Spotlight on profit split in gov't, De Beers' talks

Jwaneng Mine's expansion will the world's deepest diamond mine
Jwaneng Mine's expansion will the world's deepest diamond mine

De Beers could “comfortably and profitably” run on a 97:3 % profit split with the Government of Botswana (GoB), high-level sources have said, as both parties prepare for the July start of negotiations towards a new sales agreement.

The current profit split gives Botswana 81% of earnings from Debswana and the De Beers the balance, through taxes, royalties and dividends.

At its heart, the sales agreement between De Beers and GoB governs the conditions around the sale of diamonds from Debswana through the De Beers process. The last such talks, concluded in September 2011, delivered by far the best deal for Botswana, with the migration of multibillion US dollar diamond activities from London to Gaborone. The deal also secured an independent pricing avenue for Botswana, via the establishment of the state-owned Okavango Diamond Company, which last year posted record sales of US$567 million.

The agreement before that, in 2006, saw Gaborone secure the establishment of the 45-million carat per annum Diamond Trading Company Botswana (DTCB).

The current agreement expires in September 2020 and ahead of that, both sides have established five-member teams to work on their heads of agreement. While analysts have said declining resources at Debswana’s mines and the lucrative concessions already secured in previous agreements have weakened Botswana’s bargaining power, top government officials, including President Mokgweetsi Masisi, have said more ground is available for concession. This week, authoritative sources close to the latest developments said the current profit split would be a point of discussion in the talks.

“You have to know what you have (as a country), how much of it you have, what you are doing and what potential exists,” an insider told BusinessWeek. “For instance, we know that the bare minimum at which De Beers can continue to exist comfortably and profitably at a profit split of 97:3. However, we are partners.

“They could still exist but we are saying this is for all of us.” The insider added, “as our partners, they have developed advanced technology even the type that detects natural diamonds from synthetics, which is their leverage.  “When we say negotiations, it means you talk about these things”.  Traditionally, the negotiations between De Beers and government are cloaked in official secrecy, with announcements only made at the very end. However, BusinessWeek has also been able to establish that besides the profit split, talks could also focus on greater access by Botswana to the DTC price book, De Beers’ prized trade secret. The price book contains metrics De Beers uses to set the value of each mines’ production.

Despite the secrecy, Masisi and other top officials have made limited statements on government’s broad goals. In May, the President stressed that the negotiations would be about extracting greater value from diamonds for job creation and development in Botswana. The Minister of Mineral Resources, Green Technology and Energy Security, Eric Molale, who leads the local negotiating team, reprising his role from the 2011 agreement, previously told BusinessWeek that the partnership would be preserved even at the height of the talks.

“As partners in this industry, it would shock the world if we were to part; the diamond industry would never be the same again. “We need each other in this journey and we shall remain steadfast as the two parties for a win-win situation.”

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