The cash-strapped government has agreed to spend US$150 million((P1 billion) in helping to cut De Beers' debts which currently stand at $3 billion.
According to a statement from the mining company, Government and the two other shareholders in De Beers, Anglo American Corporation and the Oppenheimer family, have agreed to pump US$1 billion(P6.7 billion) into the company through a rights issue as additional equity capital in proportion to their existing equity holdings in the company.
Government has a 15 percent stake in De Beers, while Anglo American Corporation and the Oppenheimer family hold a 45 percent and 40 percent stake respectively.
"De Beers is pleased to confirm that the shareholders of the De Beers Group being Anglo American Corporation plc, the Oppenheimer family and the Government of Botswana agreed to subscribe for additional equity capital of US$1 billion in proportion to their existing equity holdings in the company.
"The shareholders of De Beers, including the Government of Botswana have benefited significantly from the investment in the De Beers Group. For instance, as at November 2009, the Government of Botswana had earned in excess of US$507million (BWP3,5 billion) in dividends from its investment," said a statement from De Beers Botswana
The decision to bail out De Beers comes at a time when government itself is heavily in debt having posted a P13.39 billion budget deficit last year and expect to borrow a further P12 billion this year to finance both its recurrent and capital obligations.
The P1 billion rights issue comes after government again gave a P570 million shareholder loan to De Beers, according to the 2010/11 national budget statement presented by Finance Minister Kenneth Matambo to parliament last Monday.
However, it is still unclear how Government is going to fund this rights issue as the obligation was not factored into either the 2009/10 or the 2010/11 national budget.
Asked to comment on the source of the funds, Permanent Secretary in the Ministry of Minerals, Energy and Water Resources Gabaake Gabaake could only confirm that the funds are supposed
Meanwhile, De Beers last week announced their results for the year ended December 2009, in which the company posted a net loss of $743 million in 2009, compared with net earnings of $90 million for the previous year.
Group sales fell 44 percent to $3.84 billion, with rough sales conducted through the Diamond Trading Company (DTC) down 45 percent to $3.24 billion.
"The combination of three principle factors - high stock levels throughout the diamond pipeline, constricted liquidity in the industry and lower levels of retail and consumer demand - led to substantially lower demand for rough diamonds," De Beers MD Gareth Penny said in a statement released on Thursday.
The company says in spite of exceptionally difficult trading conditions, which saw sales decline from US$6.89 billion in 2008 to US$3.84 billion in 2009, De Beers exceeded its cost-reduction targets, enabling the company to remain cash positive for the year. Looking into the future, De Beers say that Demand for rough diamonds has been much improved at the first Sight of the year and expectations are for this to continue in the upcoming February Sight.
"However, De Beers will continue to take a cautious and prudent approach to production and sales levels for 2010. Consumer demand for diamond jewellery is beginning to recover, driven in part by the strength of the developing markets of China and India.
"However, with the fragility of the world economy and perceived weakness of the global recovery post recession, the company would only expect a gradual increase in production levels, sales and prices.
"Desire for diamonds remains strong and, given the improvement of industry fundamentals, the Directors are cautiously optimistic about medium-term prospects," says the mining giant.