The few main clauses of the deal made available this week show that between the heads of terms agreed upon last September, and the signing of the final deal this week, concessions were made between the two partners.
One key change is the timing of the phased increase in the allocation of 50% of Debswana’s output to the state-owned Okavango Diamond Company (ODC). In the September heads of terms, the increase in the ODC allocation from the current 25% to 50%, was scheduled to occur over the ten years of the deal.
However, the final terms revealed this week shows that Debswana’s allocation to the ODC will rise to 30% for the first five years of the new deal, then 40% for the balance. ODC will be entitled to 50% of Debswana’s production over a five-year extension period after the initial 10-year period, but this extension is dependent on “certain criteria” being met.
Officials have not disclosed what the criteria for the five-year extension to the deal are.
While the commitment for the Diamonds for Development Fund has largely remained unchanged between September and this week’s signing, more details or conditions appear to have been added. Under the original terms, the two sides agreed to establish a multi-billion pula Diamonds for Development Fund, with an upfront investment by De Beers of P1 billion. Further contributions over the next 10 years of the deal would be made that could total up to P10 billion, officials said at the time.
This week, the two sides added more detail saying De Beers has committed to an upfront investment of P1 billion and further annual contributions “from its dividends from Debswana, based on Debswana’s performance”.
Other points of the deal remain the same between the heads of terms in September and the signing this week, mainly around mining licence renewals, investment in a diamond jewellery manufacturing facility, joint exploration, establishment of a De Beers Institute of Diamonds grading laboratory and starting up a diamond vocational training institute.
While neither side has made any confirmation, industry analysts expect that the commitments to jointly fund major projects likely remained unchanged between the two periods.
Analysts told Mmegi that the leeway made in the final agreement was necessary given the prolonged downturn in diamonds and the impact it has had on De Beers as a commercial entity.
“The terms needed to take into consideration the depressed state of the industry and the need for De Beers to not only survive this period, but position itself for stability going forward,” a highly placed industry insider told Mmegi. “Ultimately, De Beers for all its stated good intentions in this deal, is a commercial entity that needs to make a profit for long term sustainability. “Instead, its underlying earnings for 2024 dropped to negative $25 million from a positive $72 million in 2023, which was also a very low figure. “You expect a company in that with so many uncertainties to then make a P1 billion commitment and also quickly cede allocation in its primary source market? “Even government as a shareholder in De Beers would realise that pressing the September terms would be killing the golden goose.”
The insider added: “The terms and their timelines are designed to ensure the agreement’s stability through this crisis, then allow it to deliver the transformation required in the next decade”.
Recently De Beers’ majority shareholder, Anglo American, wrote down the value of the diamond business by $2.9 billion, following a write down of $1.6 billion in 2023.
Anglo American, which hopes to sell its 85% stake in De Beers by the end of the year, has said the finalisation of the deal with Botswana provides the certainty needed for “De Beers' next chapter as an independent company”.
Commenting on the final terms yesterday afternoon, President Duma Boko, said the final conditions represented the nature of negotiations.
“In any negotiation there will be areas where you don’t get along, where people see things in different ways,” he said. “You start poles apart but you have to come closer to each other and as you do that, you lose something that you were holding onto. “Every negotiation is like that.”
Earlier in the week at the signing, Boko said a successful negotiation is one where the two sides walk away “both crying and laughing”.
The President added that the timing of the increase in the ODC’s allocations, including the move to 50% over the extension period, was designed to ensure that Botswana builds its own expertise and capability in marketing diamonds.
Other industry analysts have previously cautioned against a rushed increase in allocation to ODC, noting that while De Beers is cutting and polishing locally thus adding value before exporting, the state-owned diamond trader at present is shipping out its allocation without local beneficiation.
Analysts have also raised concerns about a sharp increase in output from two separate supply channels and the impact this would have in the cutting and polishing centres, as well as retail end, in terms of pricing and the “rarity” that underpins diamond marketing.
