DTC sightholders perturbed as market opens up

MBONGENI MGUNI
Staff Writer | Friday July 16, 2010 00:00

The 16 diamond cutting and polishing firms are Diamond Trading Company Botswana (DTCB) sightholders with exclusive rights to all production from Debswana. However, the entry of production from Firestone's BK 11 Mine near Orapa and forthcoming supply from African Diamonds AK6 has unruffled monopoly feathers. Sightholders who spoke to BusinessWeek on condition of anonymity this week said while there was high interest in the industry to tap into Firestone and African Diamonds' supply, legal grey areas still existed in terms of the sightholder contract with DTCB.

The local firms are representatives of their international parent companies who actually sign the sightholder contracts with De Beers, a 50 percent shareholder in DTCB, alongside the Government of Botswana. 'Most are seeking clarification on the sightholder contract to see whether it allows them to tender for the production that will soon be coming through from Firestone and African Diamonds,' said a representative at one of the sightholders.

'This issue is highly sensitive because it has been the subject of legal battles between De Beers and sightholders over the years. The European Commission has infact had to come in and hand down judgement in these anti-competition cases where sightholders have argued their right to purchase rough diamonds outside the De Beers production line.'Exuberant African Diamond officials, whose mining licence allows its joint venture with Lucara, Boteti, to sell AK6 production on an open tender system, recently said they had received high interest from diamantaires for the mine's production.'We have been awarded a 15-year mining licence and the diamond marketing terms in the licence have been agreed, allowing Boteti to sell its entire production of diamonds through an open tender process and/or negotiated exclusivity contract, subject to valuation by the Government Diamond Valuer,' said African Diamonds Managing Director, James Campbell.

On Tuesday, Firestone officials said the terms of the mining licence awarded to BK11 allowed it to sell production by open tender in Botswana, with approval for tenders to be run outside Botswana up to December 2013 with possible extension to December 2015.

While the news should come as a godsend for the local mining industry, its players are wary of losing the established, high quality supply from DTCB, the sole marketer of Debswana production.'While everyone is interested in sampling the quality coming out of BK 11 and the quality that is due from AK6, it is critical that one does not offend the existing supplier, which is DTCB and De Beers in effect,' another source explained. 'It is essential that we study the terms of our contracts with De Beers but even then there are other considerations.'

These other considerations include the fact that as new supplies compete with Debswana's production, this could lead to a dampening of gemstone prices. The situation could be worsened by the limited capacity local cutting and polishing firms have, which will be tested by the higher volumes coming through from DTCB and newer mines.

Sightholders are concerned that any push for supply from the new mines could be interpreted as a show of disloyalty and result in the non-renewal of contracts, which come up for review in March 2012. 'Another point to remember is that the production from the new mines may not be of the colour, quality or size that we would like,' said an industry insider. 'In which case, the idea of any type of friction with De Beers will vanish.

'If a company specialises in a certain quality of stones and these mines cannot produce that, there will no be issue with De Beers. However, there should not be any problem in the first place because these are business transactions where the idea is to lower procurement costs without compromising quality.

'But it's a bit early for detailed discussions of the new mines' impact because we are not sure what their production figures and quality will be.' De Beers Botswana officials had not responded to questions at the time of going to press.