their production.
Sejoe said Debswana was closely monitoring trends in the rough diamond market and was confident it had the plans to cope.
“We remain positive because the robust business plan that we have in place and strategic management of our operations, enable us to handle ebbs and flows in demand for rough diamonds,” she said.
De Beers, which holds 10 auctions each year for a select group of buyers, said it had allowed its clients to defer some of their allotted purchases to later auctions, in light of the midstream bloating. De Beers’ auctions are held in Gaborone, with the buyers flying in from across the world.
Local economy and policy consultancy, Econsult, said the latest trends would further strain the country’s budget.
“Revenues have been in structural decline for several years, relative to GDP, and weak diamond sales will make it difficult to achieve the 2019-2020 revenue targets set out in the February 2019 Budget,” Econsult researchers said in a recent commentary.
“Looking further ahead, some very large investments are required to extend the productive lives of the major diamond mines at Jwaneng (Cut 9) and Orapa (Cut 3). These investments will reduce government mineral revenues in the short-run, although by extending the period of diamond production will increase revenues over the longer term.”