De Beers, govt agree 10-year diamond deal

Brian Benza
Staff Writer | Friday June 17, 2011 00:00

Government and De Beers are close to signing an unprecedented 10-year diamond sales and marketing contract that will set the platform for Botswana's transformation from a mere gem producer to a global diamond sales and distribution centre, sources close to the proceedings have revealed.

According to industry sources, lawyers for the two parties are fine-tuning the new diamond deal in London for the parties to put pen to paper in July when De Beers new CEO Philippe Mellier takes over.

The last agreement, under which Botswana sells all its diamonds from Debswana - worth about US$3 billion a year - to De Beers subsidiary, the Diamond Trading Company, expired last December.

For the greater part of the second half of 2010 and this year, negotiators have been locked in marathon meetings to craft out a new deal to replace it.

It has now emerged that unlike the previous agreements that spanned three or five years, a 10-year deal is in the making. The idea is to make DTC Botswana a more aggressive catalyst of beneficiation through the relocation of all aggregation activities to Gaborone.

More importantly, the new deal seals government's acquisition of an independent 10 percent marketing window that will increase to 20 percent over the lifespan of the new contract.

Renowned industry analyst, Chain Even-Zohar, told Mmegi in an interview: 'The heart of the contract-in-the-making, which will last until 2021, is in the annexes which specify local sales thresholds and beneficiation employment thresholds.

'In the new deal, I am told Botswana did not only manage to negotiate the 10 percent marketing window which up to now De Beers has steadfastly refused to give Botswana, but the window could increase to as much as 20 percent over the lifespan of the contract.'

A spokesperson for De Beers Botswana, Chipo Mrara, said the company was not in a position to comment on the negotiations, while efforts to get a response from government were also futile.

WikiLeaks documents recently suggested Botswana was eyeing a diamond-trading consortium comprising DeBeers, Anglo American and Namibia that would consolidate 30 percent of the global diamond trade in Botswana and in which government would hold an 80 percent stake.

The opening of the marketing channel would enable Botswana to better assess market conditions, enhance added value, move beneficiation forward and bring more skills to Batswana.

The enormous volumes unlocked by the window - between $300 and $400miliion worth of rough, on averagely - would also give government flexibility through pricing and distribution policies to ensure success of the country's beneficiation aspirations.

At present the 16 diamond polishing cutting factories, which will soon be increased to twenty, need about $800 million worth of supplies annually. When the window opens, Botswana will process about $1.2 billion locally. Said Even-Zohar:

'If the window grows over time, and if one also adds the present and future Firestone and Boteti productions, Botswana will indeed become a major rough manufacturing and distribution centre. Botswana will also enjoy the added advantage of providing diamonds from source.'

As part of efforts to turn Gaborone into a world recognised diamond centre, the government has already given the green light to Firestone and Lucara to sell part of their production from BK11 and AK6 mines by open tender outside the DTC framework. Firestone has carried out two tenders since December last year.

While it is still unclear how government will implement this window, Even-Zohar said in the Diamond Intelligence Briefs that more than ten companies had already expressed interest in partnering with government.

After the deal is signed, the Botswana Diamond Hub is expected to publish pre-requisites and other requirements for consideration to become a government partner in implementation of the window.

Relocation of aggregation activities to Gaborone, which was already agreed to in the previous contract, will be carried out gradually because it will require additional staff in Gaborone.

Aggregation currently takes place at DTC London, but the process was initially expected to move fully to Gaborone in the second quarter of 2009 as the last phase of the mining licence agreement.

However, De Beers stalled the process, citing the global economic crisis. As in the previous agreement, the government is expected to push De Beers to fulfil its beneficiation pledges by imposing penalties on the world's biggest diamond company if aggregation and/or other beneficiation terms do not come to fruition this time around.